ALEXANDRIA, Va.—Today is the deadline to comment on NCUA’s advance notice of proposed rulemaking for supplemental capital, and the large majority of comments reaching the agency are form letters, likely from the banking community, opposing the rule.
In a sampling of 20 alternative capital comments posted on the agency’s website, all are the same letter, completed by individuals who provide their names but no organization affiliation. The letters suggest that giving CUs access to alternative capital will make them structurally similar to banks, and therefore should be taxed.
“Giving credit unions the flexibility to add leverage to their balance sheets adds tremendous risk to financial institutions that are chartered to serve stakeholders of limited means in limited geographical areas and fundamentally changes their mutual ownership structure,” the letters state. “One of the reasons federal credit unions are exempt from taxation is because of their mutual ownership structure and their inability to access the capital markets. This proposal, if implemented, would result in credit unions having an ownership structure similar to most taxpaying banks with a category of investors whose interests are inconsistent with those of its mutual owners. No longer will there be any legal justification for credit unions to remain tax-exempt.”
The letters also state that credit unions “have a proven inability” to properly manage alternative
capital in the form of secondary capital.
“The NCUA should focus on the intended mission of credit unions which is to serve people of modest means through a mutual ownership structure. It is not the mission of credit unions to issue subordinated debt instruments to wealthy investors. If the NCUA allows credit unions to raise alternative capital, then Congress should reexamine the tax-exempt status of federal and state credit unions,” the letters state.
CUNA said it is preparing to submit its comment letter today.
“We support the authority of credit unions to build capital from members and non-members in way that does not dilute the cooperative ownership and governance structure of credit unions,” said CUNA Chief Advocacy Officer Ryan Donovan. “We believe that this capital should be subordinate to the credit union share insurance fund so credit unions have the financial ability to offer members services and to adjust to the fluctuating economic conditions.”
Donovan said in its letter CUNA will urge NCUA to not be too restrictive in its rule and CUs to experiment and create supplemental capital instruments that do not expose the Share Insurance Fund to undue risk.
“We are specifically recommending that the rule NCUA develops does not limit permissible supplemental capital instruments to one or two restrictively defined instruments, but rather contains requirements that any capital instrument would have to comply with, without specifying how,” Donovan said.