NCUA Asks Congress to Consider Supplemental Capital Provision (Misc News: January 18, 2011)
NCUA Chair Debbie Matz has asked Congress to let credit unions exclude no-risk assets from their definition of total assets and to allow supplemental capital in an effort to "reverse the disincentive" for credit unions to accept new deposits.
In a letter to the leaders of the Senate Banking and House Financial Services committees, Matz says that to be eligible, credit unions would have to meet a minimum net worth, as determined by the NCUA, and demonstrate that any declines in their net worth ratio are caused by share growth, not poor management or unsound practices to avoid prompt corrective action (PCA).
She wrote that making this change would "moderate the growth of assets due to the inflow of new shares, while still imposing PCA that is appropriate to the circumstances.’’
She reiterated her call for allowing non low-income credit unions to accept supplemental capital and told lawmakers that doing so would "allow well-managed credit unions to better manage net worth levels under varying economic conditions.’’ She doesn’t spell out the specifics of what form the capital should take.
CUNA praised Matz’s letter, while ABA Senior Economist Keith Leggett criticized it, CU Times reported.
"Chairman Matz’s letter will be helpful as we work to educate members of Congress about the importance of establishing risk-based and supplemental capital avenues for credit unions,’’ CUNA President/CEO Bill Cheney said.
Leggett wrote in his blog "Credit Union Watch" that the "accounting gimmick of allowing credit unions to deduct zero risk-weighted assets from total assets would inflate the net worth leverage ratio of credit unions.’
Matz cites short-term Treasury securities as an example of the type of no-risk investment that credit unions should be able to exclude from their "total assets’’ definition.’