NCUA Media Advisory

Matz Calls for Consumer-Focused Capital Reform

Statutory Improvements would help savers

December 7, 2009, Alexandria, Va. – National Credit Union Administration Chairman Debbie Matz today called for changes in the credit union capital regime that would enable credit unions to promote consumer savings while maintaining rigorous safety and soundness standards.

In a December 7 letter to House Financial Services Committee Chairman Barney Frank, Chairman Matz noted a trend in the credit union industry where well-capitalized credit unions were discouraging consumer deposits because of a potentially negative impact on regulatorily established capital levels. “Some financially healthy, well-capitalized credit unions that offer desirable products and services are discouraged from marketing them too vigorously out of concern that attracting share deposits from new and existing members will inflate the credit union’s asset base, thus diluting its net worth for purposes of prompt corrective action (“PCA”),” stated Chairman Matz. “Surely it was never the objective of PCA to discourage manageable asset growth by financially healthy credit unions in times of economic distress. To the extent PCA does so now, it does not contribute to the statutory objective of resolving problems in insured credit unions; it unintentionally creates a problem for them, which redounds to the detriment of consumers.”

Chairman Matz identified two legislative remedies for the unintentional disincentive to consumer savings:

- A change in the “total assets” denominator of the net worth ratio that would allow qualifying credit unions to exclude those assets that have a zero risk (such as short-term U.S. Treasury securities), exposing the credit union to virtually no risk of loss. Strict regulatory standards would be imposed so that only credit unions above a certain net worth standard would be eligible, and any observed decline in net worth was attributable to growth in shares (deposits), not poor management or unsafe, unsound activities.

- Authorization for qualifying credit unions to issue alternative forms of capital to supplement their retained earnings. To ensure the proper authority, alternative forms of capital would be subject to necessary regulations addressing safety and soundness criteria, investor protections, and any impact on the cooperative credit union governance model.

"During this time of economic uncertainty consumers, particularly those who are low- and moderate-income, need the kind of safe savings alternative that credit unions provide,” commented Chairman Matz. “I want to make certain that overly rigid regulations do not arbitrarily prevent credit union members from exercising prudent financial choices, including saving at a time and amount that best suits their needs. The capital flexibility that I am proposing is narrowly crafted, specific to the situation, and will help increase savings while maintaining strong and credible credit union net worth standards."

Chairman Matz's letter to House Committee Chairman Barney Frank is attached.

NCUA is the independent federal agency that regulates, charters and supervises federal credit unions. With the backing of the full faith and credit of the U.S. government, NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of nearly 90 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions.

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