Noting that CUNA continues to support allowing credit unions to decide for themselves where their sources of alternative capital come from, the nation’s largest credit union trade group is joining with the National Association of FCUs to push for
“member-only alternative capital at this time.”

But CUNA continues to insist that alternative capital proposals should encompass as many options as possible to help more credit unions.

CUNA made the comments in a memo to NAFCU about alternative capital legislative proposals.

CUNA noted that it continues to support broader access for credit unions to capital, and the ability of credit unions to determine for themselves, based on their needs and membership, whether that capital should come strictly from membership or other sources.

However, CUNA also pointed out that “the need of a number of credit unions for alternative capital is real and immediate.”

In the memo, CUNA suggested that legislative proposals on alternative capital be modified to include a number of additional sources for credit unions, including:

• Government assistance counted as capital (such as NCUA 208 assistance, etc.) – such as credit unions in
  California who continue to tell us that they want to apply for TARP assistance but are blocked by, among other things,
  the difficulty of making such assistance count as capital.;
• Credit unions helping credit unions with capital assistance – such as credit unions from states unharmed by the
  real estate bust assisting credit unions in the “sand states” of California, Arizona, Nevada and Florida which were
  hard-hit by the real estate collapse;
• CU sponsors and select employee groups (SEGs) providing capital as members of credit unions – such as those who
  have set out to make credit union access available to their employees as an employee benefit;
• Exceptions for extenuating circumstances – such as in exigent circumstances to help prevent credit unions from
  going into costly conservatorship or liquidation, like those credit unions in hard hit states like CA and FL which have
  experienced declining capital through no fault of their own and need the biggest lifeline they can obtain.

Following is the complete text of CUNA’s memo to NAFCU:

- - - - - - - - - - -

TO: Dan Berger, NAFCU EVP of Government Affairs; Carrie Hunt, NAFCU Director of Regulatory Affairs

FM: Eric Richard, CUNA EVP and General Counsel; Mary Dunn, CUNA SVP and Deputy General Counsel

RE: Alternative Capital

DT: September 25, 2009

Dan and Carrie, thank you again for sending over your legislative proposal that would authorize alternative capital for federally insured credit unions from their members. We also appreciated our discussion with you Friday afternoon regarding the proposal.

CUNA strongly supports new authority for credit unions to obtain alternative capital and to have the ability to determine for themselves, based on their needs and membership, whether that capital should come strictly from the membership or could come from other sources. The resolution our Board recently passed in Estes Park, CO, reaffirms that support.

As reflected in NAFCU's legislative proposal, based on principles of mutuality, the NAFCU Board supports alternative capital for credit unions from their members only. Although our Board continues to support broader access to capital, as evidenced by the Board's discussion in Estes Park, it has also recognized that the need of a number of credit unions for alternative capital is real and immediate.

In that context, CUNA is prepared to join with NAFCU in pushing for member-only alternative capital at this time.

Nevertheless, even within this framework, we feel it is imperative to do all we can to meet the needs of credit unions.
In that connection, during our discussions today we suggested the legislative language you sent us be modified. We sincerely hope that NAFCU will join CUNA in supporting these modifications.

• Government assistance counted as capital. As we discussed, an important lesson has been learned from the
  current financial crisis: the narrow definition of net worth in the Federal Credit Union Act (FCUA) makes it difficult
  or impossible for the government to provide emergency financial assistance to credit unions. The difficulty of
  providing government capital infusions to credit unions resulted in the exclusion of credit unions from the aid programs
  that were made available to banks in recent months, much to the detriment of some credit unions. Both CUNA and NAFCU
  have endorsed policy positions supporting changes in the law to allow government infusions of emergency support to count
  as net worth for credit unions, and the House of Representatives has already passed legislation along these lines.
  CUNA’s and NAFCU’s positions are not at odds with the need to preserve the mutuality of credit unions because they do
  not contemplate government ownership of credit unions and are designed to deal with emergency situations on a temporary
  basis. Since we do not want to reopen the net worth provisions of the FCUA repeatedly, and the current financial crisis
  is still fresh in the minds of legislators, we believe now is the time to address this issue as part of the legislation
  on alternative capital.
• Credit unions helping credit unions. We agree that mutuality is an important concept within individual credit
  unions. However, mutuality between and among credit unions is also important as it is a unique distinguishing feature
  of the credit union movement. Any capital reform provisions jointly pursued by CUNA and NAFCU should reflect these
  facts. Therefore, we wish to modify the legislative language to recognize that capital invested by one credit union in
  another should count as net worth, subject to whatever requirements NCUA may wish to place on this form of capital to
  avoid the "double counting" of capital.
• Credit union sponsors and SEGs. Those organizations that set out to provide credit union service to their
  employees and associates or whose employees constitute a Select Employee Group (SEG) within a credit union may prove to
  be the most fertile source of alternative capital under any capital reform legislation that is limited to capital from
  members. In many cases, however, sponsors may not actually be members of the relevant credit unions. We seem to agree
  that such sponsors can always, or nearly always, arrange to become actual credit union members (although we recognize
  that sometimes this will require modifications of the fields of membership of some credit unions). We continue to feel
  that the legislative history of any reform legislation should confirm that this is the intent and effect of the new law.
  It will be our intention to pursue such legislative history during our work together to secure legislation. We hope you
  will join us in this effort.
• Exceptions for extenuating circumstances. We believe that credit unions in exigent circumstances should have
  some flexibility to raise capital from non-members in order to help prevent such credit unions from going into costly
  conservatorship or liquidation. For example, we are aware of otherwise well-managed credit unions with net worth of
  4-5% that is still declining due to the economy but which could survive if sufficient capital were provided.
  Further, in such circumstances, we are not convinced that credit unions would or even should be able to acquire
  significant amounts of at-risk capital from their members, but outside, institutional investors may be willing to
  provide funds. Such investors would not be entitled to any membership rights. Since conservatorship and liquidation
  involve a complete loss of mutuality, we believe such distressed credit unions should be provided every tool to get back
  on their feet in order to continue to serve their members and their communities.
• Modifying PCA. As you know, improving prompt corrective action has been an important goal for the credit union
  system for several years. While we discussed this today, we hope to work with you and others to pursue this objective
  in the future, at the appropriate time.

As we discussed, it appears that our two associations are very close to an agreement on the substance of capital reform legislation. In order to pursue that result, our Board has made every effort to find common ground with NAFCU, and we hope the proposals above will be considered in a similar spirit. This, in turn, will enable us to work with NCUA, NASCUS and Congress to obtain real relief for credit unions in need. Please let us know if you have any questions.