What Is the Net Worth Ratio and Why Does It Matter
The net worth ratio measures a credit union’s capital relative to assets. It shows how much loss-absorbing capital the institution holds. Regulators use this ratio to assess safety and soundness.
When Does PCA Apply Based on Net Worth
Prompt Corrective Action (PCA) is triggered when a credit union’s net worth ratio falls below specific regulatory thresholds. These levels are set by federal agencies and reflect capital adequacy standards. Once a credit union enters PCA, it faces restrictions on growth, dividends, and compensation.
How Regulators Define PCA Thresholds
The National Credit Union Administration (NCUA) establishes the net worth ratio bands that determine PCA status. A credit union with a low net worth ratio is placed into a higher risk category. Supervisors then require corrective plans and may impose additional capital requirements. For details, see the NCUA’s guidance on credit union capital and supervision.
