Sidestepping controversial questions, the Treasury Department released a report Thursday recommending modest changes in credit union regulation.
Under the proposal, credit unions would be subject to a capital requirement for the first time. The minimum would be 6% of assets-a requirement 93% of credit unions currently meet.
Credit unions also should be required to bolster reserves by 100 basis points, to 7% of assets subject to losses, the Treasury said. However, these funds could count toward the capital requirement.
The Treasury recommended subjecting credit unions to prompt corrective action, mandating annual independent audits for institutions with more than $500 million of assets, and requiring the National Credit Union Share Insurance Fund to hold $1.50 for every $100 of insured deposits before allowing refunds. Refunds currently are given when the fund exceeds a 1.3% ratio.
"This appears to be a fine-tuning," said Mary Dunn, associate general counsel for regulatory advocacy at the Credit Union National Association. "But there are some things we still need to explore."
For instance, she said, CUNA is worried about the proposed dismantling of the National Credit Union Administration's central liquidity facility because that would eliminate a useful source of short-term funds for credit unions.
Patrick Keefe, a spokesman for the National Association of Federal Credit Unions, said the new capital requirements would not be too burdensome. "We can live with them," he said.
The Treasury's report, required by Congress after the 1994 failure of Capital Corporate Credit Union, made no mention of taxing credit unions or changing field-of-membership rules, the two most controversial issues facing the industry. Richard S. Carnell, assistant Treasury secretary for financial institutions, said these issues were outside the scope of the report.
The Treasury rejected calls to revamp the share insurance fund, which credit unions finance with 1% of deposits rather than with premiums. Credit unions fought to keep this structure, arguing that it encourages institutions to police each other because everyone takes a loss if the fund has to bail out an institution.
The government recommended overhauling supervision of corporate credit unions.
