ARLINGTON, Va. - The jury is still out on NCUA's recently released final PCA rules and proposed risk-based net worth requirements for federally-insured "complex" credit unions (CU Times Feb. 9). For now at least, NASCUS does not expect the new rules and regulations to trigger a domino effect of credit union conversions from federal to state charter, or from federally insured to private insurance carriers. "If you had asked me three or even six months ago if there would be significant fallout from the PCA regulations, I might have answered yes. But now that we've had a chance to study the PCA rules and the proposed "complex" credit union rule, I don't see it as being that serious," said NASCUS President Doug Duerr. "At the very least, the new PCA regulations will change the way credit union managers work, they will have the effect of putting the regulator at the manager's desk. This is not so terrible. It's management's responsibility to manage the net worth of their credit union, it's what they're paid to do. "I know the credit union community wants to look at the 7% figure as being significant, but I don't have a sense that NCUA's PCA level for a well-capitalized credit union is unmanageable," he continued. Duerr pointed out that the 7% or above net worth ratio credit unions will be required to maintain to be considered "well-capitalized" is actually lower than what credit union regulators have typically encouraged credit unions to maintain. Many state regulators have encouraged credit unions to maintain a 10% and Duerr speculated that the 7% level was Congress' way of giving credit unions an extra 1% "cushion" over banks' required net worth level, recognizing that credit unions unlike banks cannot sell common stock. There is no question credit unions needed to move towards having statutorily required net worth levels and reserves to be in the position to deal with economic upturns and downturns, he offered. But "you'd really have to ask Congress where they came up with the figure of 7%," Duerr said, adding that "both NCUA and state regulators told Congress credit unions didn't need a 7% net worth ceiling." Duerr is also pragmatic about the new PCA regulations triggering a migration of state-chartered credit unions to private-insurance carriers. Sixteen states allow state-chartered credit unions to be privately insured, but only 14 offer private insurance. Ninety-one percent of state-chartered credit unions are covered under NCUSIF, and only 500 state-chartered CUs are insured by private carriers like American Share Insurance (ASI), CUIC (Credit Union Insurance Corp.) and Prosad Corp. "You have to remember that private insurance carriers like ASI want to cover healthy credit unions," Duerr said, "so a state-chartered credit union covered under NCUSIF shouldn't think that just by converting to private insurance that that means their net worth is not going to be watched." Duerr conceded though that the new PCA rules do put pressure on state-chartered credit unions to maintain their loan growth. To the extent that state-chartered credit unions are able to maintain their rate of loan growth they should not be impacted any more than federal credit unions by the new rules, he explained. As of June 30, 1999, state-chartered CUs loan growth was almost twice that of federal credit unions - 15.69% versus 9.73%, respectively. Membership in state-chartered credit unions is also increasing nearly twice as fast as that of federal credit unions - 7.87% and 3.03%, respectively. If state-chartered credit unions' loan growth slows, these credit unions stand to get hit harder than federal credit unions by the PCA regs, Duerr said. "Given the factors affecting a credit union's net worth and NCUA's net worth classification ranges, the new PCA rules mean credit union managers will have to use a lot more tools and make sounder projections on how long it will take to ratchet up their credit union's net worth," said Duerr. "The room for latitude has been removed." -
ekingoff@cutimes.com
