WASHINGTON — A new proposal to have the federal government provide capital to community banks and credit unions could rely on a type of financial and regulatory instrument last used in the early 1980s.
The New America Foundation has proposed that some of the money set aside to help financially struggling banks also be provided to healthy community banks and credit unions through a Community Banking Trust Fund. The nonprofit think tank proposed that the economy would be better served by more and stronger community banks because the model of very large banks has been discredited in the current banking crisis.
To help provide more capital to credit unions, the foundation proposed possibly using Net Worth Certificates, a device which Congress authorized letting thrifts use in the early 1980′s as they were coming out of the Savings and Loan Crisis.
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Essentially, the Net Worth Certificate program allowed struggling thrifts to use what amounted to promissory notes from the Federal government (on which they paid interest) as capital for regulatory purposes even though they were not qualified as capital under accounting rules.
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