It's about more than just ratios.
That's the message the NCUA sent to examiners in a letter asking them to take a broader view when evaluating the earnings and other financial results of a credit union.
Office of Examination and Insurance Director Melinda Love wrote that "examiners must evaluate each credit union's earnings level relative to net worth needs, financial and operational risk exposures, the current economic climate, and the institution's strategic plans."
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She wrote that examiners should consider these six factors: Adequacy of net worth, in light of a credit union's risk profile; Quality and sources of the earnings structure; How the earnings results fit with credit union's overall strategy; The likely future direction of earnings performance; The Adequacy of the Allowance for Loan and Lease Losses; and the credit union's ability to realize an adequate earnings level in a safe and sound manner.
Three weeks before the letter was sent, House Financial Services Committee Chairman Barney Frank (D-Mass.) and Committee Member Walt Minnick (D-Idaho) sent NCUA Chairman Debbie Matz and the other heads of financial regulatory agencies a letter urging them to take actions to encourage financial institutions to increase the flow of capital into the economy, while ensuring safety and soundness standards are maintained.
In a statement accompanying Love's letter, Matz said that the agency "appreciates the delicate balance credit unions must strive to achieve between the short-term and long-term needs of the credit union."
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