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CUNA: Risk-based capital plan has 'serious flaws,' should not proceed
WASHINGTON (5/29/14)--The National Credit Union Administration should not proceed with its proposed rule on risk-based capital (RBC), the Credit Union National Association wrote in its comment letter submitted Wednesday. The trade association "ardently opposes" the proposal, its inherent flaws and the damaging impact it would generate, and recommended that the proposal be withdrawn given the board has not provided an adequate justification for the major changes it is proposing. 
 
"Credit unions have been subjected to a number of new rules in the wake of the financial crisis, but none of them is as potentially harmful as this proposal," the CUNA comment letter, signed by CUNA President/CEO Bill Cheney, states.

"Indeed, the economic and legal issues spawned by the proposal are numerous, the policy questions are real, and, as evidenced by the overwhelming level of interest in this rule, the stakes for credit unions and their 99 million member owners could not be higher."

CUNA  emphasizes a willingness and desire to  work with the NCUA on both a comprehensive strategy and on a narrower new rule approach.
 
CUNA's 47-page letter lists several key defects in the NCUA's proposal, including:
  • The "well-capitalized" RBC requirements violate the Federal Credit Union Act and are not well-tailored to produce appropriate levels of credit union capital;
  • The proposal substitutes a punitive capital rule for effective examination and supervision;
  • The proposal would needlessly interfere with credit union operational capabilities to meet the credit needs of their communities, particularly in the areas of business and mortgage lending, and other financial necessities;
  • Contrary to a stated goal of the proposal, it does not significantly reduce losses to the National Credit Union Share Insurance Fund (NCUSIF), nor does it effectively identify potential credit union failures (without overcapitalization of other credit unions); 
  • The proposal does not reflect credit unions' historical financial performance including during times of severe financial market distress; and 
  • The overall negative impact of the proposal would be far greater than the agency has anticipated and would result in a much smaller credit union system over the long term.
CUNA instead advocates for the current system to be retained alongside "positive and meaningful reform" related to capital and prompt corrective action. This reform would involve congressional and regulatory action, and encourage the following:
  • The NCUA working with the credit union system in urging Congress to allow credit access to supplemental capital.
  • The NCUA, along with credit unions, working to amend the law and give the agency the power to establish net worth levels that define prompt corrective action capital classifications, similar to those granted to banking regulators.
  • Establishment of a Basel-style system with appropriate risk weightings taking into consideration credit unions' operational history and organizational structure, with different RBC ratio levels to be either adequately or well capitalized).
Among the other recommendations CUNA makes in its letter:
  • The NCUA should continue providing a risk mitigation credit as under the current rule;
  • The agency should permit supplemental capital for RBC purposes;
  • Additional comments on a new proposal should be sought; and
  • The NCUA should give credit unions much more time to comply.
Use the resource link to read the complete letter. 
Other Resources

CUNA RBC Comment Letter
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