Glut of CU Cash Poses a Capital Dilemma

WASHINGTON – The build-up of credit union reserves to an all-time high poses several questions for credit union management and somewhat of a dilemma for the congressional lobby, which is lobbying to ease current capital requirements. CUNA reported earlier this week that net worth had grown to 11.4% at year-end, a new high. To CUNA economist Bill Hampel, the record amount of capital reserves is too high. “You don’t need to have that much net worth,” said Hampel. “It means the credit union is taking too much out of its members.” The new standard could cause problems politically too, coming as it does when credit unions are asking Congress to reform their minimum capital rules and replace them with a risk-based system. “This just illustrates there isn’t any need for capital reform for credit unions. They are holding, on their own, lots of capital,” said Keith Leggett, senior economist at the American Bankers Association, who said the bankers will oppose the impending credit union regulatory relief bill, known as CURIA. The ABA, he said, supports a risk-based capital system for credit unions, but not the one proposed in last year’s version of CURIA, which lowered the minimum capital to 5% from 7%. Such a large build up of capital in the credit union systems indicates that a 7% minimum leverage ratio of 7% should be adequate, Leggett told The Credit Union Journal.