NCUA Seeks Comments on Alternative Capital

During its first meeting of 2017, the NCUA Board unanimously approved an advance notice of proposed rulemaking to solicit comments on alternative forms of capital federally insured credit unions might use to meet capital standards required by statute and regulation.

In addition, the Office of General Counsel briefed the Board on the inflation adjustments to civil monetary penalties, which are required by federal law.

Board Seeks Broad Stakeholder Engagement on Alternative Capital

Credit union system stakeholders will have an opportunity to comment on alternative forms of capital that could be used to meet required capital standards after the NCUA Board approved an advance notice of proposed rulemaking in January.

The NCUA Board is considering changes to the existing secondary capital regulation and whether to authorize federally insured credit unions to issue supplemental capital instruments that would only count toward a credit union’s risk-based net worth requirement. Then-Board Chairman Rick Metsger said it’s important for credit unions to study this idea and provide the agency with their views.

“I strongly encourage credit unions to study this notice very carefully and make themselves familiar with the questions NCUA’s Board faces,” Metsger said during the meeting. “There are significant implications with alternative capital for the credit union system, and this subject is just as important for credit unions who aren’t planning to issue alternative capital as it is for those who are. Agencies issue these advance notices when they are considering a wide range of options and are looking for comment on the best course to follow. To improve any future rulemaking, we need your thoughts on the pros and cons before we move forward with a full proposal.”

The notice identifies two categories of alternative capital: secondary capital and supplemental capital. The Federal Credit Union Act currently permits low-income credit unions to issue secondary capital. By law, secondary capital counts toward both the net worth ratio and the risk-based net worth requirement of NCUA’s prompt corrective action standards.

The notice seeks comment on a broad range of topics, including:

  • Associated regulatory changes that would be necessary;
  • Potential tax implications related to issuing alternative capital, particularly for state-chartered credit unions;
  • Potential director and management liability issues from issuing alternative capital;
  • Investor protection issues and whether the sale of secondary capital, like supplemental capital, should be restricted to knowledgeable institutional investors;
  • The impact of alternative capital on the mutual ownership structure of credit unions; and
  • The application of securities law to both supplemental and secondary capital.

The NCUA Board previously had a briefing on issues surrounding the use of supplemental capital during its October meeting. Given the statutory objective of prompt corrective action “to resolve the problems of insured credit unions at the least possible long-term loss” to the Share Insurance Fund, the Board believes it should explore expanded options for credit unions to build capital beyond retained earnings.

Comments on this advance notice of proposed rulemaking must be received on or before May 9. For more information or to submit a comment, go to

Civil Monetary Penalties Adjusted for Inflation

NCUA amended its regulations (Part 747) to adjust the maximum amount of civil monetary penalties under its jurisdiction to account for inflation. The maximum penalty levels for 2017 are 1.6 percent higher than the maximum levels in 2016.

In order to meet the statutory deadlines for publishing inflation adjustments, the NCUA Board approved the adjustment by notation vote on Jan. 5, and the final interim rule was posted for public comment in the Federal Register.

NCUA last adjusted civil monetary penalties in June 2016. Those adjustments previously had been made every four years. Congress in November 2015 changed federal law to require annual adjustments and to provide for a one-time catch-up adjustment in 2016. Agencies are required to publish their inflation adjustment rules in the Federal Register by Jan. 15 of each year.

NCUA assesses modest civil monetary penalties on credit unions that file Call Reports late. Total penalties for the second quarter of 2016 were $9,364. The median penalty for that quarter was $303. The Federal Credit Union Act requires NCUA to send any funds received through civil monetary penalties to the U.S. Treasury.

The interim final rule became effective on Jan. 23. Comments on the rule must be received by Feb. 22. For more information or to submit a comment, go to

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