CUNA Comment Letter

Proposed Rule Regarding Secondary Capital Accounts

September 27, 1999

Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428

RE: Proposed Rule Regarding Secondary Capital Accounts

Dear Ms. Baker:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the National Credit Union Administration Board's proposed rule regarding secondary capital accounts in low-income designated federal credit unions (LIFCUs). CUNA represents more than 90% of our nation's 11,000 state and federal credit unions.

The proposed rule is intended to clarify that although interest paid on secondary capital accounts must remain until maturity, there are several permissible ways of disposing of the accrued interest. In addition to depositing the accrued interest into the secondary capital account, a credit union may pay the interest directly to the investor or deposit it into a separate account from which the investor could make withdrawals. The proposed rule also deletes references to "allowance accounts for investment losses" because these accounts are no longer recognized by generally accepted accounting principles or NCUA's regulatory accounting practices.

CUNA supports the proposed rule, which will clarify the permissible alternatives with regard to the payment of interest into secondary capital accounts and will provide additional flexibility for LIFCUs.

We also like to take this opportunity to make a broader point and that is, all credit unions should be able to increase their net worth through mechanisms similar to a secondary capital account.

As we stated in our comment letter on prompt corrective action filed with NCUA on August 31, 1999, CUNA is deeply concerned about the impact of PCA on credit union growth. More specifically, we urge NCUA to consider options in the context of PCA that will allow credit unions to build net worth. We strongly believe that NCUA must implement PCA in a manner that will not penalize credit unions that are well-managed and not paying excessive rates on savings but are nonetheless experiencing growth because new and/or existing members are making substantial deposits in these credit unions.

Our PCA comment letter provides several options that would allow credit unions to increase their net worth, such as uninsured membership shares. We believe NCUA has the authority to permit uninsured membership shares or similar vehicles for credit unions to increase their net worth.

Once again, we respectfully request that NCUA work with us and the credit union system to incorporate within PCA sufficient flexibility for credit unions to improve their net worth ratios. Of course, such mechanisms must be consistent with safety and soundness as well as the goals of the Credit Union Membership Access Act, which was enacted to encourage credit union growth.

Thank you for the opportunity to state our views on these issues. If you have any questions, please do not hesitate to give me a call at 202-218-7769.

Sincerely,

Mary Mitchell Dunn
Associate General Counsel