ALEXANDRIA, Va. (1/24/14)--"Given how well credit unions in general survived the recent great recession, we do not think there is a credible case for increasing credit union capital requirements," Credit Union National Association President/CEO Bill Cheney said following Thursday's National Credit Union Administration open board meeting.
The 198-page risk-based capital framework for credit unions, which was released at the meeting, would impose new requirements on credit unions with assets of $50 million and above. The current 7% leverage capital standard, which is required by the Federal Credit Union Act, would remain the floor.
The proposal would require calculation of Basel-style risk-based capital ratio, but the risk weights would be different from those applied to community banks. It would require higher minimum levels of risk-based capital for credit unions with concentrations of assets in real estate loans, member business loans, or high levels of delinquent loans. However, some other weights, such as current consumer loans, would have lower weights than under the community bank requirement.
The agency has said the risk-based net worth proposal would protect credit unions and consumers from losses, and replace the "outdated and insufficient" one-size-fits-all capital requirement. The NCUA plan could result in higher capital levels for credit unions with high concentrations of risky assets. According to NCUA, 199 credit unions would have their capital classifications reduced if the proposal were adopted without modifications.
The proposed standard recognizes where credit unions are today, and looks forward, NCUA Chairman Debbie Matz said. "Under the proposed formula, 94% of credit unions would still be considered well-capitalized. The proposed rule is designed to ensure that credit unions taking excessively high risks will either reduce their risks or hold more capital to offset those risks," she added.
"CUNA supports capital modernization--including risk-based net worth--but as part of a broader plan that considers appropriate leverage ratios and also access to supplemental capital," Cheney said.
CUNA's Examination and Supervision Subcommittee has been meeting on this issue since May and will meet with NCUA Director of Examination and Insurance Larry Fazio soon. In addition to the 199 affected credit unions identified by NCUA, CUNA will also examine how all other credit unions would be impacted if the proposal is adopted.
"The bottom line for us is: If our members agree that this proposal is needed, our primary objective in developing our position will be to ensure a final rule is narrowly tailored to minimize any negative effects on credit unions. We are particularly troubled by the section of the proposal that would allow NCUA to raise the risk-based capital requirement of an individual credit union above the normal threshold levels based on subjective factors," Cheney said.
Credit unions will have 90 days to comment on the proposal after it is published in the Federal Register. After the comment period closes, it would likely take several months for a rule to be finalized. Once a final rule is adopted, the changes to capital requirements would not go into effect until approximately 18 months later. Therefore, credit unions will likely operate under current capital requirements until some time in 2016.
The agency on Thursday unveiled an online tool to help credit unions determine how they would be impacted by the proposal and released a YouTube video outlining the proposal. For more on the meeting, and the NCUA resources, use the resource links.