Management

Supplemental Capital Would Benefit CUs, Local Communities

CUs shouldn’t be punished for providing a safe haven for members’ deposits.

April 01, 2013
/ PRINT / ShareShare / Text Size +
iStockphoto/Thinkstock®

The ongoing debate for credit unions’ access to supplemental capital has been a long and strenuous battle.

To gain a better understanding of the issue at hand, it’s necessary to highlight why credit unions are pushing to gain access to these additional funds—and the extensive impact this could have on local communities.

Most U.S. credit unions generate capital entirely through retained earnings. As credit unions accept more deposits from members, assets grow but net earnings do not necessarily follow. As a result, capital may decrease.

Let’s recall Bank Transfer Day in November 2011. It was an exciting time to be a part of the credit union movement. That is, until you think about what thousands of additional deposits mean to the bottom line—a decrease in capital for many credit unions.

This dip could be enough to reduce some credit unions’ capital levels below 7% and into the range where they’re subject to Prompt Corrective Action (PCA) rules, where a credit union must submit a plan to NCUA that outlines its goal to raise capital above 7%.

Credit unions get painted in a corner: Those that do an excellent job of serving their communities by accepting deposits are penalized with a reduction in capital. This more than takes away the excitement from Bank Transfer Day or other events that highlight the good a credit union offers its community.

Add to this the reality of challenging economic times, which create an even larger need to help consumers by providing a safe haven for their hard-earned savings.

Despite historically low dividend rates since 2008, deposits keep flowing into credit unions due to consumers’ “flight to safety.” This year-over-year deposit growth caused credit unions’ overall loan-to-share ratio to decline by 140 basis points during 2012, from 69.6% to 68.2%, according to CUNA’s economics and statistics department.

Under such conditions, it’s obvious the Federal Credit Union Act of 1934 handcuffs credit unions. Without access to supplemental capital, it’s more difficult for credit unions to lend, accept deposits, or otherwise meet members’ needs to the full extent of their ability.

Ironically, this is the very reason credit unions were founded: to help consumers obtain affordable credit, find a safe place for their funds, and assist their local communities.

Giving credit unions access to supplemental capital is both appropriate and sound monetary policy. Doing so would give credit unions the opportunity to grow and expand their branches, services, and community outreach where there is public demand.

The Credit Union Act’s capital restraints may have been appropriate at one time, but they’ve long since served their purpose. Given current economic conditions, it’s time for a change.

In February, Reps. Pete King (R-N.Y.) and Brad Sherman (D-Calif.) introduced the Capital Access for Small Business Act (H.R. 719), which would allow well-capitalized credit unions to match a growing deposit base with capital from sources other than retained earnings—without jeopardizing credit unions’ “one member, one vote” principle that is the bedrock of the credit union ownership structures.

“Congress is showing greater interest in capital reform, and we expect our legislation to be part of the discussion,” says John Magill, CUNA’s executive vice president of government affairs.

Allowing credit unions to access additional capital won’t take any money from tax payers. But the value it can provide allows for a significant impact on local communities while creating a safety net during tough economic times.

PAUL STULL is senior vice president of strategy and brand for Arizona State Credit Union.

Post a comment to this story

heroes

What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive