In the first quarter of 2015, 78 natural person credit unions reported holding supplemental capital, money raised from external sources instead of through retained earnings. The benefits of supplemental capital include enhancing the safety and soundness of the institution and expanding capacity for deposit growth. Supplemental capital also offers regulatory flexibility. See more stats in the Graphic Of The Week, Supplemental Capital And Credit Unions.
Fairfax County Federal Credit Union is an institution that has used supplemental capital. From year-end 2008 to year-end 2010, an uptick in deposit activity coupled with negative loan growth resulted in a drop of more than 30% in the credit union’s loan-to-share ratio. The credit union needed a boost, and it used funds from a U.S. Department of Treasury capital initiative to underpin important programs for its members.
This was a way to help people through a horrible financial environment, says Joe Thomas, president and CEO of Fairfax County FCU in Virginia. Read more about how the credit union used that capital injection in A Capital Initiative At Fairfax County Credit Union.
Likewise, secondary capital has helped Pacific Northwest Ironworkers Federal Credit Union in Portland, OR, make more loans and money. Credit union CEO Teri Robinson credits the infusion of capital with empowering a strategy that has pulled the institution back from the brink of failing. In Secondary Capital Helps An Oregon Credit Union Seize The Moment, learn how the credit union overcame a shrinking membership, flat-lining lending, and battered bottom line to now posting some of the strongest numbers among credit unions in its asset-based peer category.
Is supplemental capital a necessary resource for credit unions? Yes! says Mike Wettrich,CEO of Education First Credit Union in Westerville, OH. Education First does not use supplemental capital, but as a regulator for the state of Ohio, Wettrich was a proponent of it. He still is today and offers suggestions for better ways to make it available. Read what he has to say in Why Credit Unions Need Supplemental Capital.
Yes, supplemental capital is long overdue; however, it is no panacea, says Chis Howard, vice president of research at Callahan & Associates.
Capital itself is an indispensable foundation for the safe, sound, responsible management of every financial institution, Howard says. But the discussion on secondary capital is threatening to become more complicated.
Howard has more than a decade of financial services experience, including at Freddie Mac, where he was responsible for strategy, innovation initiatives, business development, and strategic alliances. Secondary capital for credit unions has been little more than a means of stretching the value of the charitable resources available to support low income-designated credit unions, Howard says. Capital is not a tool for active risk management and risk-based capital is a bad idea for credit unions no matter how the NCUA revises its proposal, regardless of whether it includes access to supplemental capital. Read more in Supplemental Capital Is No Panacea.