Letters to Reps Hastert and Pelosi Regarding H.R.1042
June 13, 2005
The Honorable Dennis Hastert
235 Cannon House Office Building
Washington, DC 20515
Dear Speaker Hastert,
On behalf of the Credit Union National Association (CUNA), which represents more than 90 percent of our nation's 9,000 state and federal credit unions and nearly 86 million credit union members, I would like to urge your support for the Net Worth Amendment For Credit Unions Act (H.R. 1042), which is scheduled for the House floor later today under the suspension calendar. CUNA strongly supports this non-controversial legislation, which would redefine the term "net worth" in relation to credit unions.
Not revising the legislative definition of net worth would have a detrimental impact on the merger of two-similar sized, healthy credit unions, and would discourage similar-size mergers between smaller credit unions in favor of small credit unions merging into much larger ones. It is crucial for the safety and soundness of the credit union industry that the net worth legislation, H.R. 1042, be enacted by the end of this year.
The proposed rule issued by the Financial Accounting Standards Board (FASB) in 2001 would eliminate the current "pooling" method, which results in the simple combination of balance sheets for the merging institutions, and implements the "purchase" method, which would require a credit union's equity, after a merger, to have two entries: "retained earnings" and "acquired equity." The Federal Credit Union Act defines net worth for purposes of PCA only as "retained earnings." After a merger, the regulatory net worth of the surviving credit union would be less than its GAAP net worth ratio because the "acquired equity" component of net worth would not be included, thus exposing the credit unions to PCA even if its GAAP equity is well above PCA mandated levels.
Again, CUNA and its' members strongly urge your support of the Net Worth Amendment For Credit Unions Act in order to maintain the safety and soundness of the credit union industry. Thank you for your consideration.
Daniel A. Mica
President & CEO
Credit Union National Association