Trades Express Concern About Changes to Net Worth Definition
CUNA, NAFCU and NASCUS and several credit unions all took issue with parts of an NCUA proposal to change how the agency defines net worth.
The change would let assistance from the agency to a troubled credit union or a credit union acquiring a troubled credit union to count as regulatory net worth.
CUNA and NASCUS both expressed concern about a provision in the proposed rule, which was the result of legislation passed by Congress late last year, to deduct “bargain purchase gain” in certain credit union mergers from regulatory net worth.
The trade associations wants the provision, which refers to a gain on financial assets acquired for less than fair market value, to be studied more by the agency and subject to a separate rule.
Francisco Nebot, CFO of the $8.5 billion SchoolsFirst FCU in Santa Ana, Calif., wrote that the provision violates existing accounting standards. He also noted that there has “been no showing that following the existing regulations has created any safety and soundness concerns for the continuing institution in the case of previous mergers.”
Beverly Rutherford, vice president for compliance at the $2.2 billion Virginia Credit Union in Richmond, wrote that it “seems unfair to penalize the combined credit union when they were forced to report higher asset values.”
CUNA, in a letter by Senior Assistant General Counsel Michael Edwards, and NAFCU, in a comment letter from Associate Director of Regulatory Affairs Tessema Tefferi, both praised the provision clarifying that the equity ratio of the NCUSIF be based solely on the fund’s financial statements.
NASCUS Senior Vice President Brian Knight recommended the agency amend the rule to incorporate the new definition of net worth as it applies to certain definitions of allowable amounts of member business loans that a credit union can make.
Tefferi also recommended that the agency clarify that its definition of allowable assistance from the NCUA applies in cases involving a merger and when a merger isn’t contemplated. He also urged the agency clarify that such assistance from the NCUA counts toward the definition of net worth in all cases.
By contrast, American Bankers Association Vice President Keith Leggett wrote that while his group doesn’t oppose the rule, he wants the agency to clarify that any assistance is used to facilitate mergers and the agency should “clearly articulate’’ that it wont be used to prop up a failing credit union.