Take Immediate Action on NCUA'S Risk-Based Capital Proposal
Why should credit union professionals take time to write a letter to the National Credit Union Administration (NCUA) regarding the risk-based capital proposal? Simple. If the proposal is implemented, it would lead to credit unions needing to hold as much as $7.3 billion in additional capital. This would be a multi-billion price tag of additional capital for a system that withstood, under the current system, the worst financial crisis in 80 years.
“The NCUA’s proposed risk-based capital requirements could impose a significant burden on credit unions with over $50 million in assets," says John Thomas, senior vice president of Regulatory Compliance for the Missouri Credit Union Association (MCUA). "Plus, over time, more credit unions will grow over the asset threshold. This is a vitally important issue and we urge credit unions to make their opinions known through the comment letter process.”
Summary of the Proposal
CUNA’s detailed summary of the rule is here. At a high level, the proposal would:
- Cover credit unions with assets over $50 million (though many--if not most--of the almost 300 credit unions with between $40 million and $50 million in assets will exceed the $50 million level in just a few years);
- Restructure NCUA's current PCA regulation to involve calculation of a capital to risk assets ratio, analogous to Basel III for community banks, although the risk weights would be substantially different;
- Require a well-capitalized credit union to maintain a 7% net worth ratio (unchanged from the current PCA system) and a new, 10.5% risk based capital ratio;
- Change many of the effective risk-weights for most of NCUA's current asset classifications;
- Set higher risk weights and hence higher capital requirements for credit unions with higher concentrations of assets in real estate loans, member business loans, longer-term investments and some other assets;
- Authorize the agency to require even higher capital on a case-by-case basis.
- Set further restrictions on the ability of a credit union to pay dividends.
How much would this impact your credit union?
NCUA has produced a calculator to help credit unions determine just how much their net worth would be affected. CUNA has its own calculator here. CUNA's calculator differs from NCUA’s in two VERY significant ways:
- Lets credit unions consider changes in their balance sheets
- Only open for use by CUNA-affiliated credit unions
For more information, visit CUNA's Risk-Based Capital Action Center (must be logged on to CUNA's website to view).
Caption: Bill Hampel, CUNA's Chief Economist, and Mary Dunn, CUNA's Deputy General Counsel, discuss the NCUA Risk-Based Capital Proposal.