WASHINGTON - NCUA Chairman Dennis Dollar made his lastappearance before Congress in his current post last week, and hedidn't miss a beat in telling Congress what solid footing thecredit union industry is on. Flanked by his fellow federalfinancial institutions regulators at a table across from members ofthe Senate Banking Committee, Dollar presented testimony for ahearing on "An Examination of the Current Condition of the Bankingand Credit Union Industry." "I am pleased to report to thecommittee that the state of the credit union industry remainsstrong and healthy, with all indicators clearly portraying a safeand sound industry serving over 82 million Americans and wellpositioned for continued strength and vitality in our nation'sfinancial marketplace, both now and in the future," Dollartestified. He pointed out that credit unions' net worth-to-assetsratio remains high despite the flight to safety over the last fewyears at 10.72%. Credit unions' aggregate return on average assetshas held at about at 0.99%. Asset growth was 9.52% and share growthclimbed high in 2003, growing 9.11%, he told the committee. Dollaradded that the National Credit Union Share Insurance Fund isappropriately funded. "Losses are anticipated to remain low andextraordinary losses are not anticipated based upon the ongoingexamination and supervision of the credit unions NCUA regulates andinsures," he stated. He explained that the NCUSIF ended the firstquarter of 2004 with a 1.29% equity ratio. During the hearing,Senate Banking Committee Chairman Richard Shelby (R-Ala.) askedeach of the panel members about the BASEL II updates. Dollar saidthat though credit unions were not governed by the BASEL Accord'srisk-based capital rules aimed at for-profit organizations, he didsupport a risk-based system for credit unions. While questioningComptroller of the Currency John Hawke on the Riggs National Bankdebacle, regarding Bank Secrecy Act violations, Shelby turned toDollar and asked how NCUA was enforcing BSA regulations. "We takeit seriously," Dollar stated. He pointed out that during his tenureon the board, the largest credit union placed into conservatorship,Polish and Slavic Federal Credit Union, was due to BSA violations.Senator Mike Crapo (R-Idaho), who is charged with drafting aregulatory relief bill, asked each of the regulators to submitlater in writing two or three priority items they would like to seein legislation. Dollar's written testimony added that NCUA ismonitoring several key emerging challenges for credit unionsincluding interest rate risk and net margin compression; increasedcompetition for consumer lending; and information systems andtechnology risks. Credit unions are handling interest rate risk inthe rising rate environment by selling off fixed-rate mortgages inthe secondary market," Dollar explained. The number of firstmortgages sold increased from 29.2% in 2000 to 43.1% as of December2003. To remain competitive in consumer lending, many credit unionshave turned to outsourcing and NCUA issued a Letter to CreditUnions in November 2001 reminding credit unions to perform properdue diligence. More than half of federally insured credit unions(54% or 5,106 credit unions) have Web sites now and many areexpanding their online services, also increasing their risks.However, Dollar said in his written testimony, "NCUA is fullycommitted to ensuring credit unions are properly prepared to safelyintegrate financial services and emerging technology in order tomeet the changing needs of their members." Dollar's testimonyindicated that corporate credit unions are facing increasedcompetition and need to enhance operations to offer more complexproducts and services, focus on a niche product or consider aviable merger partner. To stem this tide, corporates areincreasingly seeking out partnerships to offer some products andservices. Additionally, competitive and economic pressures willpush corporates to find additional yield where possible. FederalReserve Chairman Alan Greenspan; Federal Deposit InsuranceCorporation Chairman Don Powell; Office of Thrift SupervisionDirector James E. Gilleran; Comptroller of the Currency John D.Hawke, Jr.; and Tennessee Bank Commissioner Kevin Lavender alsotestified at the hearing. [email protected]