WASHINGTON (10/15/09)—Despite many signs of general economic improvement, National Credit Union Administration (NCUA) Chairman Deborah Matz said the credit union movement faces difficult challenges through 2010 and beyond as a result of the harsh effects of the economic downturn spurred by a mortgage market meltdown. Matz, testifying before the Senate Banking subcommittee on financial institutions on the state of the banking industry, said, however, she is “confident that the credit union industry can and will weather the storm.” She noted that the NCUA, in response to the harsh operating environment caused by problems in the economy, has enhanced supervision, shortened examination cycles, increased the number of federal examiners, and upgraded risk-management systems. “While the year ahead will be challenging, I am confident that we and the credit union industry we regulate will be stronger in the end,” Matz said. “NCUA has an obligation to consumers: As a safety and soundness regulator, we will be successful if we preserve strong credit unions capable of meeting the financial needs of their members.” Matz noted that 98% of federally insured CUs are adequately capitalized and, in written testimony, pointed out that a “savings flight to quality” has brought about a 16% increase in savings during the first half of this year. However, she also noted that assets in troubled, CAMEL 4 and 5-rated credit unions almost doubled from December 2008 to August 2009. The NCUA chairman also referenced the corporate credit unions’ exposure to mortgage-backed securities that first created a liquidity shortage, then later capital impairments, which, she said, “affected the entire credit union system.” “Given the tenuous real estate market,” Matz said. “NCUA expects additional losses to materialize.” Also testifying, National Association of State Credit Union Supervisors (NASCUS) Chairman Thomas Candon concurred that the state of the credit union industry is generally good, Still, he said, economic issues such as unemployment, delinquencies and charge-offs are affecting the consumer credit portfolios of credit unions. Candon told members of the subcommittee that credit unions need options to raise capital, specifically access to supplemental capital. “Allowing credit unions access to supplemental capital with regulatory approval and robust oversight will improve credit unions’ ability to react to market conditions, grow safely into the future and serve their members in this challenged economy,” stated Candon. “We feel strongly that now is the time to permit this important change.” The Credit Union National Association is currently working with NASCUS and the National Association of Federal Credit Unions to develop a joint proposal for reforming alternative capital rules for credit unions. In fact, CUNA and NAFCU met Wednesday to draft a letter to the NCUA regarding the plan. Other witnesses before the subcommittee included: Chairman Sheila Bair of the Federal Deposit Insurance Corp.; Comptroller of the Currency John Dugan; Federal Reserve Board Governor Daniel Tarullo; and Timothy Ward, deputy director of examinations, supervision, and consumer protection, of the Office of Thrift Supervision.