Record Capital Build-Up at CUs Could Harm CURIA Bid

WASHINGTON - CUNA reported that credit unions ended 2006 with a record amount of capital-11.4%, even as CUs around the country were giving away much of their reserves by the millions in year-end bonuses and extraordinary dividends.

While the build-up in reserves is good from a safety and soundness standpoint, some observers see it as bad, for other reasons. Among them are Bill Hampel, chief economist for CUNA, who has always preached against too much capital, money he believes should be going back to the members instead of being held by the credit union. "It means the credit union is taking too much out of its members," said Hampel. "There's no reason or excuse to have an 11.4% net worth."

But just as importantly from a political standpoint, the record build-up in capital comes as credit unions will be asking Congress for an ease on capital rules for credit unions.

Their argument is that the current minimum requirement for CUs of 6% capital is too restricting and should be alleviated with enactment of a risk-based capital standard, similar to that applied to banks and thrifts. One banking lobbyist noted the irony of the capital build-up and said the CU lobby is going to have a hard time convincing Congress of a need to ease capital standards.