Government Study: No Need For CUSecondary Capital

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WASHINGTON - (09/08/04) -- Credit union efforts to gain accessto secondary capital took a major blow Tuesday with the release ofa study by the Government Accountability Office concluding there is"no compelling need for secondary capital" among credit unions. Thestudy, conducted in response to credit unions' legislativelobbying, found that credit unions have maintained capital levelswell above the minimum standards required under prompt correctiveaction enacted in the CU Membership Access Act, and the enactmentof the minimum capital standards has not hindered credit unionsgrowth, with growth rates exceeding those of other depositoryinstitutions over the past three years. The study also found thatto allow credit unions to issue secondary capital would raiseseveral serious issues, including the dilution of ownership rightsof credit union members. The GAO, formerly known as the GovernmentAccounting Office, suggested that the new system of PCA needs moretime for observers to determine its long-term affects on creditunions. Bill Hampel, chief economist for CUNA, said while fewcredit unions are in danger of violating the 6% minimum capitalunder PCA, there are as many as 1,500 well managed credit unionswhose capital level hovers just above the 7% level, many of them,intentionally holding minimum capital. Some of those credit unions,he said, are purposely restraining growth because they fear fallingnear the PCA limits. "Those credit unions still have to look overtheir shoulders," Hampel told The Credit Union Journal, of theirneed for additional sources of capital.

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