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Michigan Credit Union League Home » Information Services » Publications » News Articles  

NCUA Removes “Net Worth” Definition Proposal from 7/21 Board Meeting Agenda   (Monitor: July 25, 2011)

NCUA has removed discussion of a final rule that would have revised the definition of “net worth” for natural person credit unions from the July 21 National Credit Union Administration (NCUA) board meeting agenda.

NCUA Board’s proposed a rule regarding federally-insured credit union (FICU) “net worth” and the National Credit Union Share Insurance Fund (NCUSIF) “equity ratio,” pursuant to the amendments to the Federal Credit Union Act (FCU Act) under Public Law 111-382.

While MCUL supported the proposed changes to the definition of “equity ratio,” MCUL echoed the concerns raised by CUNA and other commenters regarding a provision that would have added language to the definition of a credit union's net worth to require "bargain purchase gain" be deducted from a target credit unions net worth when it is merged with another credit union. The proposed rule was designed to limit the difference between the added retained earnings and bargain purchase gain to an amount that is zero or more, and was designed to prevent a retained earnings deficit from flowing forward to the acquiring institution.

MCUL’s comment letter stated: “The proposal may improve matters in some cases by reducing the difference between regulatory net worth and GAAP under a particular set of facts and circumstances, but would cause problems in other cases. MCUL believes this technical change is outside the scope of Public Law 111-382 and should be withdrawn so that alternative solutions can be deliberated in to ensure minimal differences exist between regulatory capital and GAAP.  MCUL does not agree that the proposed solution of subtracting any bargain purchase gain from a target’s retained earnings before the latter amount is included in net worth adequately addresses the problem.”

Items to be discussed at the 10 a.m. NCUA Board meeting can be found here.

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