Dollar's Final Report to Congress on CUs Hammers Home that CUs are Safe and Sound; Says CUs Ready for Risk-Based Capital

WASHINGTON – NCUA Chairman Dennis Dollar made his last appearance before Congress in his current post last week, and he didn’t miss a beat in telling Congress what solid footing the credit union industry is on. Flanked by his fellow federal financial institutions regulators at a table across from members of the Senate Banking Committee, Dollar presented testimony for a hearing on “An Examination of the Current Condition of the Banking and Credit Union Industry.” “I am pleased to report to the committee that the state of the credit union industry remains strong and healthy, with all indicators clearly portraying a safe and sound industry serving over 82 million Americans and well positioned for continued strength and vitality in our nation’s financial marketplace, both now and in the future,” Dollar testified. He pointed out that credit unions’ net worth-to-assets ratio remains high despite the flight to safety over the last few years at 10.72%. Credit unions’ aggregate return on average assets has held at about at 0.99%. Asset growth was 9.52% and share growth climbed high in 2003, growing 9.11%, he told the committee. Dollar added that the National Credit Union Share Insurance Fund is appropriately funded. “Losses are anticipated to remain low and extraordinary losses are not anticipated based upon the ongoing examination and supervision of the credit unions NCUA regulates and insures,” he stated. He explained that the NCUSIF ended the first quarter of 2004 with a 1.29% equity ratio. During the hearing, Senate Banking Committee Chairman Richard Shelby (R-Ala.) asked each of the panel members about the BASEL II updates. Dollar said that though credit unions were not governed by the BASEL Accord’s risk-based capital rules aimed at for-profit organizations, he did support a risk-based system for credit unions. While questioning Comptroller of the Currency John Hawke on the Riggs National Bank debacle, regarding Bank Secrecy Act violations, Shelby turned to Dollar and asked how NCUA was enforcing BSA regulations. “We take it seriously,” Dollar stated. He pointed out that during his tenure on the board, the largest credit union placed into conservatorship, Polish and Slavic Federal Credit Union, was due to BSA violations. Senator Mike Crapo (R-Idaho), who is charged with drafting a regulatory relief bill, asked each of the regulators to submit later in writing two or three priority items they would like to see in legislation. Dollar’s written testimony added that NCUA is monitoring several key emerging challenges for credit unions including interest rate risk and net margin compression; increased competition for consumer lending; and information systems and technology risks. Credit unions are handling interest rate risk in the rising rate environment by selling off fixed-rate mortgages in the secondary market,” Dollar explained. The number of first mortgages sold increased from 29.2% in 2000 to 43.1% as of December 2003. To remain competitive in consumer lending, many credit unions have turned to outsourcing and NCUA issued a Letter to Credit Unions in November 2001 reminding credit unions to perform proper due diligence. More than half of federally insured credit unions (54% or 5,106 credit unions) have Web sites now and many are expanding their online services, also increasing their risks. However, Dollar said in his written testimony, “NCUA is fully committed to ensuring credit unions are properly prepared to safely integrate financial services and emerging technology in order to meet the changing needs of their members.” Dollar’s testimony indicated that corporate credit unions are facing increased competition and need to enhance operations to offer more complex products and services, focus on a niche product or consider a viable merger partner. To stem this tide, corporates are increasingly seeking out partnerships to offer some products and services. Additionally, competitive and economic pressures will push corporates to find additional yield where possible. Federal Reserve Chairman Alan Greenspan; Federal Deposit Insurance Corporation Chairman Don Powell; Office of Thrift Supervision Director James E. Gilleran; Comptroller of the Currency John D. Hawke, Jr.; and Tennessee Bank Commissioner Kevin Lavender also testified at the hearing. [email protected]