NCUA General Counsel Mike McKenna on Wednesday clarified the NCUA's position on risk-based capital and supplemental capital.

During a House Financial Services Committee hearing Tuesday, Rep. Brad Sherman (D-Calif.) asked McKenna why the NCUA has not addressed supplemental capital in the agency's proposed risk-based capital rule.

McKenna's response was interpreted by some that the NCUA would consider adding a supplemental capital provision to its pending risk-based rule.

In a letter to Financial Services Committee Chairman Jeb Hensarling (R-Texas) and Ranking Member Maxine Waters (D-Calif.) on Wednesday, McKenna explained that the NCUA currently has limited statutory authority to establish supplemental capital.

“Except for those credit unions designated as low-income, Congress limited the definition of net worth in the Federal Credit Union Act to retained earnings as defined by generally accepted accounting principles. Therefore, unless Congress amends the statutory definition of net worth, other forms of capital, including supplemental capital, cannot legally be counted as net worth for federally insured, consumer credit unions, other than those with a low-income designation,” McKenna wrote.

“(The) NCUA did specifically address the issue of supplemental capital for low-income designated credit unions in the proposed rule on risk-based capital. (The) NCUA would allow low-income credit unions to count supplemental capital, or secondary capital, as it is referred to in the proposed rule, in the risk-based capital numerator for purposes of calculating their risk-based capital ratio,” McKenna added.

McKenna said a credit union's inability to raise capital outside of retained earnings limits its ability to serve members.

He added that the NCUA supports the Capital Access for Small Businesses and Jobs Act (H.R. 719), introduced by Rep. Peter King (R-N.Y.), which would give credit unions an additional tool to promote sufficient capital stability by amending the definition of “net worth” in the Federal Credit Union Act.

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McKenna Clarifies NCUA Position on Supplemental Capital

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