The NCUA board took another step in the right direction Thursday when it conducted a briefing on supplemental capital. Extending supplemental capital authority to all credit unions has been discussed for many, many years, but today the first step was taken to make this a reality, and we applaud the board for its actions.

The expansion of access to secondary capital is long overdue for credit unions. With the exception of low-income designated institutions, credit unions are the only financial institutions in the country that do not have access to secondary capital sources. As a result, they must rely primarily on retained earnings to build capital and grow their asset base, which presents a philosophical dilemma.

Building capital through retained earnings requires credit unions to invest profits back into the cooperative, rather than returning them to members in the form of lower loan rates, higher savings rates, more services or annual dividend payouts. Choosing between growth or rates isn’t good for members or the long-term health of the institution. And, the third option – charging higher fees to boost income – is even worse.

Limiting credit union growth is a shame, because unlike banks, credit unions aggressively championed loans for low- and moderate-income families and small businesses throughout the financial crisis. The fact that they did this despite having fewer balance sheet resources is even more remarkable and should be rewarded.

We strongly support the current ability of low-income designated credit unions to access permitted forms of supplemental capital from non-member sources to accelerate the growth of their capital base, and subsequently, grow assets. Thanks to their work on behalf of American families and small businesses during the Great Recession, their efforts to expand should be encouraged, not restrained.

We also applaud the NCUA board for the work it has done providing credit unions with more opportunities to grow and manage their balance sheets by finalizing a streamlined member business loan rule, a new field of membership rule, and now considering secondary capital authority for the rest of the industry. Given the expansion of member growth and rapid changes in the industry, many credit unions have the potential to experience asset growth that exceeds their retained earnings and should be provided the resources to do so.

As credit unions grow, more Americans will have the opportunity to take advantage of credit union membership, and the superior services the community has provided since the financial crisis. We’ve seen first-hand how access to supplemental capital helps our low-income credit union clients better serve their members. We hope this critical balance sheet tool becomes available to all credit unions and the communities they serve.

We look forward to the NCUA’s advance notice of proposed rulemaking in January and will share our supplemental capital ideas and experiences to assist the agency as it develops its rule. We encourage others in the credit union community to do the same in support of the NCUA’s commitment to the success of America’s credit unions.

Robert Colvin is president and chief strategist at the Atlanta-based management consulting CUSO CU Capital Market Solutions. He can be reached at 913-402-2616 or rcolvin@cucmsllc.com.

Instant Insights /

Supplemental Capital Is Good for Credit Unions and America

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