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ALEXANDRIA, Va.-In official comment letters last week, CUNA and NAFCU backed NCUA’s proposal to allow low income credit unions to release funds in secondary capital accounts as they are discounted. At five years prior to maturity, the net worth value of secondary capital for LICUs is reduced 20% each year, and, under current regs, they cannot release it so it hurts LICUs’ capital position. “We support NCUA’s proposal to alleviate this problem by allowing LICUs to redeem the funds at the same rate they are discounted,” CUNA Senior Assistant General Counsel Jeffrey Bloch wrote. “This will allow LICUs to continue to serve predominately lower income members without the added concern as to whether this will adversely affect their net worth ratio.” NCUA’s proposal includes six conditions for redemption including that the institutions be `adequately capitalized,’ which CUNA asked be reconsidered to account for additional income and help in rebuilding capital that can come from redeeming the funds. Additionally, Bloch pointed out that the current regulation requires submission of a plan for liquidity when the funds mature to the regional director and state regulator. Under the proposal, LICUs would have to have the plan approved by the regional director and/or the state. “Although NCUA has cited instances in which several LICUs offering secondary capital accounts were liquidated or merged, forcing the National Credit Union Share Insurance Fund to absorb the losses, we do not believe this justifies the burden of imposing an approval requirement without more information that such a requirement would alleviate this safety and soundness concern,” he wrote. The proposal would also add a requirement that the proposed use of secondary capital is consistent with the LICUs strategic and business plans, which CUNA finds reasonable, and that the plan be supported and accompanied by pro forma financial statements, which is unnecessary. On the other hand, NAFCU supported the approval process. “NAFCU supports NCUA’s proposed approval process for the redemption of the discounted secondary capital accounts and believes an approved plan will more likely ensure the acquired capital is used for the purposes it was intended. Furthermore, the approval also will help ensure the safety and soundness of the credit union and prevent losses to the share insurance fund,” NAFCU President and CEO Fred Becker wrote

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