For Details, Contact:
External Affairs
email: pacamail@ncua.gov
Fax: (703) 518-6409

Johnson Testifies on the Credit Union Net Worth Bill

April 13, 2005, Alexandria, Va. -- NCUA Chairman JoAnn Johnson testified today on H.R. 1042, the “Net Worth Amendment for Credit Unions Act,” before the U.S. House Subcommittee on Financial Institutions and Consumer Credit.

H.R. 1042 was introduced by Subcommittee Chairman Spencer Bachus and Ranking Member Bernard Sanders (VT) and cosponsored by 16 Members of the Committee. The bill is designed to rectify the unintended consequences in credit union mergers of an accounting rule proposed by the Financial Accounting Standards Board (FASB) and expected to become effective early next year.

“Without the changes proposed in H.R. 1042,” Chairman Johnson testified, “only ‘retained earnings’ of the continuing credit union will count as net worth after a merger. This would seriously reduce the post-merger net worth ratio of a federally insured credit union. This result will discourage voluntary mergers and on occasion make NCUA assisted mergers more difficult and costly to the National Credit Union Share Insurance Fund (NCUSIF). NCUA believes the significance of the solution offered by H.R. 1042 is quite realistic.”

“Our legislation will amend the Federal Credit Union Act to ensure that when credit unions merge, two plus two will continue to equal four,” Rep. Bachus said in a statement. “Well-capitalized institutions should not be placed at a disadvantage due to the unintended consequences created by the FASB rule. Hopefully after this hearing and then a markup, the legislation will be considered on the floor in the near future.”

Currently, credit unions use the pooling-of-interests method of accounting for mergers. The new FASB rule will require use of the purchase method and have an unanticipated impact for insured credit unions. The surviving institution would be unable to include the retained earnings of the merged institution in its net worth, which could unintentionally lower its net worth category classification. H.R. 1042 would preserve the net worth of merging credit unions for purposes of prompt corrective action (PCA). The testimony is available online at www.ncua.gov.

The National Credit Union Administration is the independent federal agency that regulates, charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of more than 83 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions.