New Capital Requirements: Transfer Requirements

Many large Credit Unions will be looking to see what the new capital requirements mean to them.  Under the new requirements the minimum capital requirements for large Credit Unions will reduce from 10% with the actual percentage depending on the level of assets. The rules will be of most benefit to Credit Unions who have not yet reached the 10% capital ratio.  This is because there are still rules over transfers to reserves where your capital ratios is below 10%. Large Credit Unions need to keep in mind these requriements as they will impact their future plans. The key sections of the PRA rulebook are:

8.8

03/02/2016

If, at the end of any year of account, the amount of its capital is less than 10% of its total assets, a credit union must transfer to its general reserve at least 20% of its profits for that year (or such lesser sum as is required to bring the amount in its capital up to 10% of its total assets).

8.9

03/02/2016

credit union must not make a transfer from its general reserve if its capital is equal to an amount that is less than 10% of total assets or if as a result of such a transfer its capital would be reduced to an amount that is less than 10% of total assets.

The transfer requirement will restrict some Credit Unions ability to reduce their ratio. It also means that if you are below 10% and make a loss you will be unable to pay distributions if the funds need to come from the general reserve. Distributions on a Credit Union Annual Return include dividends, interest rebates and donations.  It is worth Credit Unions considering these sections when planning for the future.