WASHINGTON – In what is being considered a major and necessary step in securing alternative capital reform for credit unions, representatives from the three credit union trade associations – CUNA, NAFCU, and NASCUS – sat down at the same table on April 2 to coordinate a strategy to pursue federal legislative reform proposals that will allow federally insured credit unions to count alternative capital toward their net worth calculation. The three-hour meeting was hosted by CUNA and held at the association's Washington office. An aide to Rep. Brad Sherman (D-Calif.) a member of the House Financial Services Committee who introduced a proposal in March as an alternative capital amendment to deposit insurance reform legislation being marked up, was considered the featured participant at the meeting. Also attending the meeting were representatives from the California, Ohio and Alabama leagues, and D. Michael Riley, a former NCUA director of examination and insurance who now runs his own consulting firm. Chris Kerecman, vice president of federal government affairs for the California Credit Union League said he considered the joint meeting of the trade associations "the most significant since they all met together on H.R. 1151." Kerecman, who was instrumental in organizing the meeting, said the Ohio and Alabama leagues were asked to attend because they are from the home states of Reps. Michael Oxley (R-Ohio), chairman of the House Financial Services Committee, and Spencer Bachus (R-Ala.), chairman of the House Financial Services Subcommittee on Financial Institutions, who also marked up the first version of the deposit insurance reform bill. Kerecman said he pushed "long and hard" for the meeting and encouraged representatives from all of the trade associations to get together at the same table to discuss the alternative capital issue ever since Sherman first decided in early March to introduce his alternative capital (CU Times, March 20). "The fact that the trade associations were willing to do this signals that the process is moving ahead, it's a positive sign," said Kerecman, who added that CUNA was the right trade association to host the meeting "because they can be most effective on the national level." Kerecman stressed that, "If we didn't have all three trade associations at the table, our chances for success would be basically zero. Our objective has always been to get consolidation in the credit union movement on alternative capital and bring all the trade associations to the table to discuss it. "Alternative capital is a complicated issue and the reform process is a complicated one," said Kerecman. "It's important that everyone agrees on the alternative capital reform language we choose to run with." In fact one important point that everyone in attendance agreed on, said Kerecman, was a clarification that all alternative capital would be non-voting and not dilute credit union membership in any way. John McKechnie, senior vice president of governmental affairs for CUNA said that has always been CUNA's position on what the structure of alternative capital should be. CUNA worked closely with the California League in getting Rep. Sherman to introduce his proposal. "Since we're in a recess period now, it's a good time to talk about the substance and politics of the alternative capital issue and discuss how we can advance it on Capitol Hill," McKechnie said. Kerecman said this was a major issue that needed to be addressed to move any legislation forward. "Once we get alternative capital legislation passed, then we can switch to NCUA to implement the necessary regulations," he said. Jim Blaine, president/CEO, State Employees Credit Union of North Carolina and chairman of NASCUS' task force on alternative capital, was one of the attendees at the April 2-meeting. He said alternative capital is not only a complex issue, it's also an emerging one "that takes awhile for credit unions to understand and appreciate the importance of." Blaine said the fact that the trade associations were able to sit down together and discuss alternative capital was a "good sign that everyone agrees alternative capital is an important issue for everyone to look at." NAFCU's Gwen Baker, director of regulatory affairs concurred. "Capital is an issue of great importance to NAFCU's member credit unions, so we were pleased to be a part of the meeting to discuss options and strategies." Baker attended the meeting along with NAFCU's Senior Vice President and General Counsel Bill Donovan, and Staff Economist Jeff Taylor. She said NAFCU "looks forward to continued discussions with all the critical players as this issue evolves." Based on discussions held on alternative capital at the NASCUS/NCUA Annual Regulators Conference held March 23-27 in Portland, Ore., NASCUS' Blaine said "there's an obvious need for further discussion of alternative capital issues." Within the state-chartered credit union systems, Blaine said surprisingly most of the confusion and questions are among SCCUs, not state regulators. Since many credit union state regulators operate in a combined credit union/banking department, Blaine said they're already familiar with secondary capital. "It's been used by the banking industry for years and shown to add to the safety and soundness of those financials. They've seen how secondary capital works and they're very familiar with it," said Blaine. In comparison, said Blaine, alternative capital is a "relatively new idea" for NCUA. Blaine said NASCUS' Alternative Capital Task Force plans to work to try to address SCCUs' concerns about alternative capital, and create a working model. Among some of the concerns Blaine has heard from SCCUs are: the alternative capital structure should not include voting rights. make sure alternative capital conforms with General Accounting Practices (GAP). make sure alternative capital is not presented as an effort to subvert PCA. should CUs be allowed to only sell retail to their members with the proper disclosures, or wholesale as well to other credit unions, corporates or outside parties as well? Regardless of how these issues are resolved, Blaine opined that alternative capital needs to be advanced on the federal level. "About 25 states already give credit unions the authority to issue alternative capital, the change needs to be done on the federal level," said Blaine. Kerecman is optimistic credit unions will see alternative capital reform before the summer. He said credit unions will know "in two to three weeks" if the issue will be resolved as part of deposit insurance reform. Otherwise they will have to shift their target to regulatory relief which Kerecman expects to see passed by the end of May. "We'll keep running with this as far as we can get," said Kerecman. McKechnie said CUNA is focused on those two pieces of legislation to move alternative capital reform. "We're not expending our energy beyond that. Those two pieces of legislation are in the pipeline now, and that's what we're focusing on." [email protected]