Credit unions find "safe harbor" in PCA

WASHINGTON-CUNA and NAFCU penned their approval of NCUA’s “safe harbor” provision for net worth restoration plans under Prompt Corrective Action (PCA) in recent official comment letters. The proposed plan would permit credit unions marginally below the “adequately capitalized” net worth ratio to use a net worth transfer schedule to meet the net worth restoration plan requirements. The proposal is in anticipation of some credit unions near the 6% cutoff falling slightly below due to the “flight to safety” over the last couple years that has caused liquidity to come pouring into credit unions. “Indeed uninduced growth reflects the fact that members find the credit union a safe, attractive place in which they wish to entrust funds. Instead of corrective action, uninduced growth simply requires sufficient net income to capitalize that growth so that further net worth ratio declines are slowed and reversed,” an attachment to CUNA’s comment letter read. “Otherwise healthy and well-managed credit unions that become undercapitalized because of uninduced growth need to increase net income sufficiently to restore net worth ratios. However, under PCA they are subjected to the uncertainty of a Net Worth Restoration Plan (NWRP) and potentially face an extensive list of mandatory and discretionary supervisory actions (DSAs), many of which could seriously disrupt the operations of a well-managed, but rapidly growing credit union.” CUNA Chief Economist Bill Hampel told reporters last week that approximately 1,200 credit unions are in the 7% to 9% capital range and would be most likely to be in a position to take advantage of the “safe harbor” plan. However, several others with even higher capital levels have also expressed concern. In stark contrast to CUNA’s detail, NAFCU invoked the K.I.S.S. theory-Keep It Simple, Stupid. In a brief three paragraph comment letter, NAFCU President and CEO Fred Becker wrote, “NAFCU supports NCUA’s proposed revisions and adjustments and believes that the changes strengthen a credit union’s ability to comply with the regulations by providing flexibility, clarity and consistency.” CUNA’s comment letter further suggested NCUA: *

drop the requirement for a regular reserve account; *