SENATE BANKING COMMITTEE LEADERSHIP CONCERNED WITH NCUA'S RISK-BASED CAPITAL PROPOSAL

06/05/2014
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SENATE BANKING COMMITTEE LEADERSHIP CONCERNED WITH NCUA'S RISK-BASED CAPITAL PROPOSAL

Leaders of the Senate Banking Committee have weighed in on the National Credit Union Administration's (NCUA) proposed rule on risk-based capital. Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo (R-Idaho) sent a joint letter to the agency on its proposal today.

"CUNA and the state leagues and associations thank Senators Johnson and Crapo for speaking out on these important issues for credit unions.  The concerns of these senators, the leaders on both sides of the aisle on our committee of jurisdiction in the Senate, must be addressed," said CUNA President and CEO Bill Cheney. "CUNA supports risk-based capital but does not support it in this manner, which is why we continue to urge NCUA to withdraw their proposal. However, if the agency insists on moving forward, reissuing a new proposal for comments from the credit union system and other stakeholders is essential. We look forward to working together with the agency in the coming months for a solution that's in the best interest of credit unions and their members."

The full text of Sens. Johnson and Crapo's letter is below:

The Honorable Debbie Matz

Chairman

National Credit Union Administration

1775 Duke Street Alexandria, VA 22314

 

Dear Chairman Matz:

 

As Chairman and Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs, we are writing regarding the recent proposal by the National Credit Union Administration (NCUA) to strengthen capital standards for federally-insured credit unions with assets over $50 million by replacing the current risk-based net worth requirements with new risk¬based capital requirements, After the 2008 financial crisis, we learned that a strong capital base is a key component of a resilient financial system that can withstand financial shocks, and we applaud your efforts to modernize the capital rules for credit unions.

 

Three primary concerns have been raised by credit unions in our states. First, some credit unions located in rural areas are concerned that the proposed risk weights may negatively impact their ability to provide agricultural loans to their members. Credit unions play an important part in providing credit to rural communities in states like South Dakota and Idaho, and a decrease in their ability to lend could be detrimental to these communities.

 

Second, there are concerns that the proposed rules, if finalized, could make it difficult for some credit unions to maintain their current capital classification. According to the NCUA's estimate, 201credit unions could be required to raise close to $700 million in the aggregate to maintain current capital levels, with the industry estimating that the amount of capital to be raised could be as high as $7 billion. Raising that amount of capital will require substantial time and careful planning by the affected credit unions, and may reduce availability of credit in many communities.

 

Third, many credit unions have raised concerns about how capital buffers will fit into a new capital regime, Historically, many credit unions voluntarily maintained capital in excess of NCUA mandated capital requirements. This business practice was viewed by many, including NCUA examiners, as a prudent and responsible way to plan for risk. We urge you to consider this business practice and the new rules would address it.

 

Because of the important role credit unions play in communities across the country, we ask that these concerns are taken seriously, and addressed in the final rule. We urge you to finalize rules that are clear, well-calibrated, and work effectively with other prudential requirements to ensure that there are no unintended consequences. The NCVA should also provide clear guidance on how credit unions should plan for supervision going forward and provide sufficient time for credit unions to adjust and comply with any new standards. While it is important to get the new capital standards in place, it is as important to get the rules right.

 

Thank you for your consideration and we look forward to your prompt response.

 

Sincerely, 

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