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MBLs at risk with proposed RBC change, Udall, Scott write
WASHINGTON (5/28/14)--Sens. Mark Udall (D-Colo.) and Tim Scott (R-S.C.) have joined the growing number of legislators in Washington, D.C., expressing concerns about the National Credit Union Administration's risk-based capital (RBC) proposal.
 
A longtime credit union supporter, Udall noted in his Tuesday letter to the NCUA, "It is important for NCUA to carefully consider the appropriateness of risk weights that deviate significantly from analogous regulations administered by other federal financial regulators."
 
"I have sponsored legislation to permit well-capitalized credit unions with a history of business lending to lend more to small businesses," Udall wrote. "I am concerned that the consequence of a final rule constructed without close attention to input from the credit unions could be a reduction in these institutions' ability and willingness to lend to their small business members."
 
Last year, Udall sponsored the Credit Union Small Business Lending Enhancement Act, which would increase the credit union member business lending (MBL) cap to 27.5% of assets, from the current 12.25%-of-assets level.
 
He noted it is critical that regulators focus on parts of the financial system that could "undermine safety and soundness of financial institutions without unnecessarily constraining their ability to lend responsibly."
 
The RBC plan proposed by the NCUA would make changes to Prompt Corrective Action rules, replacing existing risk-based net worth requirements with new risk-weighted asset and capital requirements. The rule would apply to federally insured "natural person" credit unions with more than $50 million in assets. (See related story: Final countdown: Hours left to submit RBC proposal comments.)
 
Scott chimed in Tuesday with a letter to the NCUA as well. Scott was previously a board member for Summerville, S.C.-based Heritage Trust FCU, with $475 million in assets. In his letter he also expressed concerns with the proposed risk weightings for member business loans.
 
"I have very significant concerns that a regulatory action could draw $7 billion of capital out of the economy at this time," Scott wrote. "Because of credit unions' limited avenues for raising capital, it is likely that this proposal would force them to charge higher lending and financial services fees, reduce dividend payments to members and deter new depositors."
 
Approximately 1,000 credit unions would be affected, based on a conservative estimate, requiring them to raise between $3 billion and $4 billion in new capital and collectively, credit unions' buffers or margins above being well-capitalized would decline by $7.6 billion.

Sen. Bill Nelson (D-Fla.), Heidi Heitkamp (D-N.D.) and Al Franken (D-Minn.) also have submitted comment letters.
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