Monday, January 23, 2017

NCUA Seeks Comment on Alternative Capital

The National Credit Union Administration (NCUA) Board issued for comment an advance notice for proposed rulemaking (ANPR) on alternative capitl for credit unions.

The NCUA Board is considering changes to the existing secondary capital regulation and whether to authorize federally insured credit unions to issue supplemental capital instruments that would only count toward a credit union’s risk-based net worth requirement.

The ANPR identifies two categories of alternative capital: secondary capital and supplemental capital.

The Federal Credit Union Act currently permits low-income credit unions to issue secondary capital. By law, secondary capital counts toward both the net worth ratio and the risk-based net worth requirement of NCUA’s prompt corrective action standards.

The Board is considering whether non-low income credit unions can issue supplemental capital to meet their risk-based capital requirement. Also, can low-income credit unions issue supplemental capital.

The ANPR seeks comment on a wide range of issues regarding alternative capital, including:
  • Associated regulatory changes that would be necessary;
  • Potential tax implications related to issuing alternative capital, particularly for state-chartered credit unions;
  • Potential director and management liability issues from issuing alternative capital;
  • Investor protection issues and whether the sale of secondary capital, like supplemental capital, should be restricted to knowledgeable institutional investors;
  • The impact of alternative capital on the mutual ownership structure of credit unions;
  • Limiting the amount of supplemental capital issued by credit unions;
  • Loss absorbing capacity of supplemental capital;
  • The treatment of reciprocal holdings of alternative capital; and
  • The application of securities law to both supplemental and secondary capital.
The comment period will be for 90 days after the ANPR is published in the Federal Register.

Over the coming months, I will comment on various aspects of the ANPR.

Read the ANPR.

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