NCUA to Allow 30-Year Secondary Capital From Treasury
Credit unions had said the previous rule limited their ability to help minorities as the program intended.
The NCUA has taken a step to allow credit unions to fully participate in a Treasury Department program designed to back wider lending in low-income communities.
In a letter the NCUA sent out late Wednesday, NCUA Chair Todd M. Harper told low-income credit unions that they may receive 30-year subordinated debt investments from the program, not just 15-year capital.
Inclusiv, a group representing more than 400 CDFI or MDI credit unions, had criticized an NCUA rule adopted last December addressing another issue that contained wording that seemed to block credit unions from receiving low-interest, 30-year secondary capital under a program enacted by Congress the same month.
Congress created the Emergency Capital Investment Program (ECIP) to encourage low- and moderate-income community development financial institutions to provide backing to allow them to expand lending for small businesses and consumers in their communities.
The program is limited to Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs). Ninety credit unions have applied for $3.1 billion from a $9 billion pool. Treasury offers the capital in either 15- or 30-year terms. The longer terms allow lenders not only to make more loans, but it also allows them to better cover risks for 30-year mortgages.
The NCUA rule had prevented credit unions from secondary capital borrowing for terms greater than 20 years. The FDIC places no term limits on banks.
In a news release Wednesday, Harper said “credit unions have a statutory mission to meet the credit and savings needs of their members, including — and especially — those of modest means.”
Harper added, “The changes announced today will allow ECIP participating credit unions to fulfill that statutory mission and advance economic equity and justice. Going forward, the NCUA will pursue additional action to permit ECIP funding to count as regulatory capital for the entire time it is held. I look forward to working with my fellow board members on this important work.”
NCUA’s letter also said participating credit unions may treat ECIP funding as secondary capital as long as they have an NCUA-approved secondary capital plan by Dec. 31.
Inclusiv President Cathie Mahon said she believes the NCUA is “moving us in the right direction on ECIP.”
“We are so encouraged by this important first step and grateful to Chairman Harper for his leadership and board members Hood and Hauptman for their support. We now look forward to working with the board on getting capital treatment for the 30 year term,” she said.
Harper said he expects to address the capital treatment issue next year.