NCUA regulation, not GAAP accounting standards, require corporate credit unions to eliminate retained deficits by impairing capital, said Scott Waite, a credit union executive who occupies a seat on the Financial Accounting Standards Board's Small Business Advisory Committee.
Waite said his peers have been asking him for months if such a requirement exists, and it does not, saying "GAAP doesn't speak for capital, regulators do."
Waite praised FASB Chairman Robert Herz's Dec. 8 comments that FASB will address ways to "decouple" financial regulators from accounting standards. Regulators have the flexibility to depart from GAAP, particularly when it comes to capital, he said.
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"Restraining capital makes it harder for institutions to lend," Waite said, "and less capital means less lending, which means fewer retained earnings, which means a steeper road to replacing capital." That cycle isn't good for institutions, consumers or the economy, he added.
The NCUA stated in its May letter to credit unions that "Part 704 expressly requires PIC to be "available to cover losses that exceed retained earnings," and MCA to be "available to cover losses that exceed retained earnings and PIC."
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