New Council White Paper Seeks to Answer the Question 'What is Enough Capital?' for Credit Unions

CUNA Councils
September 16, 2009 | COMMENTS

The CUNA CFO Council has just published a white paper entitled "Strategic Planning for Ideal Capital in the New Economy” by Dr. Harold Sollenberger. Considering the highly significant changes that have taken place in the nation's economy and financial industry, this paper seeks to answer the question “What is Enough Capital?” The paper is an updated version of one with a similar title published in 2007.

The new economic realities since 2007 include:

• Regulatory changes
• Mortgage defaults, decreasing home values and a halt in home construction.
• Extreme marketing conditions, illiquidity, and a lack of confidence and trust
• Changes in acceptable credit standards
• Dramatic interest-rate yield-curve changes
• CUs' inability to borrow, lenders ability to lend
• Potential loss of value of assets previously considered safe
• Problems with GAAP and OTTI.

The white paper also includes NCUA data going back to 1998 and a spreadsheet template to assist CFOs with gathering risk based equity assessments for their credit union.

Sollenberger is the Professor of Accounting and Information Systems at the Broad Graduate School of Management at Michigan State University. He comments that “the events of the past several years have magnified the need for capital planning; but the fundamentals of the process are basically the same. Amazingly, no new risks have appeared! Yet we now see that some risks that we thought were rather benign have become major players and need to be upgraded. Liquidity, once only an afterthought, is now a major concern throughout our entire credit union and banking systems.”

Pam Finch, CFO of Mid Minnesota FCU in Baxter, Minnesota and Chair of the CUNA CFO Council, added that “determining your credit union's ideal capital position and achieving it are two challenges that credit unions face. This paper is a valuable tool for CFOs from credit unions of all sizes. It quantifies the dozens of factors that need to be considered in building and maintaining capital at an appropriate level.”

CUNA Council members are entitled to complimentary copies of these and more than 200 white papers; non-members may purchase the white papers for a price of $50 per copy.

The paper is available online in the white paper section of each council site – select the “CFO” tab.