WASHINGTON (1/31/14)--The Credit Union National Association is urging credit unions to weigh in on the National Credit Union Administration's proposed risk-based capital proposal. "This is a critical proposal and as many credit unions as possible should share their assessments and concerns," CUNA Deputy General Counsel Mary Dunn emphasized.
CUNA will be coordinating with the state credit union leagues to ensure credit unions are aware of the proposal and the significance of sharing their views.
"The agency's recent derivatives proposal is a good example of a rule that NCUA was willing to change based on concerns and comments and if a final rule must be adopted, CUNA is urging NCUA to follow that model regarding the risk-based capital proposal," Dunn added.
CUNA has posted a useful summary of the 198-page proposal that includes a risk-based capital framework for credit unions with assets over $50 million. The current 7% net worth ratio, as required by the Federal Credit Union Act, would remain in place, but in order to continue as well-capitalized, a covered credit union would need to maintain a 7% net-worth ratio and a 10.5% risk-based capital ratio.
The proposal is modeled after Basel III for community banks but would require the risk-based capital ratio to be determined using risk weights that are 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 proposal was issued for a 90-day comment period at this month's NCUA open board meeting.
One major concern is that the rule would allow the NCUA to assume additional authority to impose even higher capital requirements on individual credit unions that could exceed even well-capitalized level requirements.
A number of the risk weightings, especially for member business loan and mortgage concentrations, as well as for credit union service organization--or CUSO--investments, do not appear to be properly calibrated for credit unions. Using higher risk weights on long-term assets to deal with interest-rate risk could be misleading if liability maturities are not considered, CUNA Chief Economist Bill Hampel has said.
CUNA is analyzing all aspects of the proposal, including the agency's legal authority for the proposal and how it compares with Basel III for community banks. CUNA will work with various subcommittees, including foremost the CUNA Examination and Supervision Subcommittee, and the CUNA councils to develop comments on the issue, and will meet with NCUA board members and staff, individuals within the credit union system, and outside consultants with Basel III expertise.
Among the items credit unions are urged to comment on as of now are:
Whether the NCUA should be able to impose higher capital requirements on credit unions on a case-by-case basis;
Proposed risk weightings for member business loans, mortgage loans, consumer loans and other products;
The NCUA's authority to impose even additional capital requirements on a case-by-case basis; and
The NCUA's proposed implementation time line.
For the full CUNA summary, use the resource link.
CUNA has also posted an Inside Exchange
video highlighting the rule and initial concerns and is planning an interactive session on the proposal at this year's Governmental Affairs Conference.