:: Home Finance News ::

Washington, D.C., June 21, 2005 – National Credit Union Administration Chairman JoAnn Johnson, joining fellow federal financial regulators, today presented the agency’s views on regulatory efficiency and reform initiatives before the Committee on Banking, Housing and Urban Affairs in the U.S. Senate June 21, 2005.

Chairman Johnson recommended a statutory change authorizing NCUA to implement a risk-based prompt corrective action (PCA) system for federally insured credit unions.

“Reforming capital standards is vital for credit unions as other federal financial regulators explore implementation of capital reforms,” Chairman Johnson said. “While maintaining a leverage ratio, NCUA’s PCA reform proposal incorporates a risk-based approach to credit union capital standards.”

NCUA’s proposed reform takes into account the low-risk nature of credit unions. For the leverage requirement, NCUA supports a reduction in the standard net worth (i.e., leverage) ratio requirement for credit unions to a level comparable to FDIC requirements. The current minimum leverage ratio for well-capitalized credit unions is set by statute at 7 percent compared to 5 percent for FDIC-insured institutions.

“This places credit unions at a competitive disadvantage when not warranted to protect the insurance fund,” Chairman Johnson said. “Our proposal accounts for the 1 percent method of capitalizing the Share Insurance Fund, resulting in a leverage requirement for credit unions that averages 5.7 percent, as compared to 5 percent in the banking system.”

Additional relief measures sought
Additional regulatory relief provisions Chairman Johnson requested for federal credit unions (FCUs) include the following:

* Enable “retained earnings” of merging institutions to classify as net worth following a merger;
* Authorize FCUs to offer check cashing and money transfer services for potential members, particularly those left behind to predatory and high-cost financial companies;
* Eliminate12-year maturity loan limits;
* Increase investment limits in CUSOs to 3 percent, or give NCUA the ability to set the limit;
* Expand investment options;
* Eliminate spin-off considerations when FCUs voluntary merge; and
* Provide parity relief for SEC registration requirements.

The National Credit Union Administration is the independent federal agency that charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, operates the National Credit Union Share Insurance Fund (NCUSIF), insuring the savings over 84 million account holders in all federal credit unions and many state-chartered credit unions.

Source: NCUA