Dollar Sees Two Challenges for Credit Unions into the Future

BOSTON-NCUA Chairman Dennis Dollar told attendees of NAFCU's 36th Annual Conference that he sees two major issues running into the future for credit unions: risk management and taxation. Along with risk management comes the diversification necessary to achieve proper balances of risk. Dollar pointed out that NCUA has implemented a risk-based approach to oversight, including the risk-focused examination process and the risk-based exam cycle. Next, credit unions need to focus their energy on a risk-based system of Prompt Corrective Action. Dollar pointed out that from 1980 through 1998, credit unions operated under a system similar to his proposal and assets grew from $58 billion to $388 billion while capital jumped from $3.66 billion to $42.3 billion. "Why? Because you were rewarded for making less risky decisions," Dollar explained. The second challenge credit unions must stave off is taxation and the potential for demutualization that it carries. It's not just an issue for state chartered credit unions, where the movement to tax credit unions has gained some steam in certain states. "Taxation.tends to become malignant," Dollar said. He stated that it's credit unions' non-profit, cooperative structure that makes them deserving of tax exemption. Dollar added that if credit unions' retained earnings are taxed, it takes away from the buffer for the National Credit Union Share Insurance Fund. He estimated that if credit unions were taxed the 35% corporate tax, their net worth would plummet from the current 10.71% to 8.42%. It also would increase the temptation to convert to a for-profit structure. Demutualization "would be a terrible loss for the American consumer," Dollar said. While he admitted he would not want to live in a country without banks, those banks need competition. -scooke@cutimes.com