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News Now

Washington
Matz seeks alt. capital PCA reform
ALEXANDRIA, Va. (12/8/09)--In a Dec. 7 letter to Rep. Barney Frank (D-Mass.), National Credit Union Administration Chairman Debbie Matz asked for legislators to address issues with Prompt Corrective Action capital standards by allowing qualified credit unions “to issue alternative forms of capital to supplement their retained earnings.” Legislators could also modify the Federal Credit Union Act “to permit qualifying credit unions to offer uninsured alternative capital instruments subject to regulatory restrictions” and expand the Act’s “definition of ‘net worth’ to include those instruments.” While the intent of PCA is to control potentially “accelerated, unmanageable growth of credit union assets,” PCA can at times “discourage manageable asset growth by financially healthy credit unions in times of economic distress,” Matz said. In the letter, Matz states that “the risk of reputational damage from being branded less than ‘well capitalized’ and in need of ‘restoring’ net worth, and from being subjected to the mandatory and discretionary restrictions that accompany a falling net worth ratio, is reportedly having a significant chilling effect on the willingness of some “well capitalized” credit unions to accept new share deposits.” “In effect, the reward for their success in attracting new shares is the risk of a demotion to a lower net worth category if accepting those shares drives down the credit union’s net worth ratio,” she added. Declines in net worth ratio can expose a given credit union to a “range of mandatory restrictions imposed by law, as well as discretionary restrictions imposed by regulation—all designed to restore net worth,” according to the letter. Another potential legislative remedy proposed by Matz was “allowing qualifying credit unions to exclude from the ‘total assets’ denominator those assets that have a zero risk-weighting, exposing the credit union to virtually no risk of loss.”


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