Thursday, December 18, 2014

Low-Income Credit Unions and Secondary Capital

The Federal Credit Union Act allows low-income credit unions to count secondary or supplemental capital as part of their net worth.

Seventy-five credit unions, excluding Texans CU (Richardson, TX) and A.E.A FCU (Yuma, AZ), reported holding uninsured secondary capital accounts as part of their net worth as of the third quarter of 2014.

Twelve credit union as of September reported that over fifty percent of their net worth is in the form of uninsured secondary capital accounts. This includes Self-Help FCU (Durham, NC), which reports 78.18 percent of its net worth is in the form of uninsured secondary capital accounts.

However, should there be a limit on the amount of secondary capital that low-income credit unions can count towards net worth?

As I have previously written, regulators are focused on increasing the amount of high quality capital that financial institutions hold.

Retained earnings are high quality capital, while secondary or supplemental capital is not high quality capital; because it lacks permanence.

With the number of low-income designated credit unions almost doubling since the middle of 2012 and with few low-income credit unions currently exercising this authority, this would be an ideal time for the National Credit Union Administration to revisit its net worth requirements for low-income credit unions.

The goal should be to have a majority of low income credit unions' net worth comprised of permanent, high quality capital.


  1. This is disturbing. As board member of a credit union that forked over millions in assessments and after writing down millions of capital shares at our corporate, it is startling to read that this regulator with no accountability is allowing credit unions issue capital. And designated, how many, 1000 more?
    We needed a taxpayer backed NGN program and now this?
    From a regulator that can't secure a thumb drive?

  2. One needs only to look at the credit union movement and NCUA to see evidence of just how useless congress has been.
    No accountability.
    No transparency.
    Taxpayer bailout but doesn't pay taxes.
    Ignores congressional intent on MBL, FOM, supplemental capital and then goes the opposite direction on congressional intent for charter choice.
    We would have converted years ago, but why risk it?
    The regulator with no boss has built a fence around so it's extremely risk to try.
    With a real congress, this wouldn't happen.
    If we were one of the lucky ones that has an exemption or a low inc designation, we could do more.
    If we could be a bank, we could do ALOT more.
    Instead, we have a proposed capital rule that damages the institution, an interest rate risk supervision written by children and a regulator that watched a tiny credit union launder over $900 million, a corporate system that imploded and can't secure a thumb drive.
    And fights budget transparency while saying its transparent.
    We got what we deserve.
    Tax free and jailed.

  3. I continue to be stunned by the whining. Change charter, go to another industry, retire, or do something that will change the system. Easier to play victim than do something about it.

  4. Alas, you are observing whining yet, in an industry that discourages public discourse of its fundamental weaknesses, indeed crushes those who do speak up with hopes of public discussion and solution, some of us (above included) are reduced to anonymous postings.
    Not by desire.
    Will stand for what's right, but won't stand alone.
    They don't pay me enough.
    But CEOs get paid on a level as bank CEOs but we're not them.
    We do and desire for more small business lending.
    But we are not them.
    We weasel access to supplemental capital in a WHINING sort of way but we are not like them.
    We WHINE for continued favorable tax treatment even in light of a monstrous deficit.
    We WHINE about FOM restrictions and then CHEAT the back door.
    We WHINE about the leagues and Cuna but keep paying.
    The big ones WHINE about the little ones and the little ones WHINE about the big ones.
    I feel trapped but you sir are shackled as if a slave to a tax exemption. Member centric?
    W2 centric. Conference boondoggle centric.
    Then you have stopped thinking.



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