WASHINGTON — Too high a level of net worth means credit unions are not serving their members to their full potential, CUNA Chief Economist Bill Hampel inferred recently.

“You don't need it,” he said of the 2006 year-end 11.4% net worth for credit unions. “There's no need to have that much net worth given the typical risks that a credit union faces and if you maintain that net worth you have to earn more than you otherwise would in order to maintain that net worth.”

For example, Hampel illustrated, if a credit union is growing 10% a year and trying to maintain 12% net worth, it has to earn 120 basis points just to maintain that level of net worth. However, if that credit union was growing 10% a year and trying to maintain 8%–”hint, hint, that would be a real good one for us credit unions to shoot at,” Hampel said–the credit union would only have to earn 80 basis points.

“So that's 40 basis points difference in earnings that you have to have to maintain that higher net worth ratio and the earnings, that 40 basis points, comes out of your members,” he stated. “They own the place and they're the ones who get the return every year. You've got to charge higher loan rates and give lower dividend rates and less services in order to earn enough to maintain a high net worth ratio…It's taking too much out of its members.” –[email protected]