[Congressional Record (Bound Edition), Volume 151 (2005), Part 3]
[Extensions of Remarks]
[Pages 3492-3493]
[From the U.S. Government Publishing Office, www.gpo.gov]




        H.R. 1042, THE NET WORTH AMENDMENT FOR CREDIT UNION ACT

                                 ______
                                 

                          HON. SPENCER BACHUS

                               of alabama

                    in the house of representatives

                        Thursday, March 3, 2005

  Mr. BACHUS. Mr. Speaker, earlier today, I, along with 15 of my 
colleagues introduced H.R. 1042, the Net Worth Amendment For Credit 
Unions Act. This amendment to Section 216 of the Federal Credit Union 
Act (12 USC 1790d(0)(2)(A)) redefines the term ``net worth'' for Prompt 
Corrective Action (PCA) purposes for credit unions. This legislation is 
needed in order to avoid an unintended consequence caused by an 
accounting change that the Financial Accounting Standards Board 
(``FASB'') is about to promulgate, requiring credit unions to utilize 
the ``purchase method'' of accounting rather than the ``pooling of 
interests'' method of accounting to account for credit union mergers.
  This amendment does not affect accounting practices; credit unions 
will be required to use the ``purchase method'' of accounting for 
mergers in order to receive a clean audit. It should be noted that FASB 
itself has stated that it sees no problem with the amendment from an 
accounting perspective. The legislation does not grant credit unions 
that currently lack the authority to offer alternative capital accounts 
the authority to do so, nor does it confer upon the National Credit 
Union Administration (NCUA) the regulatory authority or discretion to 
authorize such accounts now or in the future. This amendment is 
intended to address a narrow and technical accounting issue and in the 
process simply maintain the status quo so that, in the case of merging 
credit unions, 2 + 2 can continue to equal 4.
  Currently, under the ``pooling of interests'' method of accounting, 
if a credit union with $2 million in retained earnings merges with 
another credit union with $2 million in retained earnings, the 
surviving credit union has $4 million in retained earnings: 2 + 2 = 4. 
In the absence of this amendment, when the ``purchase method'' of 
accounting becomes mandatory for credit union mergers, if a credit 
union with $2 million in retained earnings merges with another credit 
union with $2 million in retained earnings, the surviving credit union 
will only have $2 million in retained earnings: 2 + 2 = 2! That 
inequitable conclusion results from the fact that the Federal Credit 
Union Act defines the ``net worth'' of a federally-insured credit union 
as ``GAAP retained earnings'' and under Generally Accepted Accounting 
Principles when utilizing the ``purchase method'' of accounting only $2 
million would be categorized

[[Page 3493]]

as ``retained earnings'' while the other $2 million would be classified 
as ``acquired equity.''
  Many credit union mergers are done at the request of the NCUA as a 
way of dealing in a constructive way with troubled institutions. 
Accordingly, it is in the public interest to redefine the term ``net 
worth'' for PCA purposes so that a credit union is not unfairly 
penalized and its net worth diminished merely because of an antiquated 
definition contained in the Federal Credit Union Act. It is with this 
in mind that I have introduced H.R. 1042 today. I hope that we will be 
able to move this important legislation for credit unions through the 
Financial Services Committee and this body in a timely fashion.

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