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Council paper answers What is enough capital
MADISON, Wis. (9/18/09)--The CUNA CFO Council has published a white paper, “Strategic Planning for Ideal Capital in the New Economy” by Dr. Harold Sollenberger, which seeks to answer the question “What is Enough Capital?” The paper is an updated version of “A Strategic Approach to Ideal Capital: Building a Consensus,” which was published in 2007. The papers consider the significant changes that have taken place in the nation’s economy and financial industry, according to the council. The new economic realities since 2007 include:
* Regulatory changes; * Mortgage defaults, decreasing home values and a halt in home construction; * Extreme marketing conditions, illiquidity, and a lack of confidence and trust; * Changes in acceptable credit standards; * Dramatic interest-rate yield-curve changes; * Credit unions’ inability to borrow, and lenders’ ability to lend; * Potential loss of value of assets previously considered safe; and * Problems with generally accepted accounting principles and other-than-temporary impairments.
The paper also includes National Credit Union Administration data going back to 1998 and a spreadsheet template to assist chief financial officers with gathering risk-based equity assessments for their credit union. “The events of the past several years have magnified the need for capital planning, but the fundamentals of the process are basically the same,” Sollenberger said. “Amazingly, no new risks have appeared.Yet we now see that some risks that we thought were rather benign have become major players and need to be upgraded. Liquidity, once only an afterthought, is now a major concern throughout our entire credit union and banking systems.” Sollenberger is a professor of accounting and information systems at Michigan State University’s Broad Graduate School of Management. For more information, use the link.
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