Dollar Offers A State Of The Industry Address

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Credit unions came through a beleaguered economy with flying colors, according to NCUA Chairman Dennis Dollar, who pointed to a variety of historical statistics that demonstrate the safety and soundness of the movement.

"Even in a time of economic downturn, when loan and investment rates were at their lowest, credit unions continued to grow," Dollar told the audience at CUNA's Governmental Affairs Conference.

Take, for example, credit unions' average net worth ratios. In 2001, net worth was at 10.23%, compared with 10.71% in 2002 and 10.72% in 2003. And if that minimal uptick in 2003 seems unworthy of mentioning, Dollar reminded the audience that the 10.72% number is skewed by an overly large denominator, as assets poured into credit unions from members wary of a tumbling stock market sought a safe place to their funds.

Similarly, in the midst of increasingly slimmer yields on both loans and investments, credit unions' net income continued to grow, with $4.4 billion in 2001 moving up to $5.6 billion in 2002 and $5.7 billion in 2003.

But there are some stories that can't simply be told by the numbers alone, and that is exactly what is wrong with the existing Prompt Corrective Action (PCA) system, which is triggered when a CU's net worth ratio falls below 7%, Dollar suggested.

"The problem is not the numerator, it's the denominator," he explained. "Seven percent is an appropriate number. But you and I know that if you take two credit unions that are both at 7%, they are not necessarily equal."

The reason: the numbers apply to total assets rather than to at-risk assets. What is needed is a risk profile to determine whether a credit union really is well capitalized at 7% of not, he said.

Looking at the numbers historically, Dollar noted that in 1991 credit unions' average net worth was 6.3% but jumped to 9.2% in 1995, 10.9% in 1998 and was at 10.7% in 2003.

Another story not adequately told by the numbers: the demutualization of credit unions when they convert to bank charters. While Dollar suggested that relatively small number of credit unions that have gone this route don't necessarily mark a trend, it's clear that the movement needs to take this issue seriously.

While NCUA can do its part by ensuring credit union leaders fully disclose their conversion plans-and what those plans mean for members' rights-to their members, Dollar said it is up to credit unions to protect the cooperative spirit of the movement.

"I've been told that NCUA should help protect the credit union brand, but we cannot," he said. "That must be done by you, by credit unions. Do not turn to NCUA before you turn to yourself to support the credit union brand."

To those critics who have suggested NCUA's decision to tighten up conversion disclosure rules is motivated by self-preservation on the regulators' part and that the federal agency that is entirely supported by the movement it regulates is just trying to gum up the process to keep credit unions from converting, Dollar once again pointed to a number: one.

"We have only turned down one conversion," he noted, pointing out the agency has approved 18 of 19 conversion applications before it. He said that the new disclosure laws are designed to ensure that conversions are conducted as much in the open as possible, adding, "I believe in the antiseptic effect of sunshine."

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