The National Federation of Community Development Credit Unions is investigating whether and how it could use a federal bond program to help CDCUs boost their secondary capital by possibly millions of dollars.
The Small Business Jobs Act of 2010 included a provision which allows the Department of the Treasury to guarantee bonds issued for economic or community development. The law allows Treasury to issue up to $1 billion per year in bond authority through Sept. 14, 2014. The minimum bond increments for the taxable instruments would be $100 million, but the guarantees may be structured to last as long as 30 years.
Credit unions that might eventually take part in the program would have to be recognized as Community Development Financial Institutions by the Treasury Department's CDFI Fund.
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National Federation CEO Cliff Rosenthal stressed the federation was only in the exploratory or preliminary part of a process to determine the rules that would be necessary to determine which credit unions, if any, might be able to participate in the proceeds of such a bond.
Currently, 200 credit unions have been recognized as CDFIs, according to the National Federation, and there is evidence of interest in such a program were it available.
Rosenthal pointed out that the Treasury Department made almost $70 million in secondary capital loans to CDCUs under its Community Development Capital Initiative and that many credit unions that wanted to participate in that program had been discouraged by the program's source of funds and extra requirements.
"There were any number of problems because the money came from TARP," Rosenthal said. "Both just because the TARP was controversial and because of some of the rules that came with it that just did not fit well with how credit unions are structured."
Should the program go forward, a third party, whether the federation or another, would act as an aggregator for CDCU capital needs and would issue the bond that the Treasury Department would guarantee.
Mark Pinsky, CEO of the Opportunity Finance Network, a leading backer of the legislation, praised the program's possibilities for CDCUs. "How important it is that CDCUs have access to the bond program, because they serve a market that is critically important and sorely underserved," he said.
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