"CUs Fight Back!"

CUNA's Chief Rebuts Critics of Reform Bill
Friday, February 11, 2005

To the Editor:

Last week's mischaracterizations by Norman D'Amours and William Isaac of the intent of the proposed Credit Union Regulatory Improvements Act [Community Banking supplement, Feb. 1] cannot stand unanswered.

Credit unions as a group are the best capitalized of all federally insured depository institutions. Their average net-worth ratio as of December 2003 was 10.8%, compared to only 9.1% at commercial banks.

Further, credit unions have maintained approximately this level of capitalization since 1996, two years before the passage of the Credit Union Membership Access Act, and four years before the law's prompt corrective action net-worth requirements took effect.

The current leverage requirement for a credit union to be classified as adequately capitalized is 6%. Mr. D'Amours and Mr. Isaac describe this as "slightly higher than the parallel standard for banks and thrifts."

"Slightly" my eye. The parallel standard for FDIC-insured institutions is 4%; that is, the credit union requirement is fully half again the bank level. Indeed, the leverage requirement for a bank with a Camels rating of 1 is only 3%. It is this sort of imbalance that we seek to correct with the proposed bill.

Most disturbing about the D'Amours/Isaac piece is their implication that credit unions wish to lower the capital adequacy leverage standard to a mere 2%. Were that the goal, I too would object strenuously.

Under the proposed legislation, the 2% level would be the delimiter for being considered "critically" undercapitalized. This 2% level is identical to the current critically undercapitalized cutoff level in effect for both banks and credit unions under PCA. In other words, legislation would not change this.

Anyone familiar with PCA rules knows that is the lowest classification of capital inadequacy, below both "significantly undercapitalized" and "undercapitalized."

Had the credit union measure been enacted as introduced in the 108th Congress (the bill that Mr. D'Amours and Mr. Isaac wrote about), the National Credit Union Administration would most likely have imposed leverage requirements for "significantly undercapitalized" and "undercapitalized" at levels progressively above the 2% for "critically undercapitalized."

To avoid any confusion, we believe that any reintroduction of the legislation in this Congress should require leverage requirements no less stringent than those currently in place for FDIC- insured institutions.

Given the strong financial footing of credit unions and the enviable record of the National Credit Union Share Insurance Fund, such a reform is entirely supported by the facts.

Daniel A. Mica
President and CEO
Credit Union National Association
Washington

Mr. D'Amours and Mr. Isaac respond:

We do not have a complaint about current levels of credit union capitalization and did not express any in our article. Mr. Mica is correct in stating that the current leverage ratio requirement for credit unions is set higher than for banks.

Our article notes that this is because: (1) credit unions, unlike banks, include in capital their "investment" in their deposit insurance fund, and (2) credit unions are mutual companies and have almost no ability to increase their capital in times of need.

Mr. Mica's letter states that CUNA is now endorsing a leverage ratio for credit unions that is no lower than the leverage ratio required of banks. That is a change we heartily welcome. If CUNA will also endorse the bank regulators' methodology for calculating the ratio, we will be most of the way home on this issue.

Copyright © 2008 - Credit Union National Association, Inc.