The NCUA board took another step in the right direction Thursdaywhen it conducted a briefing on supplemental capital. Extendingsupplemental capital authority to all credit unions has beendiscussed for many, many years, but today the first step was takento make this a reality, and we applaud the board for itsactions.

The expansion of access to secondary capital is long overdue forcredit unions. With the exception of low-income designatedinstitutions, credit unions are the only financial institutions inthe country that do not have access to secondary capital sources.As a result, they must rely primarily on retained earnings to buildcapital and grow their asset base, which presents a philosophicaldilemma.

Building capital through retained earnings requires creditunions to invest profits back into the cooperative, rather thanreturning them to members in the form of lower loan rates, highersavings rates, more services or annual dividend payouts. Choosingbetween growth or rates isn’t good for members or the long-termhealth of the institution. And, the third option – charging higherfees to boost income – is even worse.

Limiting credit union growth is a shame, because unlike banks,credit unions aggressively championed loans for low- andmoderate-income families and small businesses throughout thefinancial crisis. The fact that they did this despite having fewerbalance sheet resources is even more remarkable and should berewarded.

We strongly support the current ability of low-income designatedcredit unions to access permitted forms of supplemental capitalfrom non-member sources to accelerate the growth of their capitalbase, and subsequently, grow assets. Thanks to their work on behalfof American families and small businesses during the GreatRecession, their efforts to expand should be encouraged, notrestrained.

We also applaud the NCUA board for the work it has doneproviding credit unions with more opportunities to grow and managetheir balance sheets by finalizing a streamlined member businessloan rule, a new field of membership rule, and now consideringsecondary capital authority for the rest of the industry. Given theexpansion of member growth and rapid changes in the industry, manycredit unions have the potential to experience asset growth thatexceeds their retained earnings and should be provided theresources to do so.

As credit unions grow, more Americans will have the opportunityto take advantage of credit union membership, and the superiorservices the community has provided since the financial crisis.We’ve seen first-hand how access to supplemental capital helps ourlow-income credit union clients better serve their members. We hopethis critical balance sheet tool becomes available to all creditunions and the communities they serve.

We look forward to the NCUA’s advance notice of proposedrulemaking in January and will share our supplemental capital ideasand experiences to assist the agency as it develops its rule. Weencourage others in the credit union community to do the same insupport of the NCUA’s commitment to the success of America’s creditunions.

Robert Colvin is president and chief strategist at theAtlanta-based management consulting CUSO CU Capital MarketSolutions. He can be reached at 913-402-2616 [email protected].