NCUA updates to Supervisory Policy Manual regarding secondary capital

NEW YORK, NY (April 8, 2015) — The National Federation of Community Development Credit Unions (Federation) applauds the National Credit Union Administration (NCUA) in announcing a major improvement to secondary capital for low-income credit unions. This positive change will spur greater investment into the credit union system. The NCUA’s 2015 Supervisory Policy Manual includes critical revisions to the pre-approval process for secondary capital. There are now clear and objective measures by which credit unions can apply and be approved for pre-payment of secondary capital.

The Federation is a national trade association and CDFI intermediary for community development credit unions and has been the primary national lender of secondary capital to credit unions. It is the national advocate on behalf of credit unions with a mission of helping low-income individuals and communities achieve financial independence.

Secondary capital is a subordinated loan that can be counted towards a credit union’s net worth. These loans have a minimum five year term and have until now been structured solely as interest-only, balloon payment loans with a decreasing portion counted toward capital each year. Though secondary capital loans have existed for over a decade, they remain largely underutilized because the risk assessed by investors has generally maintained interest rates at 5% and above; during its final five years, the loan becomes a costly liability.

The Federation has worked closely with NCUA to establish a clear process for principal repayment approval to lower the cost for the product, enabling credit unions to put this capital to productive use in low- and moderate-income communities. The NCUA’s Supervisory Policy Manual revisions will provide clear steps for Low Income Designated (LID) credit unions to more effectively use secondary capital.

“Under my Regulatory Modernization Initiative, NCUA works to lift compliance burdens from credit unions where it’s prudent and consistent with safety and soundness,” NCUA Board Chairman Debbie Matz said. “Sometimes, we accomplish that through regulation; other times, we do it through supervisory changes. The supervisory changes the agency is making around supplemental capital add more flexibility and transparency and, most importantly, make it easier for low-income credit unions to obtain this capital and give investors greater clarity and confidence.”

In its discussions with socially responsible investors and other financial institutions, the Federation found that the former structure of all secondary capital loans did not meet the cash flow needs of many investors. “We’re proud to have partnered with the Federation to enable investors to increase their commitment to working with community development credit unions to better meet the financial needs of low-income people, and we look forward to continuing to support these efforts,” said Dan Letendre, Managing Director, Community Development Financial Institutions, Bank of America.

“The Federation commends the NCUA for this major step in aligning the purpose and structure of secondary capital loans to the needs of credit unions and the realities of investors. The ability to pre-pay portions of secondary capital loans will help growing credit unions continue on a path of increasing membership and lending in underserved communities,” says Cathie Mahon, Federation President and CEO.

For more information about a Federation secondary capital loan, please contact or call Cathi Kim at 800-437-8711 or 212-809-1850, ext 271.

About the Federation

The National Federation of Community Development Credit Unions is a certified CDFI Intermediary representing community development credit unions (CDCUs). The Federation’s member CDCUs provide credit, savings, transaction services and financial education to more than four million residents of low-income urban, rural and reservation-based communities across the US, and hold over $32 billion in community-controlled assets. Founded in 1974, the Federation is headquartered in Lower Manhattan with offices in Madison, WI. Secondary Capital loans are made through the Federation’s Community Development Investment (CDI) Program, which provides capital resources to members seeking to increase liquidity, boost net worth, mitigate risk and introduce innovative products. The CDI Program has invested more than $100 million in member CDCUs since its inception in 1982. For more information about the Federation and its programs, please visit

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