WASHINGTON (1/18/11)--To the detriment of consumers, current credit union prompt corrective action (PCA) rules discourage some credit unions from marketing their “desirable products and services” out of concern that attracting increased share deposits could deflate net worth positions, National Credit Union Administration (NCUA) Chairman Debbie Matz warned key lawmakers Friday. Matz recommended Congress address by permitting a combination of supplemental and risk-related capital for credit unions. In letters to the top members of the Senate Banking Committee and the House Financial Services Committee, Matz urged statutory changes that would correct the disincentive that she said is impacting even strong, well-capitalized credit unions. Credit Union National Association (CUNA) President/CEO Bill Cheney said the NCUA’s message on risk-based and supplemental capital to leaders of the Senate and House committees is a “much-welcomed development, which we hope leads to action very soon in the Congress on these important issues.” “Supplemental capital is CUNA’s top legislative priority in the year ahead. Chairman Matz’s letter will be helpful as we work to educate members of Congress about importance of establishing risk-based and supplemental capital avenues for credit unions,” Cheney said. He added, “A number of details remain to be worked out, and we want to work closely both with NCUA and congressional leaders in addressing all of them. We commend the agency and the chairman for taking this initiative for the future of the credit union movement.” In her letter, Matz specifically proposed two reforms that would enable the NCUA to reverse the disincentive for credit unions to accept deposits from their members, They are to:
* Allow qualifying credit unions to exclude assets that carry zero risk, such as short-term U.S. Treasury securities, from the definition of “total assets.” NCUA would set a minimum net worth requirement, and would also determine that share growth is the cause of declining net-worth, not poor management or unsafe practices, before a credit union would be allowed to exercise this exclusion; and * Authorize qualifying credit unions to issue supplemental capital. The form of supplemental capital would be subject to strict regulatory prescriptions that address safety and soundness criteria, protect investors, and preserve the cooperative credit union governance model.
“Congress already permits low-income designated credit unions to offer uninsured supplemental capital accounts to non-members,” noted Matz in a release about the NCUA letters. “Modifying the Federal Credit Union Act to permit qualifying credit unions to offer uninsured alternative capital instruments subject to regulatory restrictions, and expanding the Act’s definition of ‘net worth’ to include those instruments, would allow well-managed credit unions to better manage net worth levels under varying economic conditions. “It is clear that controlling accelerated, unmanageable growth of credit union assets was a principal purpose of PCA, and NCUA’s implementing regulations respect that goal. It is for that reason that in the course of implementing PCA over the last nine years, NCUA did not propose statutory remedies in response to occasional periods of reluctance by credit unions to grow assets. That reluctance in the present period of national economic distress has become acute, however, warranting a statutory remedy.” Use the resource link to access the NCUA letter.