WASHINGTON-NCUA Chairman Deborah Matz pitched potential ways of stretching credit union capital to key lawmakers last week, either by allowing credit unions to raise alternative capital or to risk-weigh some of their assets, like Treasuries, at zero.
Matz called on House Financial Services Committee Chairman Barney Frank to consider amending the Federal CU Act's minimum capital standards to allow certain credit unions to raise new forms of capital in the form of uninsured instruments that would be counted under the FCU Act's definition of net worth, or minimum capital.
The NCUA Chairman also urged that certain fast-growing credit unions be allowed to exclude from their "total assets" those assets that have no risk-weighting, such as short-term Treasury securities. This would boost the net worth ratios for those credit unions.
In a letter delivered last week to the powerful lawmaker, Matz said she is concerned that high growth in some credit unions is diluting their capital ratios and tamping down their financial services because of the risk of being adversely labeled under the agency's minimum capital rules, known as prompt corrective action, or PCA.
"Some financially healthy, well-capitalized credit unions that offer desirable services are discouraged from marketing them too vigorously out of concern that attracting share deposits from new and existing members will inflate the credit union's asset base, thus diluting its net worth," wrote Matz.
Matz's proposal falls far short of the risk-based capital system NCUA has urged Congress to enact for credit unions in recent years but is still being pushed by NCUA.
"The risk of reputational damage from being branded less than 'well-capitalized' and in need of 'restoring' net worth, and from being subjected to mandatory and discretionary restrictions that accompany a falling net worth ratio, is reportedly having a significant chilling effect on the willingness of some 'well-capitalized' credit unions to accept new share deposits," Matz told Frank, the Massachusetts Democrat. "In effect, the reward for their success in attracting new shares is the risk of a demotion to a lower net worth category if accepting those shares drives down the credit union's net worth ratio."
The NCUA Chairman suggested that NCUA be allowed to sue two criteria for determining whether a credit union may use the no-risk weighting. The first would be maintain a certain minimum net worth before excluding no-risk assets; the second would be if the credit union could demonstrate that high growth is the cause of its lowered net worth ratio.
