Updated July 2014
A credit union's net worth ratio is currently determined solely on the basis of retained earnings as a percentage of total assets. Because retained earnings often cannot keep pace with asset growth, otherwise healthy growth - such as growth resulting from taking deposits - can dilute a credit union's regulatory capital ratio and trigger non-discretionary supervisory actions under prompt corrective action (PCA) rules. Allowing eligible credit unions access to supplemental capital, in addition to retained earning sources, will help ensure healthy credit unions can achieve manageable asset growth and continue to serve their member-owners efficiently as the country recovers from the financial crisis.
During a joint trades meeting at NAFCU's annual Congressional Caucus in 2010, interested parties crafted principles for legislation that would open the Federal Credit Union Act and allow credit unions that met certain eligibility requirements access to supplemental capital. NAFCU has pushed the NCUA to embrace this concept.
In February 2013, Congress Reps. Peter King (R-NY) and Brad Sherman (D-CA) reintroduced, for the 113thCongress, NAFCU-backed legislation (H.R. 719) that would allow federal credit unions to receive payments on uninsured, non-share capital accounts, provided the accounts:
- Do not alter the cooperative nature of the credit union
- Are uninsured
- Are subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and the National Credit Union Share Insurance Fund
- Are available to be applied to cover operating losses of the credit union in excess of its retained earnings and, to the extent supplied, will not be replenished
- Are subject to maturity limits as determined by the NCUA Board
- Are offered by a credit union that has been determined sufficiently well capitalized by the NCUA Board
Credit unions did not engage in the risky lending practices that led to the financial crisis and have not cost taxpayers a single dime. The Capital Access for Small Businesses and Jobs Act (H.R.719) will help to ensure that credit unions can continue to serve their 96 million members. Given the negative impact the NCUA's recent risk-based capital proposal could have on credit unions, it has never been more important for Congress to consider allowing credit unions access to supplemental capital.
NAFCU will continue to advocate for thoughtful dialogue on this important issue to our nation's credit unions and educate lawmakers on the importance of passing this critical legislation.