RALEIGH, N.C. – Success may be too much for some large credit unions, who are looking at drawing in the reins a bit because of the negative affects it is having on their regulatory capital.
“It’s not an earnings problem, it’s a growth problem,” said Jim Blaine, president of State Employees’ CU, which grew 11% in 2008 and another 18% last year to almost $20 billion in assets. But the new assets diluted the credit union giant’s capital level to just above the 7% level, when regulators start to look closely at a credit union’s health.
Pentagon FCU’s Frank Pollack, who has managed an 8% growth in assets to $14 billion last year, said he plans to slow down growth this year to preserve a higher capital ratio. The net worth, or capital ratio for the nation’s third-largest credit union dipped below 9% the last two years, to 8.7%, strong but still a threat to dilution by fast growth. “I’m not looking to grow so much this year,” Pollack told Credit Union Journal.
As illustrated by these two credit union giants, rapid growth has a negative impact on the capital by diluting the ratio. Perversely, negative growth, or a reduction in size, has the opposite effect, actually building the net worth ratio.
Blaine, who manages his capital to between 6% and 8% anyway, insisted that credit unions finally need an alternative to raising capital and urged the Washington leadership at CUNA, NAFCU and NCUA to seek supplemental capital ability from Congress. Otherwise, said the SECU executive who is scheduled to come under the Federal Reserve’s new Bureau of Consumer Financial Protection, perhaps giant credit unions such as his ought to be regulated by the Fed completely. “If we’re going to end up there and it’s going to be by size, then I think it’s appropriate that the safety and soundness part comes under the CFPA,” said Blaine. “Let the Fed not only manage the consumer protection side but let them also manage safety and soundness.”
Blaine has been on the forefront of the efforts to get credit unions the authority to raise alternative forms of capital. Since 2001 his credit union, with the approval of state regulators, has accepted non-member deposits, which are subordinated to member deposits. But NCUA and federal regulation will not allow the credit union to count non-member deposits as capital under NCUA’s calculation of net worth.
Under Blaine’s proposal, the Fed would have jurisdiction of all giant financial institutions, including his and the big banks. “Let’s bring it all under one roof,” he said.
