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Council paper answers What is enough capital

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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.

Paper explores fixed vs. variable rate strategies

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DALLAS (9/18/09)--A new white paper from TNB Card Services explores fixed versus variable rate credit cards in light of the recent passage of the Credit Card Accountability, Responsibility and Disclosure Act. The “Fixed vs. Variable Rate Pricing Strategies in the Era of Card Reform” white paper details the effects of new regulations on credit unions and their cost of funds, which affects the interest rates they must charge to maintain a sufficient margin. It explains the cost of funds issue in the current economic situation, and helps guide credit unions in the future as they determine those costs and their interest rates. “The issue today is how credit unions can best maintain ongoing interest yields in an environment where there are or may be significant changes in the cost of funds,” said Mitch Raymond, senior vice president of product development at TNB Card Services. “While two-thirds of cards today are variable rate cards, this may not be the best approach for all credit unions. “This white paper highlights the pros and cons of the two pricing strategies to help credit unions make the right decision,” he added. The paper also discusses how variable rates and fixed rates are affected differently by the cost of funds, and what advantages each approach offers to credit unions and their member cardholders. The free paper is available electronically on the TNB Card Services website.