Capital Conundrum Unsolved

GAO Opposes Secondary Capital PCA Tinkering

The outcome of the GAO report means the credit union capital conundrum will remain unsolved for a very long time thus making the Mutual Savings Bank and Mutual Holding Company (MHC) option that much more critical.

Credit unions which do not fit the historical credit union mold are caught in a political and philosophical quagmire because of the GAO report. The report indicated many of the biggest credit unions want to maintain the status quo which, along with the GAO findings, mean all credit unions are likely to go without secondary capital for a long time.

NCUA was quoted in the report as saying that the 5% optimal leverage ratio it desires for credit unions is in fact the level now authorized for mutual savings banks.

GAO said: "Credit union officials, including NCUA, have stated that some credit unions have had to reduce their services to members in an effort to satisfy PCA requirements". By this assertion, however, NCUA is also contradicting one disclosure element in its 2005 proposed regulation targeting bank conversions. This proposed boiler plate item falsely states that after conversion, services will be reduced as a result of taxation, when in fact, given the access to capital markets, increased product and market flexibility, and better consumer awareness the mutual savings bank charter will better position a credit union to serve its membership and community. (This validates the trend by credit unions to convert to the MHC and raise capital. For progressive credit unions, cutting services to members is not an acceptable option or solution for solving credit union impediments.)

Despite the credit union income tax advantage, it is an indisputable mathematical fact that a depository institution can do more for its members and its community, can offer more financial products and services, and can open more branches if it is has a bank charter with access to the capital markets.

NCUA’s recent efforts to stall conversions to the mutual bank charter and impose costly and punitive conversion rules is clear acknowledgment that capital and meaningful PCA relief is unlikely.


The ability to select a charter that best supports the mission of a financial institution is a critical right that should be preserved and is what Congress intended when it added streamlined conversion language to HR-1151. Clearly recent events, and NCUA’s repeated rulemaking targeting conversions, indicate that it is unable to remain independent and objective on the topic of conversion to the mutual savings bank charter.