The NCUA issued an Advanced Notice of Proposed Rulemaking (ANPR) regarding alternative capital for federally insured credits.  Credit unions could use the alternative capital to meet required capital standards.

The ANPR divides alternative capital into two categories:  secondary capital and supplemental capital.  Currently, secondary capital is only allowed for low-income designated credit unions and is counted toward both the net worth ratio and the risk-based net worth requirements of NCUA’s prompt corrective actions standards.

NCUA is considering adding the allowance for credit unions to issue supplemental capital instruments that would only count towards the risk-based net worth requirement.

This ANPR addresses topics including:

• NCUA’s authority to include alternative capital for prompt corrective action purposes;
• credit unions’ authority to issue alternative forms of capital;
• prudential standards regarding the extent to which various forms of instruments would qualify as capital for prompt corrective action purposes and credit union eligibility for the sale of alternative capital;
• the utility and suitability of supplemental capital for credit unions;
• standards for investor protection, including disclosure requirements and investor eligibility criteria for the purchase of alternative capital;
• implications of securities law for supplemental and secondary capital;
• potential implications for credit unions, including the credit union tax exemption; and
• overall regulatory changes the Board would need to make to permit supplemental capital, improve secondary capital standards, and provide or modify related supporting authorities.

The ANPR asks for feedback on the following questions.  These questions were also asked, with minimal response, back in January 2015 on the NCUA’s Risk Based Capital proposal.

1. Should additional supplemental forms of capital be included in the RBC numerator and how would including such capital protect the Share Insurance Fund from losses?
2. If yes, to be included in the RBC numerator, what specific criteria should such additional forms of capital reasonably be required to meet to be consistent with Generally Accepted Accounting Practices (GAAP) and the Act, and why?
3. If certain forms of certificates of indebtedness were included in the risk based capital ratio numerator, what specific criteria should such certificates reasonably be required to meet to be consistent with GAAP and the Act, and why?
4. In addition to amending NCUA’s RBC regulations, what additional changes to NCUA’s regulations would be required to count additional supplemental forms of capital in NCUA’s RBC ratio numerator?
5. For state-chartered credit unions, what specific examples of supplemental capital currently allowed under state law do commenters believe should be included in the RBC ratio numerator, and why should they be included?
6. What investor suitability, consumer protection, and disclosure requirements should be put in place related to additional forms of supplemental capital?

In addition, throughout the ANPR, the NCUA asks for feedback concerning the full scope the the proposed rulemaking.

Comments must be received by May 9, 2017.

Washington State House Bill 1318 addresses state requirements for alternative capital, which was enrolled to bring into line state law with any actions that come out of this ANPR.