NCUA to Test Provisional Charter to Solve ‘Chicken-or-Egg’ Dilemma

Learn why the NCUA plans to adopt a provisional charter for groups aiming to launch new credit unions.

David Baumann


Jun 23



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David Baumann

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David Baumann

A squiggly pink arrow pointing downward and to the right.

Aim to help groups raise capital for launching new credit unions.

The NCUA will be able to start a pilot program by September designed to make it easier for organizers to start a credit union, officials from the agency’s Office of Credit Union Resources and Expansion told the agency board Thursday.

The aim, board members said, is designed to solve the “chicken-or-egg dynamic” that organizers now face—the need to have capital in order to obtain a charter and the need to have a charter to raise capital.

“This chicken-or-egg dynamic often leaves organizing groups discouraged,” NCUA Chairman Todd Harper said Thursday, during the board’s monthly meeting.

Inside the Program

The solution?

The agency will test a provisional charter in which a credit union organizing group would become a legal entity before being authorized to begin full operations in order to raise capital.

Under the provisional charter, prospective credit union organizers will be required to have submitted a full application and must meet all other NCUA requirements except for the start-up capital. The organizers will be required to submit a capital funding plan and agree to a 12-month period to secure funding.

NCUA Board Reaction

“A provisional charter would allow organizing groups to demonstrate the capacity to start a credit union which would, in turn, facilitate their efforts to raise needed capital,” Harper said.

Harper added he would like the agency to explore the pooling of capital for starting new credit unions, similar to the FDIC’s Mission-Driven Bank Fund launched in 2021.

“Such a fund in the credit union space could allow organizing groups to more easily obtain the much-needed capital needed to start new credit unions,” he said.

Board Vice Chairman Kyle Hauptman said that “from the outside looking in, it appears the NCUA is more supportive of merging credit unions than supporting the groups that want to form them. If chartering new credit unions is important, our processes should reflect that.”

Board member Rodney Hood added, “We aren’t saying chartering a credit union should be easy, but it shouldn’t feel impossible for many organizing groups.”

Potential Changes to Operating Fee Methodology

At the meeting, the board also approved the publication of a request for comment on a change to the NCUA’s operating fee methodology.

Under the proposal, the agency would increase the threshold below which federal credit unions are exempt from paying an operating fee from $1 million to $2 million. Further, inflationary adjustments would then be made to the threshold.

The board also will be soliciting comment on other possible changes to the operating fee schedule.

Harper said that raising the threshold to $2 million would increase the number of federal credit unions eligible for the exemption from 128 to 225.

Harper noted that there are now 178 federal credit unions with more than $1 billion in assets. Because those credit unions pose greater risk to the Share Insurance Fund, the NCUA spends more time examining and supervising those institutions. At the same time, he said, those credit unions generally have higher returns on average assets than smaller credit unions.

“Yet, the current operating fee methodology is regressive in that credit unions with greater assets generally pay a lower marginal rate than credit unions with fewer assets,” he explained. “Why should credit unions with greater assets, greater earnings, and greater supervision needs pay a lower marginal rate than credit unions below $1 billion in assets, which are more likely to struggle with earnings?”

Revised Guidance for MDIs

The board also adopted revised guidance for MDIs, which is designed in part to ensure that in the event of a potential failure, the agency will contact MDIs in the NCUA’s merger registry that qualify to bid on the failing institution.

“I don’t want to see further contraction in the number of smaller and mid-sized institutions, and that includes MDIs and CDFIs, which is why I believe we need to be talking about ways to shore up and protect smaller financial services providers,” Hood said.


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