In 1997, the Treasury Department performed a study aimed at improving credit unions. Many things have changed since the time of that report. For example, credit unions were required by law at Treasury’s recommendation to adopt a formal system of prompt corrective action, even though an informal policy similar to PCA was in place. I recall Dennis Dollar, who was then serving on the NCUA Board, justifying the change as something thrust upon the NCUA to enforce.

Prior to the NCUA implementing PCA in 2001, credit unions’ aggregate net worth ratio was already 11.43% (as of Dec. 31, 2000), and the average net worth ratio according to the letter was 13.9%. Over 97% of credit unions had assets in excess of 7%. Today, 96% of federally insured credit unions qualify as well-capitalized. As of Sept. 30, 2008, 12 credit unions had less than 2% capital and that climbed to 21 as of June 30, 2009. Credit unions with capital levels between 2% and 4% grew from 15 to 20, while credit unions with 4% to 6% (undercapitalized) nearly doubled from 46 to 81 in that time frame.

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