But here's the rub, Check this link out and you'll find the existing rules (from the NCUA Examiner's Guide, section 16-4) on secondary capital for low-income credit unions - been in place forever! Yet the NCUA "Secondary Capital Working Group" continues to study its navel "on what to do next"?!? There is a serious accountability, competency, and transparency issue here - and an unnecessary risk to the American taxpayer created by the NCUA.
Yet, take a look at the secondary capital presentation [here's the link] made by NCUA senior staff to the NCUA Board at its October meeting. You'll note on page 29 that 2,297 credit unions (over one-half of all credit unions), holding over $325 billion in assets (@ one third of all CU assets!) can issue secondary capital now under existing NCUA rules.
$188 million in CU secondary capital is issued
And, just to make matters worse...
Take a look at the four concerns that NCUA's senior staff listed as "Top Supplemental Capital Considerations" with moving ahead on secondary capital (it's on page 15 in the link above):
1) Securities law - you mean the $188 million in existing CU secondary capital is in violation of securities law? The issue has never been checked out? NCUA just decided to ignore this question in the past when it gave approval? Really?
2) Insurer's Ability to Count as PCA - whether or not NCUA, in all its wisdom, decides to count secondary capital as capital "for PCA" is irrelevant to both the capital structure of a credit union and to the safety and soundness of that credit union. As so clearly shown in the RBC rule debacle, NCUA as usual overestimates its importance - and perhaps its relevance. True safety and soundness is a market structure, regardless of the regulatory fiction called "PCA".
3) Tax Exemption - All 2,297 (again over half the industry) existing credit unions which can issue secondary capital are no longer tax exempt, or have placed that status at risk? Have we let Keith Leggett and the ABA know to start the celebration? Did you know that the IRS issued a private opinion letter on this issue in 2001 - indicating no effect on the tax status of a credit union?
4) Utility of Supplemental Capital - Isn't that a question for credit union members, CU Boards, and the marketplace to decide? And, every dollar of additional capital, whether "PCA'ed" or not) provides another layer of protection, a greater buffer for the NCUSIF!
One begins to suspect that the NCUA senior staff
is just not up to the task...
[Perhaps NCUA could get some outside help on some sort of contingency contract basis... just an idea!]
ACCOUNTABILITY - COMPETENCY - TRANSPARENCY