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WASHINGTON – Lobbyists from both major credit union trade associations are working hard against a congressional deadline to try to get a measure passed that will enable credit unions to continue merging relatively easily. The measure would likely be in the form of an amendment which would exempt credit unions from some of the ramifications of an upcoming rule which the Financial Accounting Board seems likely to promulgate next year. The proposed rule, which has not yet been released for comment, would disallow credit unions from using the so-called `interest pooling’ method of accounting when merging and instead to use the so-called purchasing method. This change would limit the ability of credit unions to merge by making the process more complicated and expensive and would thus dissuade credit unions from doing it, the associations have argued. Both CUNA and NAFCU lobbyists hope that they might be able to attach an amendment to one of the bills, which are expected to move late in the legislative year, that would somehow preclude the rule change from impacting credit unions. The supporters of the pooling method argue that it remains closer to what credit unions actually do when they merge. The memberships of two credit unions merge to own the surviving credit union. Neither membership really buys out the other, which is what the purchase model suggests. The supporters of pooling also point out that the purchase method would require that the surviving credit union show the fair market value of the equity it acquires as part of the merger, including the goodwill and intangible assets. This, the associations say, will hike the costs of the mergers significantly. But the effect that the new rule will have on merged credit unions’ position in regards to credit union capital standards is what really has the associations worried. As of now, it appears that FASB’s new rules will put the retained earnings of the non-surviving credit union on the surviving credit union’s books as a separate line item called “acquired equity” instead of retained earnings. But the Federal Credit Union Act defines net worth for purposes of prompt corrective action (PCA) as retained earnings. This means that, after a merger, not all of the equity of the surviving credit union would count for purposes of PCA and could wind up bringing the surviving credit union regulatory action after a merger. Speaking to reporters, CUNA Associate General Counsel Mary Dunn said that credit unions and the NCUA had been talking to FASB about this issue for months and that the Board had not changed its mind. Congressional action appeared to be the only course left, although FASB will not publish the final version of its rule until the fourth quarter of 2004. While no one can speak definitively to what a fix-it amendment would contain, CUNA spokesman Pat Keefe said that the association viewed the problem as relating more to credit union regulations than to accounting standards, so it seems likely the amendment will address those. But the problem will be finding a legislative vehicle to carry the amendment. As of now, the Senate hasn’t finished any of the spending bills, other than that of the Department of Defense, and they are expected to dominate the legislative discussion, along with a package of legislation that might arise from the recommendations of the 9/11 Commission report. But the lobbyists said that they never give up hope as long as there is any legislation moving at all. -

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