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CUNA asks NCUA to re-work net worth plan
WASHINGTON (5/24/11)--The Credit Union National Association (CUNA) in a Monday comment letter said that while it generally supports the National Credit Union Administration’s (NCUA) proposed revisions to "net worth" and "equity ratio" definitions, portions of the agency’s proposal addressing so-called “bargain purchase gains” are problematic. A “bargain purchase,” in this case, is defined as a situation in which the fair value of net assets acquired in a credit union merger is greater than the fair value of the acquired credit union. The CUNA comment letter noted that this treatment may improve matters for some merging credit unions by reducing the difference between regulatory net worth and net worth under U.S. generally accepted accounting principles under a particular set of facts and circumstances. However, this treatment could cause problems in certain cases. Overall, CUNA said, the benefits of this treatment are questionable, and this portion of the proposal should not be finalized before it can be studied further by accounting professionals. A separate proposal could then be offered, if needed, CUNA suggested. The “bargain purchase” provisions were issued as part of a larger proposal that was released at the NCUA’s March board meeting. The NCUA proposal would also amend the Federal Credit Union Act's definition of "net worth" for natural-person credit unions under NCUA's Prompt Corrective Action authorities to allow the NCUA's Section 208 Assistance made to troubled credit unions to qualify as regulatory net worth. The NCUA proposal also included a "technical correction" to its regulatory definition of "net worth." This technical correction would generally decrease the amount of a combined credit union's "net worth" in a credit union merger. The proposed equity ratio changes would clarify that the National Credit Union Share Insurance Fund's (NCUSIF) equity ratio must be based solely on the financial statements of the NCUSIF alone without consolidation with other statements, such as those of conserved credit unions. CUNA in its letter spoke in support of the section 208 assistance changes, saying that these permitting that assistance would help maintain the safety and soundness of the credit union system and is consistent with statutory requirements. CUNA also said it supports the NCUA’s proposed NCUSIF clarification. For the full comment letter, use the resource link.


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