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News Now

CU System
Agency has latitude on CU-to-bank conversions
WASHINGTON (6/1/11)--A Wisconsin budget amendment that aims to make it easier for state-chartered credit unions to convert directly to banks doesn't mean it will be easier for them to receive approval to convert. Federal law treats a conversion from a federally insured credit union to a mutual savings bank differently from direct conversions to stock issuing banks. The National Credit Union Administration (NCUA) would have wider latitude in its decision in the latter situation, said the Credit Union National Association (CUNA). Under Section 205 (b)(2) of the Federal Credit Union Act (FCUA), which governs conversions of federally insured credit unions to mutual savings banks, NCUA's role in the conversion process is generally limited to establishing guidelines for the conversion proposal, for proper notice and for ensuring a fair membership vote on the matter. But credit unions that are converting to something other than a mutual savings bank--such as a stock bank or stock thrift--must get approval from NCUA under Section 205 (c) of the act, which generally allows the NCUA Board to approve or deny a conversion to stock form based on a six-factor weighing analysis, said Michael Edwards, CUNA's senior assistant general counsel. NCUA has established specific regulations under part 708(a) of its rules for federally insured credit union conversions to mutual saving banks and for federally insured credit union mergers with banks, but not for direct conversions from a federally insured credit union to any form of stock institution. Conversions to a stock institution without a merger are therefore generally subject to the six-factor statutory weighing analysis on a case-by-case basis. The six factors that the NCUA Board would typically weigh for a conversion to a stock bank or stock thrift are:
* The history,financial condition and management policies of the credit union; * The adequacy of the credit union's reserves; * The economic advisability of the transaction; * The general character and fitness of the credit union's management; * The convenience and needs of the member to be served by the credit union; and * Whether it is a cooperative association organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes.
In most situations, the NCUA Board would consider the six factors, and make a decision that was, on balance, the most appropriate under the facts. "The NCUA Board would likely have discretion in its decision so long as it's not acting in an arbitrary and capricious manner in light of the facts and the six weighing facotrs," Edwards told News Now.


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