Seeking to water down corporate CU capital rules

by: Keith Leggett

Credit Union National Association (CUNA) and some corporate credit union officials are trying to water down the corporate credit union capital rules that were finalized in 2010 following the corporate credit union debacle.

Specifically, they are objecting to the requirement from the National Credit Union Administration (NCUA) that corporate credit unions when calculating their Tier 1 capital must deduct beginning on October 20, 2016 any amount of perpetual contributed capital (PCC) that causes PCC minus retained earnings, all divided by moving daily net average assets, to exceed two percent. After October 20, 2020, corporate credit unions must deduct any amount of PCC that causes PCC to exceed retained earnings, when calculating Tier 1 capital.

For example, the CUNA wrote: “NCUA should eliminate the deduction of PCC from Tier 1 capital allowing PCC to be counted for all regulatory capital requirements as currently allowed by the corporate regulation until next year.”

This means that a corporate credit union could fully meet its Tier 1 capital requirement through PCC.

However, this also makes the credit union system potentially less stable as the system becomes more interconnected.


continue reading »