WASHINGTON (4/3/14)--The National Credit Union Administration's definition of "complex credit union," as set forth in its proposed risk-based capital (RBC) regulation, "casts a regulatory net that is far too wide" and would create lasting burdens for credit unions, the Credit Union National Association said in a Wednesday letter.
The letter was sent to the Office of Management and Budget in response to that agency's request for public assessments of the paperwork burden any new rule would create.
Under the 198-page NCUA RBC proposal, the current 7% leverage capital standard, which is required by the Federal Credit Union Act, would remain the floor. However, the agency has said credit unions with assets of $50 million would be considered "complex," and, thus, would be subject to revised risk-based capital requirements.
"The idea that a financial institution becomes 'complex' the moment its assets cross the $50 million threshold is arbitrary. By any reasonable measure, a financial institution with slightly more than $50 million in assets is small and likely to be relatively simple," CUNA Deputy General Counsel Mary Dunn wrote.
The CUNA letter also noted that the the FCU Act requires the agency to take more than asset size into consideration when it determines the complexity of a credit union. The NCUA must consider the complexity of a credit union's book of assets such as loan and investments as well as liabilities, and to determine whether a credit union's operations are "sufficiently multi-faceted to warrant the credit union being designated as 'complex'," Dunn said.
While the current definition of "complex," which sets that standard at $50 million in assets and a 6% risk-based net worth ratio, is not perfect, "it does go beyond mere asset size to determine whether a credit union is complex," the CUNA letter noted.
While the NCUA claims the proposal will impact less than 200 credit unions, CUNA has repeatedly warned that the RBC plan, as proposed, could affect the core operations of most, if not all, credit unions with assets over $50 million.
The proposed "complex" definition would make many more relatively small credit unions subject to the proposal, and create paperwork and regulatory burdens for credit unions that should not even be under the rule. "Because of their small size, many of these credit unions lack the staff resources necessary to deal with the associated burdens," Dunn noted.
For the full CUNA letter, use the resource link.