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Pa. CUs: RBC rule could stop growth for capital buffer
PHILADELPHIA (8/18/14)--Credit unions could be facing a "huge overhaul" with the National Credit Union Administration's risk-based capital (RBC) proposal, according to a report in the Philadelphia Business Journal .

Brian Schmitt, chief financial officer, American Heritage FCU, Philadelphia, with $1.4 billion in assets, said he recommends three years to comply, not the proposed 18 months, and that his credit union's growth would be stalled.

"We need a longer period of time to react to a rule than banks," he told the Journal . "For us, the fact that our excess capital would dwindle from $35 million to $300,000 means we would have to stop our growth until we could build up our capital buffer sufficient to go ahead and continue to expand."

Schmitt went on to say that the rule would require American Heritage FCU to keep 10.5% of risk-based assets in capital in reserve at all times. "We're currently under rules where it's 7% so even though we didn't cause tremendous losses to the nation ... they are dramatically increasing the reserve," he added.

Michael Wishnow, senior vice president of communications and public relations, Pennsylvania Credit Union Association, said that the RBC proposal is stricter than similar proposals for banks, according to the Journal .

"If you look back through the recession, credit unions fared pretty well relative to the rest of the financial sector," he said. "We don't really need quite so stringent risk-based capital requirement, particularly those that weigh heavily on certain loan classifications. Building capital in the credit union environment is a much more difficult and slower process."

At a recent Listening Session held by the NCUA in Alexandria, Va., NCUA board member Rick Metsger said that under the current proposal, only two credit unions are considered undercapitalized.

"I don't think anybody here believes that out of all of the credit unions in the country, only two are struggling with capital," Metsger said. "Obviously the current rule isn't giving us a very good picture of what the capital requirement should be."

Pennsylvania Congressional lawmakers have been among the 27 senators and 332 representatives to question the proposal. Sen. Patrick Toomey (R) and Rep. Scott Perry (R) both wrote in with concerns about the proposed implementation period, risk weights and justification for the new rule.

The Credit Union National Association has advocated that the NCUA withdraw the proposal and instead pursue RBC standards as part of a multifaceted capital reform strategy. If the rule stays, CUNA has expressed concerns with the proposal's interest rate risk scheme, risk weights and implementation period.

NCUA Chair Debbie Matz has said the agency will consider the more than 2,000 comment letters on the proposal. She said the implementation period will be changed, and the risk weights will likely be adjusted as well.
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