NCUA Approves Changes to Net Worth, Equity Ratio Definitions: Onsite Coverage
ALEXANDRIA, Va. — The NCUA Board on Thursday approved a rule allowing assistance to a troubled credit union or a credit union acquiring a troubled credit union to count as regulatory net worth.
The rules change implements a law passed by Congress late last year, and involves assistance under Section 208 of the Federal Credit Union Act.
The final rule contained a provision, to which several trade associations and credit unions objected, to deduct “bargain purchase gain” in certain credit union mergers from regulatory net worth. The term refers to a gain on financial assets acquired for less than fair market value.
Karen Kelbly, the chief accountant of the agency’s Office of Examination and Insurance, said in response to a question from NCUA Chairman Debbie Matz during the meeting at NCUA headquarters that the definition change wouldn’t negatively impact the number of credit union mergers.
Kelbly said based on the analysis of 11 mergers in 2010 in which this would have been an issue, it would have only have had a “negligible” impact on the credit unions involved. Under the new rule, the retained earnings of the acquired credit union must be measured under Generally Accepted Accounting Procedures. In addition, the agency decided not to require credit unions that receive such assistance to list it on their Call Report.
Kelbly said that publicizing such information “might cause the public to be unnecessarily alarmed,’’ and move their money to other financial institutions.
The rule also mandates that the NCUSIF equity ratio must be based solely on the financial statements of the NCUSIF, and not combined with other financial statements.