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Cheney defines how risk-based capital should look

WASHINGTON (3/10/14)--The Credit Union National Association supports risk-based capital but has strong concerns that there's a multi-billion-dollar price tag of additional capital for credit unions attached to a proposed risk-based capital (RBC) rule. That is the wrong approach for a credit union system that withstood, under current rules, the worst financial crisis in 80 years, CUNA President/CEO Bill Cheney says in the most recent The Cheney Report.

Cheney urges credit unions to comment on the National Credit Union Administration's risk-based plan, unveiled in January, and points to CUNA's increasing arsenal of resources for credit unions at www.cuna.org/riskbasedcapital/. The tools, including a March 19 webinar (see related story), are intended to help credit unions understand the impact of the proposal on their operations--today and into the future--and gear up to respond.

"CUNA absolutely supports risk-based capital for credit unions--that's our long-held position. But NCUA's proposal is not the right approach for our members, and the credit union system at large," Cheney writes, reiterating a point the group has made repeatedly.

For risk-based capital to be implemented correctly, CUNA asserts, it must be part of overall capital and prompt corrective action reform---changes that will require congressional action.

The reforms must include:

  • Lower leverage ratios for well- and adequately capitalized credit unions; and,
  • Authority for supplemental capital for federally insured credit unions that want to use it to meet capital ratio requirements.

Cheney says that the NCUA should be pursuing these legislative plans no less vigorously than it is pushing for its major RBC rule.

Furthermore, Cheney informs, CUNA strongly believes that updated risk-based capital requirements should be in relation to the adequately capitalized, statutorily defined as maintaining a 6% net worth ratio, and not to the well-capitalized level.

"Also, no rule should afford any greater authority for the agency to impose additional capital requirements on a case-by-case basis--and risk weightings must be properly calibrated," the CUNA leader writes.

See the resource links for information on the webinar and on the CUNA RBC resources for member credit unions.

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