NCUA Capital Plan Prioritizes Investors Over Consumers

A move by the National Credit Union Administration to allow large credit unions to issue subordinated debt for regulatory capital purposes from outside for-profit investors—such as corporate debt markets—while retaining their tax exemption, undermines the statutory principle that credit unions should serve consumers of small means, ABA President and CEO Rob Nichols wrote in an American Banker op-ed yesterday.

The op-ed came ahead of an NCUA board meeting this where the agency approved the final rule that creates “incentives for credit unions to focus on products that generate the highest yields” for investors, “which will result in catering to those of greatest means,” Nichols said.

Nichols called into question the need for credit unions to issue subordinated debt, given that an overwhelming majority of them claim to be well-capitalized. He also highlighted the risks associated with this type of debt—noting that credit unions that have issued subordinated debt previously “have subsequently grown too quickly, failing at a rate that is 362% greater than other credit unions.”

Furthermore, he pointed out that NCUA did not place limits on how the new capital can be used, nor on how much can be raised. “The NCUA should not push this massive and inappropriate regulatory change through in the last weeks of the Trump administration,” Nichols said. “It creates systemic risk for no reason other than to fuel the uncontrolled growth of large credit unions, mostly at the expense of smaller credit unions. That’s simply a bad idea in these already unsettled economic times.”

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