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Supplemental Capital Bill Has Strong Support
Wednesday, February 18, 2015 6:35 AM

On Friday, U.S. Reps. Peter King (R-NY) and Brad Sherman (D-CA) introduced the Capital Access for Small Businesses Act (H.R. 989), a bill that would allow credit unions to raise other forms of capital.

Credit unions are currently unable to raise capital other than through retained earnings. The bill would permit the National Credit Union Administration board to allow credit unions to accept other forms of capital, provided the board's action does not alter the cooperative ownership structure of credit unions.

The capital would be required to be uninsured and subordinate to other claims against a credit union. The NCUA board would also be allowed to set maturity limits on supplemental capital and restrict the ability to raise such capital to credit unions that are sufficiently capitalized and well managed.

In a letter announcing the introduction of the bill, King and Sherman said it will minimize the probability of credit union insolvency and ensure credit unions can continue to best serve their members while being able to grow and meet the needs of new members.

Credit Union National Association testified in favor of supplemental capital before the Senate Banking Committee Thursday, and the NCUA testified in favor of it before the same committee last week. The NCUA has also asked for comments on whether supplemental capital should be permitted in the context of the risk-based capital proposal.

"We believe your legislation would provide credit unions with appropriate ability to raise capital from sources other than retained earnings without putting in jeopardy the 'one member, one vote' principle that is the bedrock of the credit union ownership structure," said CUNA President/CEO Jim Nussle in a letter to King and Sherman. "As credit unions emerge from the financial crisis, this legislation would improve the safety and soundness of credit unions by allowing them to develop a supplemental cushion to reduce risk to the National Credit Union Share Insurance Fund."

Nussle added that the rule would play an even more significant role for credit unions should the NCUA adopt its proposed risk-based capital rule.