Proposal Would Allow FCUs to Leverage Nonmember Funding

The National Credit Union Administration has proposed a rule that will allow a federal credit union (FCU) to leverage funding sources other than member shares.

The proposed rule will allow an FCU to receive public unit and nonmember shares up to 50 percent of the credit union's paid-in and unimpaired capital and surplus less any public unit and nonmember shares.

Also, the proposed rule would only require an FCU to develop and maintain a written plan if its public unit and nonmember shares combined with total borrowings exceed 70 percent of paid-in and unimpaired capital and surplus.

According to the transcript from the May 2019 NCUA Board meeting, the proposed rule would potentially allow an FCU to increase its funding from sources other than member shares, from 56 percent of assets to 65 percent of assets.

In other words, this proposal could potentially increase leverage for the entire credit union industry by 6 percent or $135 billion, based on current net worth levels.

Unfortunately, the proposal could erode the cooperative character of the credit union industry.

The hallmark of credit unions is that member savings fund member loans. This proposed rule would permit an FCU to finance a greater percentage of its loans to members with nonmember funds.