Menu
Banking Exchange Magazine Logo
Menu

ABA Hits Out at New Credit Union Debt Rule

The association objects to further capital raising flexibilities for large credit unions that already receive tax exemptions

  • |
  • Written by  Banking Exchange staff
  • |
  • Comments:   DISQUS_COMMENTS
ABA Hits Out at New Credit Union Debt Rule

The American Bankers Association (ABA) is once again at loggerheads with the National Credit Union Administration (NCUA) regarding powers granted to large credit unions.

The NCUA’s board last week approved a rule allowing credit unions to issue subordinated debt to help them stay within regulatory capital perimeters.

However, ABA chief executive Rob Nichols described the decision as “disappointing” and warned that it would enable large credit unions to further expand their market share, “crowding out smaller credit unions and community banks”. He said larger unions already benefitted from federal tax exemptions.

“This rule is inconsistent with the chartered mission of credit unions to serve people of modest means and provides no demonstrable requirements credit unions actually serve those in need,” Nichols said.

He added that it was “troubling” that the NCUA itself had acknowledged that it did not have the expertise to oversee such “sophisticated financial instruments”.

“Congress should be concerned about this latest step by NCUA to further blur the lines between large credit unions and tax-paying banks, while adding a new layer of risk at precisely the wrong time,” Nichols argued. “We will consult with our members before deciding next steps.”

In the NCUA’s announcement of the new rule, chairman Rodney Hood said: “Federal credit unions borrowing in the form of subordinated debt is squarely within the statutory authority provided under law.

“I support giving complex credit unions the authority to prudently use subordinated debt as an additional tool to comply with risk-based capital requirements, and newly chartered credit unions the ability to use this tool to get up and running.”

The new rule will come into force on January 1, 2022.

The ABA made a similar accusation earlier this year after the NCUA proposed new rules for credit unions acquiring banks. The ABA’s senior director for banking policy, Justin Underwood, said in June the ABA believed that credit unions were  “aggressively targeting banks”  to expand their service provision outside of their collective mandates to serve low- and moderate-income individuals.

back to top

Sections

About Us

Connect With Us

Resources

Webinar — Delivering Next Generation Digital Statements to Drive Deeper Customer Engagement

Time/Date: April 20, 2:00 CT

To satisfy consumers’ growing use of digital everything, your bank must move beyond paper statements and embrace next generation digital. Join this free webinar to understand how your bank can provide meaningful conversations and the best possible customer experience by crafting personalized communications that are well designed, error-free, and device agnostic—while delivering timely, engaging, and informative documents.

REGISTER NOW!

This webinar is brought to you by:
OneSpan logo