WASHINGTON-Emil Henry, assistant secretary for financial institutions, said Treasury appreciates all the work credit unions and their representatives have done on a risk-based capital framework but is not quite ready to put its seal of approval on it. "This work has led to a number of positive proposals, such as applying a risk-based framework to more credit unions and properly accounting for credit unions' investment in the NCUSIF," he said. Henry, a former investment banker, explained, "The general rationale for imposing a higher minimum leverage capital requirement on credit unions is that, unlike many other insured depository institutions, credit unions can generally only build capital through increases in retained earnings. Other factors that have been cited for imposing a higher leverage capital requirement surround the proper accounting for credit unions' investment in the NCUSIF and their investments in corporate credit unions." In noting the differences between credit unions and other depository institutions, he said that these fundamental differences explain the varied tax treatment of credit unions for which he reiterated the administration's support. "There are also important differences in the capital structure of credit unions vis vis other depository institutions," Henry continued. "In general, credit unions can only raise equity capital by increasing retained earnings. Since the basic goal of a minimum leverage capital requirement is to encourage financial institutions to maintain sufficient capital levels so that the PCA requirements are not triggered, this argues for differing capital requirements between credit unions and other institutions. "Our analysis of this issue is ongoing and we appreciate the assistance that you have provided to us thus far." Treasury was prepared to come out in favor of other capital-related credit union interests, like the Net Worth Amendment for Credit Unions Act (H.R. 1042), which `fixes' the definition of net worth in the Federal Credit Union Act to avoid an unintended consequence of an accounting rule change by the Financial Accounting Standards Board. Henry also seemed favorable to H.R. 749, which would permit federal credit unions to offer check cashing and money transfer services to nonmembers within a credit union's field of membership. "This provision could help in Treasury's longstanding efforts to increase access to money transfer services throughout our nation's communities," he said. He also backed temporary and limited Prompt Corrective Action waivers for financial institutions in the Hurricane Katrina-impacted areas and measured regulatory relief. Henry added, "I also want to take the opportunity to discuss how you all – credit unions – enjoy a special place in the financial institution marketplace by offering access to financial services to millions of Americans.As a result of strong local ties, credit unions are uniquely situated to meet the financial services needs of our Nation's communities and encourage economic growth, job creation, and savings." He applauded credit union efforts to promote economic development and financial education. Henry announced at GAC that Treasury has established an interagency forum that focuses exclusively on consumer financial abuses, the Consumer Financial Protection Forum. "I'm pleased to tell you that your regulator, the NCUA, is an active and energetic member of this forum," he said. The forum's inaugural meeting will be in March. Henry noted the millions who have fallen victim to identity theft, including him. This can erode consumer confidence, which is not what the nation needs right now. However, he emphasized, "Protecting consumer information is the responsibility of both consumers and businesses." "Like many people, I get annoyed when my computer prompts me to change my password or requires that I use a `powerful' password instead of 1-2-3-4-5-6," he said. "However, these mild annoyances are nothing when compared to the time and expense necessary to reclaim your identify once its stolen. Consumers cannot ignore their responsibility to protect their identities." Henry said that national standards on data security might be beneficial instead of the current patchwork across the states. He added that the Treasury does realize that financial institutions are already some of the most highly regulated businesses in the country. Additionally, a risk-based notification system could be a key element of any new data security regulation in order to keep the consumer from becoming overwhelmed with defensive notifications. Also in response to the rise in hacking, phishing and other related crimes, Congress has introduced a number of bills regarding data security, the Treasury official pointed out. -

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