What Distant Planets and Alternative Capital Have In Common
The bankers are going to get mad as hell over NCUA’s Alternative Capital Advance Notice of Proposed Rulemaking (ANPR) as soon as they figure out what it does. That’s the gist of an article in today’s American Banker, explaining that five weeks after the proposal was issued the independent community bankers and the other usual suspects plan on voicing their opposition to the ANPR but don’t know exactly why. In fairness to the bankers, the article also points out that no credit unions have yet to submit comments on the proposal. (For the record NYCUA recently published a survey on this issue and will be commenting to NCUA).
Perhaps those of us who have chosen to pursue credit union public policy careers should be embarrassed to admit that, a day after scientists announced that they have spotted seven planets trillions of miles away as they orbit a super dwarf- I was going to get that phrase into my blog one way or another-we are struggling to understand precisely what credit unions can and can’t do with regard to alternative capital. Then again this is complicated stuff; in fact I will unabashedly admit that the more I read the ANPR the less I understand it.
First, as an Advance Notice of Proposed Rulemaking it is not a proposal but a discussion draft. This means that terms are not set in stone and subtle distinctions between supplemental and secondary capital will need to be finalized if and when a rule is actually proposed.
Secondly, federal law restricts what NCUA can do for credit unions when it comes to authorizing alternative capital. The most important limitation, as explained in the ANPR, is that “it is possible for the Board to authorize a credit union that is not low-income designated to issue alternative capital instruments that would count towards satisfying the risk-based net worth requirement—but not the net worth ratio.” This limitation is crucial because it means that “complex” credit unions, those with at least $100 million in assets are the ones that would most benefit from regulatory changes in this area.
This brings us to the fact that when all is said and done it is far from clear how many credit unions eligible to take advantage of alternative capital would decide it is worth the hassle to do so.
Like I said, this is complicated stuff which has tax implications and touches on securities law. My guess is that only the biggest of complex credit unions will be willing to take full advantage of alternative capital in whatever form it ultimately takes.
By the way, none of this is to criticize NCUA or the desire on the part of many in the industry to expand the use of alternative capital. It underscores however, that if the industry wants broad based access to alternative capital there is no way around going to Congress and getting the law changed.
Entry filed under: General.