MADISON, Wis. – The Filene Research Institute weighed in on the ongoing debate over credit union capital levels with a new study asserting that credit unions are holding too much capital.
In its new study, the credit union think tank concluded that at 11.6% net capital at the end of 2006 (it’s around the same now), credit unions are overcapitalized by as much as 40%, or some $12 billion.
The Filene study, Is the U.S. Credit Union Industry Overcapitalized? comes as Congress is debating loosening capital rules for credit unions, but more importantly, as credit unions are discussing the size of the year-end bonus dividends many pay to members.
In his study, William Jackson, professor of finance at the University of Alabama, noted the 11.6% capital held by credit unions is four percentage points more than is required for a credit union to qualify as "well capitalized" and is also four percentage points higher than it was in 1990. Jackson suggested that even the lower rate in 1990 was probably too high, even as the industry back then was more risky than it is today.
