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CUNA Submits “State of CUs” to Senate Banking Committee Ahead of Matz Testimony   (Misc News: December 9, 2010)

CUNA outlined the challenges facing the credit union industry – including raising capital, complying with burdensome regulations and strengthening the corporate credit union system – in a statement to the Senate Banking Committee. The statement was filed with the committee before its meeting at 10 a.m. on Dec. 9, where NCUA Chair Debbie Matz is scheduled to testify on the state of the credit union industry.

CUNA’s statement begins by stating that “credit unions are doing well and working hard to serve their members‘ financial needs, including continuing to provide loans at affordable rates in the face of the economic crisis and reduced lending by a number of banks and other creditors.” It also highlights the industry’s strong capital ratios (aggregate capital is around 10 percent of total assets and the target for the proportion of the NCUSIF to credit unions’ insured shares is 1.3 percent.

The statement goes on to list the challenges facing credit unions, giving a sense of the multiple pressures facing financial institutions, while reinforcing the positive position of credit unions and the work done by cooperative financial institutions to support their members and the broader economy. Highlights from the statement included:

Maintaining the Tax Exemption: “(If credit unions lose their tax-exempt status), consumers would have few, if any other mainstream financial choices than commercial banks, which often do not meet their financial needs well, as evidenced by a number of current problems in the economy. Even if a credit union chooses not to convert, it will inevitably be forced to raise lending rates and fees and lower its returns to its members.”

Removing the Business Lending Cap: “Business lending is part of the credit union DNA, and until 1998, there was no statutory limit on the amount of business lending in which a credit union could engage. The current credit union business lending cap of 12.25% of total assets was enacted as part of CUMAA and no safety and soundness rationale for the cap was identified during the consideration of this legislation.”

Alternative Capital: “In December 2007, 98.6% of all credit unions were well-capitalized, 0.8% were adequately capitalized, and only 0.6% were inadequately capitalized. By September 2010, the proportion of well capitalized credit unions had fallen to 94.7%, with 3.1% adequately capitalized and 2.2% inadequately capitalized...Therefore, although most credit unions are likely to want to rebuild their net worth ratios somewhat over the next few years, fully one in four is likely to feel a very strong need to do so.”

Corporate Credit Union Stabilization: “The future of corporate credit unions depends in part on the success of the implementation of the final corporate rule and the performance of the agency‘s plan for dealing with the troubled assets of some of the corporates, including spreading out the costs to natural person credit unions.”

Supervisory Issues: “All credit unions and their members deserve and benefit from strong, reasonable safety and soundness supervision. Yet a healthy, robust credit union system depends on a reasonable balance between safety and soundness , i.e., the regulators being able to do their jobs fairly on the one hand, and credit union managers and officials being able to perform their duties independently on the other, and both performing their duties competently and professionally.”

Other issues raised in the statement included concerns with the NCUA’s budget, debit card interchange and credit unions’ regulatory burden. Click here to read the full statement.

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