WASHINGTON – NCUA has backed off its previous efforts to get a risk-based capital system and supplementary capital authority passed in Congress, virtually dooming any effort at capital reform this year.
The capital issue is a growing concern for many credit unions – both troubled institutions and those that are fast-growing. Fast-growing credit unions, for example, are seeing their net worth ratios diluted because of major inflows of assets/deposits.
An NCUA task force report released this week endorsing supplementary capital is not expected to be formally endorsed by the NCUA Board – even though all three Board members have endorsed the idea separately – and NCUA is not expected to pursue the matter with Congress, according to Board member Gigi Hyland, who chaired the NCUA Supplemental Capital Working Group. “I don’t have an expectation that the NCUA Board will pursue this [with Congress],” Hyland told Credit Union Journal yesterday.
Without NCUA’s formal endorsement, any effort to get a supplementary capital through Congress is extremely doubtful. Such a measure also would need an endorsement from the Treasury Department, which likewise has not signed on.
In addition, NCUA and the credit union lobby groups have ceased working on convincing Congress to enact a risk-based capital system for credit unions that would lower the leverage for credit unions because of political calculations. Those calculations are that with hundreds of financial institutions on the brink of failure, Congress is discussing raising capital limits, according to Ryan Donovan, senior lobbyist for CUNA. “The conventional wisdom is focused on raising capital [standards] for banks and insurance companies” making it a bad time to be asking for lowered capital standards for credit unions, he said.
John Magill, chief lobbyist for CUNA, said the expectation is that once Congress finishes work on the omnibus financial reform package now in the Senate, there will be little major financial legislation voted for the remainder of this year. “It’s a short legislative calendar,” said Magill.
