Credit Union Times Vol. 2, No. 14 June 24, 1991

Looking back 10 years ago finds credit unions warning that a blanket divestment policy for nonconforming investments will only lead to unnecessary financial losses according to comment letters received by NCUA. “It seems unfair and ironic that in our struggle to build and improve our capital position, NCUA would not require us to reduce our reserves for an investment loss that may never have had to be realized if permitted to remain in the portfolio,” wrote Debra Droppleman, controller, Fairmont FCU, West Virginia. NCUA received about 45 comment letters on the proposed rule including letters from companies that issue mortgage-backed securities-Fannie Mae and Freddie Mac. Also in that issue Canadian Van City Savings Credit Union Vice Chairman David Levi predicted that credit unions in the United States will soon learn the benefits of a risk-based capital system. In Canada’s system, capital must be set aside according to the risk in each financial institution’s portfolio. For example a residential mortgage is deemed half as risky as a commercial loan and investments in most government securities require no corresponding capital contribution. “Regulators can’t save credit unions,” said Levi. “Instead, CUs can take care of their own.”