By Theran Colwell
Capital is the critical foundation on which all assets, innovation and risk management are built. I applaud the NCUA Board’s recent action to solicit comments on alternative forms of capital for federally insured credit unions and encourage you to weigh in on this important topic.
Over the past hundred years, the U.S. credit union system has an unprecedented track record of developing and delivering a broad and deep array of valuable financial services to their members.
In just the last few decades, the proliferation of channels members can now use to connect with your credit union has been astounding. We’ve moved from brick and mortar to touch-tone tellers, ATMs, home banking, mobile banking, video teller machines and are now delving into artificial intelligence. At the same time, credit union products and services have evolved, including checking accounts, mortgage lending, business lending, investments and insurance.
The permutation and combination of channels and products have led to strong asset growth and significant consumer value. However, the level of growth, innovation and value has been held back by inherently limiting regulations and narrow definitions of capital for credit unions. Modernizing capital regulations to provide credit unions robust and diverse ways to manage their capital, while adhering to cooperative principles, would bring myriad benefits.
Here are just a few examples:
• Provide better ability to manage growth
• Deliver a market-driven risk assessment
• Create additional value and improved efficiencies
• Support the formation of de novo institutions
• Help consumers through increased lending, products and services
• Promote investment and innovation
• Reduce systemic risks within the system (assuming capital comes from outside the system)
According to CB Insights, a venture capital database, more than $23 billion of capital flowed into fintech startups in 2016 alone. In addition, the FDIC quarterly banking profile currently shows more than $87 billion in subordinated debt currently resides on the books of U.S. banks. Imagine the value and growth for consumers and credit unions if just a portion of this capital could be deployed through credit unions!
CUNA Mutual Group has a breadth of expertise and experience in issuing and investing in secondary capital. We’ve helped more than 20 Australian credit unions raise $100 million (Australian dollars) in subordinated debt, invested in secondary capital notes issued by low-Income designated credit unions here in the U.S., and raised $75 million in surplus notes for our own balance sheet.
Alternative capital sources would provide immense opportunities, and CUNA Mutual Group stands ready to help. We appreciate the NCUA’s willingness to solicit comments on this critical issue. We look forward to participating in the upcoming advance notice of proposed rulemaking (ANPR) and would encourage others throughout the industry to participate as well.
Theran Colwell is vice president of lending loan growth for CUNA Mutual Group. He can be reached at Theran.Colwell@cunamutual.com, or 608.665.8541.