CUs Back Off Bid For Supplementary Capital

CU Times Feb 25, 2005

WASHINGTON (02/25/05) -- In the few months a key government agency shed doubt on the need for secondary capital for credit unions, the credit union has backed off the supplementary capital issue.

Regulatory relief efforts soon to be introduced in Congress are unlikely to include secondary capital allowances and slower growth has cooled changed the equation, even the need, for some credit unions to beef up their capital. In fact, the vast majority of credit unions are considered to hold more than enough capital, at least under regulatory requirements, according to CUNA.

"Eighty-four-percent of credit unions have way more capital than they need. That leaves about 15-16%, about 1,500 credit unions with between 7% and 8%. And that's more than they need, though not so much that they don't have to look over their shoulders at PCA rules," Bill Hampel, chief economist for CUNA, told The Credit Union Journal.

Hampel's conclusion is similar to the one arrived at by the General Accountability Office last fall, which found there is "no compelling need for secondary capital" among credit unions. In fact, NCUA said in a new report issued Wednesday on that only 62 credit unions out of more than 9,300 were undercapitalized at mid-year 2004 under the current minimum capital (PCA) rules.

Credit unions in several of the states, including Ohio, which is contemplating credit union reform, are also backing off the quest for supplementary capital. Still, the credit union lobby, continues to express concern over the PCA rules and plans to pursue reforms in Congress this year that would enact a risk-based capital requirement for credit unions.