Supervisory letter outlines low-income CU authority to offer secondary capital accounts

Authority of low-income-designated credit unions (LICUs) to offer secondary capital accounts is outlined in a supervisory letter Monday from the federal credit union regulator, which updates the framework the agency uses to to analyze and approve or deny secondary capital plans.

The letter from the National Credit Union Administration (NCUA) to its field staff noted that 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. “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,” NCUA wrote.

However, the agency wrote, some planned uses of secondary capital can be complex and involve higher risk.

The supervisory letter, the agency said, reflects that the agency 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 letter stated.

Guidance to NCUA Staff on Evaluating Secondary Capital Plans

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