In February, the NCUA proposed a rule to let credit unions use secondary capital and supplemental capital in meeting standards required by statute and regulation. Secondary capital is currently permissible under the Federal Credit Union Act only for low-income designated credit unions to issue. NCUA is also considering whether to authorize credit unions to issue supplemental capital instruments that would only count towards the risk-based net worth requirement.
In a comment letter, ICBA said the NCUA lacks the regulatory authority to allow credit unions to issue debt that acts as risk-based capital. It also said the proposal would lead to increased borrowing and leverage on credit union balance sheets, posing excessive risks to the financial system.
“This proposal is another example of NCUA pushing the envelope and acting as a cheerleader for the industry it regulates,” ICBA First Vice President of Accounting and Capital Policy James Kendrick wrote in a comment letter to NCUA. “The NCUA’s proposed rule on alternative capital would undermine credit unions’ mutual ownership structure, allow outside investors to leverage the credit union tax subsidy, and fuel runaway growth of an industry that has already expanded beyond its original purpose.”
Allowing credit unions to issue new forms of capital instruments is inconsistent with their cooperative structure and justifies an end to their tax exemption, the letter said. The plan would put taxpayers at risk by inciting risky behavior at a handful of large credit unions.
“The NCUA should focus on the intended mission of credit unions: serving people of modest means through a mutual ownership structure,” Kendrick wrote. “The time is ripe for Congress to reexamine the tax-exempt status of credit unions.”