Matz Encourages Congress to Consider Credit Union Capital Reforms
Jan. 18, 2011 National Credit Union Administration (NCUA) Chairman Debbie Matz wrote to Senate Banking Committee Chairman Tim Johnson (D-S.D.) and House Financial Services Committee Chairman Spencer Bachus (R-AL) on Jan. 14 requesting that Congress reform capital standards for credit unions, including providing access to supplemental capital.
In her letter, Matz explains that Prompt Corrective Action (PCA) capital standards are intended to control the growth of assets, but that some credit unions are discouraged from taking additional deposits because of its impact on their net worth for purposes of PCA and the consequent "reputational damage" of being less than well capitalized. Matz suggested two changes to remedy this problem: one, modify the total assets part of the net worth ratio; and two, provide access to supplemental capital instruments for qualifying credit unions. In December 2009, Chairman Matz suggested the same capital reforms to then House Financial Services Chairman Barney Frank (D-Mass.)
"NASCUS has long supported supplemental capital access for credit unions," said NASCUS President and CEO Mary Martha Fortney. "Providing credit unions with access to supplemental capital makes sense for safety and soundness purposes and to give credit unions more options for raising capital in stressed economic times. We are pleased that Chairman Matz is encouraging Congress to act on this important reform."
Chairman Matz's primary goal with the changes is to facilitate credit union service to members by reversing the disincentive to accepting new share deposits. To this end, she recommends a change in the "total assets" denominator of the net worth ratio to allow qualifying credit unions to exclude those assets that have a zero risk (such as short-term U.S. Treasury securities), exposing the credit union to virtually no risk of loss. Strict regulatory standards would be imposed so that only credit unions above a certain net worth standard would be eligible, and any observed decline in net worth was attributable to growth in shares (deposits), not poor management or unsafe, unsound activities.
NASCUS continues to encourage Congress to make the statutory changes necessary to achieve supplemental capital for credit unions. We will also continue to work with Congress, NCUA and the credit union system on the issue.
To view the letter, click here.