ARLINGTON, Va. — The credit union industry should be mindful as it seeks alternative sources of capital that such capital will carry burdens as well as benefits.
Speaking to a Feb. 9 meeting of the Metropolitan Area Credit Union Management Association, Richard Garabedian, a partner in the Washington law firm of Luse Gorman Pomerenk & Schick, observed that the industry and trade press sometimes looked only at the good that an alternative capital could bring and not enough at its potential drawbacks.
Garabedian started his talk by describing the ways credit unions that are designated as low income credit unions are able to use subordinated debt as a source of alternative capital and then offered a mini-tour of the other capital options currently being used by mutual thrifts and other banks-including the issuing of preferred stock by banks who have accepted government funds under the U.S. Treasury's Troubled Asset Relief Program.
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He emphasized that while each of these different options would offer credit unions a number of benefits, they would also carry costs in terms of the actual cost of servicing the debt, which may carry a relatively higher interest rate, to costs of complying with different government regulations that come with the debt to the costs of managing the debt.
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