Why Alternative Capital?

WASHINGTON — Among its many other provisions, the 1998 Credit Union Membership Access Act prevents federally insured credit unions from raising capital by any other means than retained earnings. At the same time, the law put into place a system of Prompt Corrective Action, which effectively set a 7% of assets floor for the vast majority of credit unions to be considered well-capitalized, a standard significantly higher than that set for other types of financial institutions.

The combination of the two, credit union executives and economists agreed, have effectively hobbled credit union growth by putting CUs into a straitjacket of capital standards that credit union history does not justify and does not give CU’s any more efficient means of handling them.

Critics of the current capital rules argue that they both prevent credit unions from serving people Congress mandated that they serve and force them to adopt even more conservative policies towards innovation of new products and services.