Dear Board of Directors and Chief Executive Officer:
The NCUA issued to field staff the attached supervisory letter regarding the authority of low-income-designated credit unions (LICUs) to offer secondary capital accounts. The supervisory letter updates the framework the NCUA uses to analyze and approve or deny secondary capital plans.
Many LICUs have a record of prudently using secondary capital to increase regulatory capital levels to protect against future losses and serve as a foundation for strategic initiatives and growth. Secondary capital accounts have served as a valuable resource to some LICUs, enabling them to provide much-needed lending and other member services to underserved communities.
However, some planned uses of secondary capital can be complex and involve higher risk. The supervisory letter reflects that the NCUA scales its expectations and review based on the complexity and risk associated with a LICU’s secondary capital plan. The NCUA’s analysis of secondary capital plans is intended to ensure that LICUs comply with applicable laws and regulations and that secondary capital plans represent safe and sound endeavors.
The information in the attached supervisory letter will help LICUs better understand the secondary capital plan submission process. The information provides LICUs with additional clarity about the NCUA’s regulatory and safety and soundness expectations for secondary capital plans. I encourage all LICUs interested in using secondary capital to consult this information.
Please contact your NCUA regional office or state supervisory authority if you have any questions about this important topic.
Rodney E. Hood