Supplemental capital: A tool for safety and soundness

This is crucial, because more than 95 million Americans currently use credit unions for their financial services needs. By making credit unions more secure, HR 719 would provide added protection for the consumers who are their members, as well. This is the ultimate goal for us as regulators.

Right now, credit union access to capital is limited to the retained earnings from their net income; in other words, their savings. Supplemental capital, quite simply, would act as a buffer to share insurance for a credit union in the rare occasion in which it is needed. It is already used as a resource by corporate credit unions and low-income credit unions in the U.S. It is even available to credit unions outside of the U.S.

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Now, it is time to provide healthy and well-managed credit unions with the same tools to protect their members – and, in so doing, to protect their members’ financial futures.

This access to supplemental capital would not be an unlimited cash cow for credit unions. America’s state credit union regulators take seriously their commitment to the consumers whose financial stability depends on the soundness of their credit unions.

First and foremost, any access to supplemental capital must maintain the cooperative nature of credit unions; importantly, HR 719 does that.

Other essential regulatory principles include full investor protection and robust safeguards, prudent safety and soundness requirements, and regulatory approval of supplemental capital plans.

In other words, credit unions that accept supplemental capital must remain credit unions: reliable, cooperative, not-for-profit financial services providers that are subject to vigorous oversight.  The regulatory oversight would be robust for those credit unions that obtain this authority.  Access to supplemental capital would be subject to prudent safeguards and risk parameters.

It is also important to note that passage of HR 719 would simply make this capital tool available to eligible credit unions, rather than automatically distributing capital; supplemental capital would not be appropriate for all credit unions, nor would every credit unions need access to it.  But as a soundness measure, access to supplemental capital would help some credit unions, when they need it.

Credit unions are reliable, secure financial institutions; the need for access to supplemental capital is not meant to suggest an impending threat to their stability.

However, we have all seen how rapidly our economy can change. Allowing credit unions access to supplemental capital with regulatory approval and robust oversight will improve their ability to react quickly to changing market conditions, protect their members safely into the future, and weather economic challenges that might loom on the horizon.

America’s consumers work hard to prepare for their futures by, for example, saving money and buying homes. By seeking access to capital, credit unions are trying to do the same thing.

In providing that access to credit unions, Congress has the opportunity to give credit unions an important tool for security that is both regulated and safeguarded. In the end, HR 719 would enable credit unions to build quality capital, both strengthening them and benefiting their members.

Fortney is the president and CEO of NASCUS, the National Association of State Credit Union Supervisors. NASCUS’ mission is to enhance state credit union supervision and advocate for a safe and sound credit union system.