Credit Union Members: Capital Punishment?

  

"Playing for keeps" with your money?

If you read the post, Credit Unions: A Capital Idea In Decline?, you noted that talking about credit union capital/reserves/equity can raise a lot of questions. Capital is an issue poorly understood by CU members, by most CU board members, and by many CU professionals. [Even "troll-twitterers" have a high propensity to go off half-crocked on capital!]

We want to get back to "The Godfather Mergers" series [link] because that's where most of the CU capital mayhem and shake-down is occurring. But, we have paused to discuss when a credit union has enough capital and how that is determined - using SECU as an example.

Credit unions are heavily regulated and insured by the federal government. As, you might suspect, federal law and regulation prescribe CU capital requirements - compliance is not optional!  Federal law requires a 7%+  capital/reserves ratio for a CU to be considered "well-capitalized" (the highest level). An excellent way to estimate this capital requirement is to simply multiply 7% times the total assets of the credit union. In the case of SECU, that would be 7% x $55 billion in assets = a $3.85 billion well-capitalized reserve requirement.

The second principal capital measure is a regulatory requirement that a CU keep capital/reserves greater than 10+% of "risk weighted assets". Not all assets of a CU - which are mostly loans and investments - have the same risk of loss for a CU. So each category of asset is assigned a potential "risk weighting". Some assets are weighted more, some less that that required 7% legal capital requirement. CUs running riskier operations are required to hold higher capital/reserves, which makes great common and financial sense. 

A CU must meet both measurements to be considered well-capitalized. The 7% "well-capitalized" capital/reserves requirement is a statutory (legal) requirement; the "risk-weighted" 10+% "well-capitalized" requirement is a much more refined analysis of actual risk exposure at a CU.

Look back at the post above [link]. You'll see that SECU over decades managed capital/reserves to that 7% level (within a 6% to 8% range). Well, what about the other "risk-weighted" capital ratio? Where was it? Did it fall below 10+% in 2008/2009?

😎  Just how risky is SECU? 

  As an SECU member-owner, what would you want?

 

 

Credit Unions: A Capital Idea In Decline?

   Poorly managed CU capital!

😎 Know casual readers are probably tired of talking about capital/reserves and want to move on, but bear with it one more round or two. Why?  Because those reserves/capital belong to you as a member-owner of your credit union. Is it being managed effectively, in your best interest? 

✔ Anonymous December 18, 2025 at 5:02 PM [click to see full commentary]

"That's what you don't get. 7.01% is not a safe level, even if over the well-cap MINIMUM of 7%. How do I know that? Because in 2008 and 2009 you were unsuccessful keeping it above 7%. Explain how your statement that we've always been well-capitalized is not a lie. "

Our commenter is correctly "holding my feet to the capital fire"!  SECU did fall below 7% in 2008 and 2009 and under federal law was considered "adequately capitalized". What happened in 2008/2009 that caused the drop? What does the "plunge" (to 6.97%/6.83%) indicate about capital adequacy at SECU?

First, way back then, SECU managed its capital/reserves to a board-approved range of between 6% to 8%, with a target of 7%. SECU wanted to be well-capitalized (7%+). If the ratio fell below, it would be increased; and would be reduced, if it rose above 8%. That range reflected the well-analyzed and well-considered risk on the SECU balance sheet (potential loan losses, operational snafus and other similar facts of life!) 

Here's the SECU capital track record at year-end, per NCUA data -  prior to "new/new": 

2003 - 7.34%; 2004 - 7.55%; 2005 - 7.55%; 2006 - 7.32%; 2007 - 7.24%; 2008 - 6.97%; 2009 - 6.83%; 2010 - 7.29%; 2011 - 7.43%; 2012 - 7.39%; 2013 - 7.32%; 2014 - 7.80%; 2015- 7.84%; 2016 - 7.75%; 2017 - 8.01%; 2018 - 8.43%; 2019 - 8.50%; 2020 - 7.95%; 2021 - 8.37%. (Pretty consistent !)

During this 18 year period, SECU grew from $11 billion in assets to $51 billion in assets, added @1.5 million members, grew every year, added 100+ branches, and never suffered a loss.

✔ So your questions to consider: 

1) Was SECU appropriately and adequately capitalized during this period?

2) Why the crash in capital in 2008/2009? 

3) Was the board approved capital plan effective?

3) Why wouldn't an "industry standard" capital ratio of @11% be better?   

😎 Talk to you tomorrow...

  Risk comes from not knowing what you're doing - Warren Buffett