MADISON, Wis.–The World Council of Credit Unions has filed a comment letter with NCUA on the agency’s supplemental capital proposal.
The letter makes three main arguments:
- NCUA has authority to allow all FCUs to issue perpetual capital shares pursuant to Section 107(6) of the Federal Credit Union Act—which allows FCUs to issue “shares” “representing equity”—which could be similar to corporate credit union Perpetual Contributed Capital (PCC) and the “Common Equity Tier 1” shares Canadian federal credit unions can issue. This would be in addition to FCUs using the borrowing authority in Section 107(9) of the Act to subordinated debt.
- The supplemental capital rule should include the Current Expected Credit Losses (CECL) capital add-back that the Basel Committee authorized earlier this year, in the Basel Committee standard Regulatory treatment of accounting provisions – interim approach and transitional arrangements. This Basel Committee standard allows agencies like NCUA to authorize credit unions to add-back the additional reserves required by CECL to the numerator of their capital ratio.
- Credit unions traditionally issued at-risk equity shares prior to the establishment of share insurance systems like the National Credit Union Share Insurance Fund, and FCU and state-chartered credit union capital shares would be consistent with FCUs’ tax-exempt and mutual status. This section discusses the “Gross Misuse of Name” test used by the Supreme Court to analyze compliance with state-chartered credit unions’ Internal Revenue Code 501(c)(14) tax-exemption, and also discusses the history of credit union shares and coop shares, and how these shares were modeled on joint-stock company shares.
A full copy of the letter can be found here: http://www.woccu.org/documents/WOCCU_-_Comments_on_NCUA_Supplemental_Capital_ANPR