NCUA Chairman Presses Forward For RegFlex
and Capital Improvements
RegFlex for “well-managed, well-capitalized” credit unions slated to be
proposed at July Board meeting
Las Vegas, NV, July 14, 2005 – The nation’s federally chartered credit unions may soon have enhanced regulatory flexibility under proposals National Credit Union Administration (NCUA) Chairman JoAnn Johnson announced today at the annual meeting of the National Association of Federal Credit Unions.
NCUA Chairman Johnson said the Board will consider two rule proposals at its July 21st meeting which are a result of the agency’s Summit on Credit Union Capital held in 2004.
First, the proposal would lower the RegFlex qualifying net worth ratio from 9% to 7% which is the capital level for well-managed, well-capitalized natural person credit unions. Second, for well-managed, highly-rated low-income credit unions, provide the option for the credit union to release the portion of a secondary capital account that no longer counts as net worth.
“While NCUA is actively engaged with Congress on capital improvement proposals requiring statutory changes, these are two important improvements which we can move forward expeditiously without legislative change,” said Chairman Johnson. “If we agree that 7% leverage is an unnecessarily high ratio for “well capitalized” status under a system of risk-based prompt corrective action, then we should not set the bar even higher for RegFlex. The additional risk added by RegFlex activities is not that significant in a properly managed and supervised credit union, and setting a bar of 9% actually causes credit unions to manage to an even higher ratio.”
As of December 31, 2004, 3,457 federal credit unions or 62.04% of all federal credit unions were RegFlex eligible under the current system. A 7% RegFlex capital level would increase to 3,919 credit unions or 70.33% of all federal credit unions being eligible for the earned regulatory flexibility.
The Chairman reiterated that NCUA should not “micro-manage well-managed institutions” and by lowering the qualifying net worth percentage, this proposal would “provide more options for a credit union and its members.”
The second significant capital improvement would allow low-income designated credit unions to have “the flexibility and potentially enhance their ability of service by providing more capital options for these institutions that do great work in serving their communities.” Chairman Johnson stated that the NCUA should permit well-managed, highly-rated low-income institutions to have the option to “release the portion of a secondary capital account that no longer counts as net worth.”
“Once these funds are no longer counted as net worth, the funds remain on the credit union’s books as an asset, thus drawing down the credit union’s overall net worth ratio. It essentially has a detrimental cost effect, as they are generally a more costly source of funds than share accounts,” Chairman Johnson explained.
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