Strong 4th Quarter Hints at What Further Regulatory Relief Could Mean
The National Credit Union Administration (NCUA) this week released impressive fourth quarter data for federally insured credit unions. Earnings were up, credit unions added two million new members, lending grew in nearly every category. All are a testament to credit unions’ conservative management principles and our growing member appeal.
During the Credit Union National Association's (CUNA) weekly teleconference with the credit union trade press, CUNA was asked if these strong results suggest credit unions do not need less regulation after all. Quite the opposite, CUNA responded: Heavier regulation will inhibit performance, not enhance it. Moreover, ROA—now at about 0.86% (a post-recession high, but still below the more typical pre-recession 1% rate)—was boosted largely by a reduction in loan loss reserves, as NCUA noted. Even capital, now averaging 10.44% of assets, is not as high as the 11.5% average seen pre-financial crisis. In addition, at year-end 2007, 90% of credit unions were “very well” capitalized (CUNA term) with PCA net worth of 9% or more (i.e., 7% “well” capitalized with a minimum two percentage point buffer). Today, only 75% of credit unions are very well capitalized with net worth ratios of 9% or more.
CUNA's point to the trade press was this: Credit unions have made great progress since the financial crisis, but still have more ground to cover. Regulatory reforms will help, and are very much needed to relieve the burden on credit unions.
Here’s something else to keep in mind: At the start of the downturn, the aggregate credit union capital ratio was one percentage point higher than the bank ratio. Today the reverse is true—the bank equity capital ratio is one percentage higher than the credit union ratio.