CUNA’s efforts to achieve a better risk based capital rule got a huge boost this week from current and former members of Congress.
Former Senator Alfonse D’Amato (R-N.Y.), who chaired the Senate Banking Committee during the HR 1151 battle and led the development of the prompt corrective action sections of the Federal Credit Union Act, wrote to NCUA Wednesday outlining how the agency would exceed its legal authority if it adopted the RBC proposal.
As you know, under the proposed rule, an adequately capitalized credit union would need to maintain a net worth ratio of 6% (as required by statute) and a RBC ratio of 8% of equity to risk assets, while a well-capitalized credit union would need 7% (as required by statute) and a higher RBC ratio of 10.5%. In other words, the RBC ratio for well-capitalized credit unions exceeds that for adequately capitalized credit unions. This violates the Federal Credit Union Act. The Act directs NCUA to set any risk-based component for the well-capitalized threshold no higher than the component for the adequately capitalized level.
Senator D’Amato makes a strong case that Congress never wanted NCUA to set up a two-tier risk-based standard–one for adequately capitalized and one for well-capitalized credit unions. D'Amato noted that while credit union PCA was modeled after the bank regime, there are “some very important differences,” most notably that the basic net worth standards for a credit union to be adequately or well capitalized are higher than those set for banks. “Because of this higher pure net worth requirement for credit unions,” D’Amato emphasized that Congress quite deliberately “called for a different risk-based component in credit union PCA. Rather than the dual risk-based capital system in place for banks ... [Congress] instructed the NCUA to construct only a risk-based net worth floor, to take account of situations where the 6% requirement to be adequately capitalized was not sufficient.”
D’Amato concluded: “If we had intended there should also be a separate risk-based requirement to be well capitalized (in addition to the 7% net worth ratio), we would have said so.”
We think D’Amato’s letter will be extremely helpful in persuading NCUA they are wrong in their legal analysis as to their statutory authority to implement this rule as written.
As a reminder, the comment deadline is May 28. We urge you to visit our RBC Action Center, which contains a number of resources about the proposed rule and makes it very easy to send a letter to NCUA. We are also encouraging copies be sent to members of Congress. We would also be glad to work with your staff to assist in the development of meaningful letters. Please do not hesitate to get us involved if you feel that would be useful.