SHERMAN URGES NCUA TO STUDY SUPPLEMENTAL CAPITAL

[Washington, D.C.] " Congressman Brad Sherman (D-CA), a member of the House Financial Services Committee, was joined today by Financial Services Committee Chairman Michael Oxley (R-OH) and Ranking Member Barney Frank (D-MA) in asking the National Credit Union Administration (NCUA) to study the effect of allowing federally insured credit unions to have supplemental forms of capital included within the definition of "net worth."

Supplemental capital could include any at-risk liability or equity account. Were a credit union to deplete its retained funds, supplemental capital would augment those retained earnings, standing ahead of all other claimants, including the share insurance fund. By potentially absorbing losses, supplemental capital provides additional protection to the share insurance fund.

During consideration of the Financial Services Regulatory Relief bill, Sherman, who formerly headed the second largest tax agency in the country, Californias Board of Equalization, first raised his concerns. Specifically, Sherman asked: "Is applying supplemental capital to their net worth ratio an effective way for credit unions to service their existing customers and to accept new customers, or have their been any problems with the use of supplemental capital by low-income credit unions?"

In a letter sent to NCUA Chairman Dollar, Congressmen Sherman, Oxley, and Frank further outlined their supplemental capital concerns. The members pose a total of eight questions related to the capital restriction on credit unions, the relationship between the decline in the stock market and the growth of credit union deposits and net worth, and the experience that NCUA has had with low-income and corporate credit unions that have obtained supplemental capital.

A similar letter was also sent to the General Accounting Office, the investigative arm of Congress. Both letters ask the agencies to respond by September 2, 2003.