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HIGHTSTOWN, N.J. – Obtaining Congressional approval of H.R. 3579, the Credit Union Regulatory Improvement Act of 2003 (CURIA)-particularly the section regarding risk-based capital-has become a top legislative priority for the credit union leagues of New Jersey and New York and their members. If the bill is passed, the concept of net worth as defined under Prompt Corrective Action (PCA) would change to use risk assets as part of the determining formula. This, say league representatives, is something that’s long overdue. “We need to address in New Jersey the way credit unions are progressing,” said Evan Childs, director of governmental affairs for the New Jersey Credit Union League. “They’ve grown to the point where they have multi-charters, and they’re reaching out to more areas of the community. And unless they sell their loan portfolios to other credit unions, they can’t continue to grow under the current conditions.” “We have some credit unions that are extremely well managed,” added Bill Mellin, president and CEO of the New York State Credit Union League. “But, because they’ve grown so much over the last few years, they’ve gone from well-capitalized to adequately capitalized based on the formula. “If you look at the performance of their investments, there is no indication that these institutions are not performing financially well. With this one-size-fits-all mentality, their performance doesn’t matter, and that’s flawed in our opinion,” Mellin said. PCA regulations were created as a result of the Credit Union Membership Access Act of 1998 mandated by Congress. Their intent was to minimize the chance of CU insolvency and to resolve problems at the lowest cost to the National Credit Union Share Insurance Fund. PCA applies to federally insured CUs with more than $10 million in assets and whose risk-based net worth is less than 6%. The risk-based capital approach to PCA, however, recommended in CURIA has the support of key credit union leaders. NCUA Chairman Dennis Dollar has been the leading proponent of PCA reform and the introduction of a risk-based component. And, CUNA has been a behind-the-scenes resource for CURIA’s bipartisan co-sponsors- Representatives Ed Royce (R-Calif.), Paul Kanjorski (D-Pa.), Steve LaTourette (R-Ohio) and Carolyn Maloney (D-N.Y.), all of whom are senior members of the House Financial Services Committee. “While I still have this pulpit, I want to be able to spread the gospel,” Dollar said in July 2003 at NAFCU’s 36th Annual Conference in Boston. “On the challenge of risk management, I want to be able to share what I believe to be some of the solutions for some long-term issues that credit unions are facing and will continue to face. I do not want what we have accomplished over the last number of years in the risk-management arena to be set back by a one-size-fits-all approach to PCA that does not recognize the difference in individual credit union risk.” “We’re very confident [that] by next spring there will be hearings in the House Financial Services Committee on the bill,” Gary Kohn, CUNA vice president of legislative affairs and senior legislative counsel, said after CURIA was introduced at the end of November. “Between now and then, we will engage our grassroots network of the leagues and credit unions to build co-sponsorships for CURIA. And because we consulted early in the process with NAFCU and NASCUS, we are confident that the entire credit union movement will enthusiastically support this legislation.” One credit union already supporting the risk-based capital agenda is People First Choice FCU in Glen Rock, N.J. CEO Henry Slootmaker knows firsthand of the debilitating effects of the current PCA regulations-he’s had to turn down several substantial deposits for fear of negatively affecting the CU’s 9% net-worth ratio. “What bothers me most about deferring monies like this is that we’re talking about the pension funds of people living in underserved areas, and I know they’re losing money,” Slootmaker said. “Other companies have extra cash they want to deposit with us, and we can’t take it. If we had accepted those deposits, it would have affected us negatively capitalwise. Yet, we would have been $1 million larger, and I guarantee you that all of that money would have been leant out.” In addition to deferring deposits, the CU was forced to delay plans for reaching out to underserved communities. “We’ve been dragging our feet for eight months because we’re fearful that we’re going to grow too rapidly,” Slootmaker said. “We can’t wait years for this [PCA reform] to happen. We need to get on a level playing field with other financial institutions. Otherwise, we can’t effectively carry out our business plan-particularly serving the underserved.” -

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