March 5, 2013
Debie Keesee, president and CEO of Spokane Media Federal Credit Union and chair of the Northwest Credit Union Association (NWCUA) board of directors, was one of four credit union leaders tabbed for participation in a panel discussion on supplemental capital last week during the Credit Union National Association (CUNA) Governmental Affairs Conference (GAC).
Joining Keesee on the panel were Joan C. Opp, president and CEO of Stanford Federal Credit Union; Orla Beth Peck, supervisor of credit unions for the Utah Department of Financial Institutions (DFI); and Mike Schenk, CUNA’s vice president of economics and statistics.
The discussion, titled “Understanding Capital Reform and its Importance to Credit Unions’ Future,” sought to dispel myths about supplemental capital and to share information about how access to secondary capital will benefit credit unions of all sizes. That conversation began with a look at CUNA’s priorities moving forward, a list that includes preserving the credit union tax exemption, reducing the regulatory burden, and seeking proactive change through charter reform.
Of those charter reforms, creating access for credit unions to supplemental capital sits at the forefront. According to Schenk, capital reform would benefit not just credit unions, but their members as well, and as the need for supplemental capital has grown, regulators have been increasingly supportive as well.
Keesee shared her credit union’s story, using Spokane Media’s recent challenges to illustrate the glaring need for secondary capital options.
“We have provided robust products and services to our members at the best possible price. We are a cooperative,” Keesee said. “That is what we are supposed to do. It’s also what we have always done.”
But as Keesee explained, the lack of supplemental capital has limited her credit union’s ability to provide the highest possible level of service.
"When HR 1151 was passed and the prescriptive statutory definition of ‘net worth’ was defined, we were already at very close to that 7 percent threshold,” she said. “So, we became very good at managing growth and growing that ‘net worth’ very slowly. Frankly, we could have benefited from supplemental capital in August of 1998.”
“We have recognized as a small institution those business decisions have cost us some ROA,” Keesee said. “But we are doing what we feel is best for our members and our credit union.”
From 2010 to 2011, Keesee said, Spokane Media’s assets increased by 17 percent, but capital declined from 8.19 percent to 7.26 percent despite overall profitability. From 2011 to 2012, asset growth was just over 8 percent, and both years were again profitable despite corporate assessments.
“But the simple math of net worth over assets with that amount of growth was tough to overcome,” Keesee explained. “We actually discussed at the board level limiting deposit amounts as a means of controlling growth. At a time when our members were turning to us, we were thinking about turning them away. If we had supplemental capital available as a tool, one option for us we could be converting our existing $50 member share into mandatory member capital. This will enhance our ability to serve our members.”
Keesee went on to discuss misconceptions about supplemental capital, such as the idea that it will only benefit large credit unions.
“Current capital requirement restrict the ability of credit unions of all sizes to serve their members. My credit union, at $11 million in assets, is a prime example of new deposits outpacing the growth in retained earnings and therefore diluting our regulatory capital,” Keesee said. “Perhaps the only differences for small and large credit unions might be the types of supplemental capital they would utilize, but all size credit unions will benefit from having the tool available.”
She went on to assure attendees that supplemental capital will not undermine the credit union tax exemption or run counter to credit unions’ not-for-profit cooperative structure. It also poses no significantly greater risk to troubled credit unions than they already face.
“Supplemental capital is a tool for well-managed credit unions to aid in meeting their members’ demands for affordable financial services,” Keesee said, going on to explain that “both NASCUS and the NCUA support supplemental capital from a safety and soundness viewpoint because it provides an additional buffer for the NCUSIF fund. HR 719 limits supplemental capital to only those credit unions the NCUA has determined to be sufficiently capitalized and well-managed.”
Questions? Contact a member of the Association’s Legislative Affairs team: