WASHINGTON (3/25/14)--The Credit Union National Association's (CUNA) free web session on the controversial risk-based capital proposal is now available online.
In the hour-long session, two credit union CEOs warned a capacity audience of 500 last week that the National Credit Union Administration's proposed rule on risk-based capital will change how credit unions manage their operations and may require some to ration services to their members.
Maurice Smith, CEO of Local Government FCU, Raleigh, N.C., noted three potential tactics credit unions would have to resort to in preserving a capital "cushion" from being eroded by the proposal:
- Rebalance assets,
- Ration services to members--which he called "repugnant" to the credit union philosophy, or
- Ask members to pay more through lower returns on savings, higher rates on loans and higher fees.
Smith is a CUNA Executive Committee member.
Ron Burniske of Chartway FCU, Virginia Beach, Va., strategically analyzed the risk-weighting provisions within the NCUA proposal.
He pointed out during the webinar that they do not "significantly reflect the reasons credit unions failed" during the Great Recession of 2008-11.
Senior CUNA staff also addressed the webinar participants.
Chief Economist Bill Hampel explained that the proposal would create strong incentives for credit unions to throttle back on mortgage and member business loans, as well as retention of long-term assets.
Deputy General Counsel Mary Dunn scrutinized the NCUA's authority to regulate. She noted that the Federal Credit Union Act requires NCUA to develop a system of prompt corrective action that is "comparable" to bank PCA--but that also takes into account the unique nature of credit unions. The proposal, Dunn emphasized, does not do that sufficiently.
General Counsel Eric Richard outlined CUNA's comprehensive strategy aimed at major improvements in the proposal--including thorough analysis, member activation (especially through comment letters) and with the U.S. Congress. And he said a challenge in court of a final rule, if warranted, is not off the table.
All urged credit union stakeholders to review the proposal, determine its impact on their operations, and file a comment letter by May 28 with the NCUA, copying their members of Congress.