WASHINGTON – Lobbyists from both major credit union tradeassociations are working hard against a congressional deadline totry to get a measure passed that will enable credit unions tocontinue merging relatively easily. The measure would likely be inthe form of an amendment which would exempt credit unions from someof the ramifications of an upcoming rule which the FinancialAccounting Board seems likely to promulgate next year. The proposedrule, which has not yet been released for comment, would disallowcredit unions from using the so-called `interest pooling' method ofaccounting when merging and instead to use the so-called purchasingmethod. This change would limit the ability of credit unions tomerge by making the process more complicated and expensive andwould thus dissuade credit unions from doing it, the associationshave argued. Both CUNA and NAFCU lobbyists hope that they might beable to attach an amendment to one of the bills, which are expectedto move late in the legislative year, that would somehow precludethe rule change from impacting credit unions. The supporters of thepooling method argue that it remains closer to what credit unionsactually do when they merge. The memberships of two credit unionsmerge to own the surviving credit union. Neither membership reallybuys out the other, which is what the purchase model suggests. Thesupporters of pooling also point out that the purchase method wouldrequire that the surviving credit union show the fair market valueof the equity it acquires as part of the merger, including thegoodwill and intangible assets. This, the associations say, willhike the costs of the mergers significantly. But the effect thatthe new rule will have on merged credit unions' position in regardsto credit union capital standards is what really has theassociations worried. As of now, it appears that FASB's new ruleswill put the retained earnings of the non-surviving credit union onthe surviving credit union's books as a separate line item called“acquired equity” instead of retained earnings. But the FederalCredit Union Act defines net worth for purposes of promptcorrective action (PCA) as retained earnings. This means that,after a merger, not all of the equity of the surviving credit unionwould count for purposes of PCA and could wind up bringing thesurviving credit union regulatory action after a merger. Speakingto reporters, CUNA Associate General Counsel Mary Dunn said thatcredit unions and the NCUA had been talking to FASB about thisissue for months and that the Board had not changed its mind.Congressional action appeared to be the only course left, althoughFASB will not publish the final version of its rule until thefourth quarter of 2004. While no one can speak definitively to whata fix-it amendment would contain, CUNA spokesman Pat Keefe saidthat the association viewed the problem as relating more to creditunion regulations than to accounting standards, so it seems likelythe amendment will address those. But the problem will be finding alegislative vehicle to carry the amendment. As of now, the Senatehasn't finished any of the spending bills, other than that of theDepartment of Defense, and they are expected to dominate thelegislative discussion, along with a package of legislation thatmight arise from the recommendations of the 9/11 Commission report.But the lobbyists said that they never give up hope as long asthere is any legislation moving at all. -

[email protected]