NCUA Seeks Comments on Alternative Capital

January 2017
NCUA Seeks Comments on Alternative Capital

Board Action Bulletin

Civil Monetary Penalties Adjusted for Inflation, as Required by Federal Law

ALEXANDRIA, Va. (Jan. 19, 2017) – The National Credit Union Administration Board held its first open meeting of 2017 at the agency’s headquarters here today and unanimously approved one item:

  • 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.

The Office of General Counsel also 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.

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. 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. “There are significant implications of 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 to 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 at 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.

The advance notice of proposed rulemaking is available online here. Comments must be received within 90 days of publication in the Federal Register.

Civil Monetary Penalties Adjusted for Inflation

NCUA is amending 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 in a notation vote on Jan. 5, and the final interim rule will be 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, available online here, will become effective immediately upon publication in the Federal Register. Comments on the rule must be received within 30 days of publication.

NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. NCUA also live streams, archives and posts videos of open Board meetings online.

Board Member Richard T. Metsger
Last modified on
11/30/18