FROM THE OFFICE OF PUBLIC AFFAIRS

The Treasury Department today released a Congressionally mandated study of credit unions. In this report, the Treasury Department found that the National Credit Union Administration Share Insurance Fund is essentially sound and prepared for meeting potential challenges but should be strengthened in several ways. The report recommends four principal changes to the National Credit Union Administration (NCUA) oversight of regular credit unions: (1) the NCUA should make important safety and soundness rules readily accessible to interested parties and publish proposed rules in the Federal Register and solicit comments from interested parties; (2) credit unions should maintain at least a 6 percent ratio of net worth to total assets; (3) Congress should adopt a streamlined system for prompt corrective action for federally insured credit unions; (4) large credit unions should obtain an annual audit from an independent public accountant. Separately, the Treasury study concludes that there are better ways of protecting the Share Insurance Fund than writing off the 1 percent deposit, which would add nothing to the Share Insurance Fund's reserves. Each federally insured credit union must maintain on deposit in the Share Insurance Fund an amount equal to 1 percent of the credit union's insured deposits. Although the Treasury does not recommend changing the accounting treatment of the 1 percent deposit it does recommend strengthening the requirement for credit unions to build net worth. Under current law, credit unions set aside a small percentage of their gross earnings as reserves until their net worth reaches 6 percent of risk assets. The Treasury recommends raising this target so that credit unions would build net worth until they had 7 percent net worth to total assets. This approach should strengthen both individual credit unions and the Share Insurance Fund. The overwhelming majority of credit unions already meet the 7 percent target. The report states that the 7 percent target, coupled with other reforms proposed in the report, would be far more constructive and effective than compelling credit unions to write off their 1 percent. The report also recommends that the NCUA take several steps to improve its supervision of corporate credit unions. Corporate credit unions exist to provide services to regular credit unions. In particular, they invest funds deposited by their member credit unions. Corporate credit unions also provide services comparable to the correspondent services that large commercial banks traditionally provided to smaller banks. The Treasury recommends that the NCUA: (1) provide additional resources to its Office of Corporate Credit Unions; (2) make greater use of risk-based approaches to supervision; (3) improve its written guidance for examiners and corporate credit unions; (4) update its system for rating the strength of corporate credit unions; and (5) provide better analysis and documentation in connection with examinations. The report also found that the NCUA has taken significant strides in improving its supervision of corporate credit unions, and its new corporate credit union regulation will encourage corporate credit unions to continue to make themselves safer and sounder. The full text of this report will be available on the World Wide Web at http:www.treas.gov, the homepage of the Treasury Department. Click here for additional questions and answers on the credit union study.