Capital is the lifeblood of a credit union, providing a cushionfor anticipated and unidentified losses, a base for future growthand a means to meet competitive pressures as they arise. As ageneral rule, the greater the uncertainty a credit union faces, themore capital it should maintain. A strong capital position providesa credit union additional flexibility to manage risk and respond tofuture uncertainties such as asset losses, sponsor layoffs andadverse economic cycles.

The most basic test of a credit union's capitalization is thenet worth ratio, which measures an institution's retained earningsas a percentage of its total assets. As the COVID-19 pandemicarrived, credit unions found themselves very well capitalized. At11.38%, the nation's 5,349 credit unions ended 2019 with one of theindustry's highest average net worth ratios ever recorded, havingadded more than 150 bps to the ratio since the 2009 trough(9.87%).