Credit Union National Association (CUNA) President and CEO Bill Cheney joined CUNA’s Examination and Supervision Subcommittee April 17 for a comprehensive discussion with the National Credit Union Administration’s (NCUA) Director of Examination and Insurance Larry Fazio on the agency’s proposed risk-based capital (RBC) rule. NCUA Deputy E&I Director Tim Segerson also participated. The meeting was chaired by Wisconsin Credit Union League President Brett Thompson. CUNA’s comments to the agency on the RBC proposal, which would apply to credit unions with over $50 million in assets, are being developed under the auspices of the Subcommittee.
The full agenda for the meeting included a continuing review of concerns about the proposal on economic and legal grounds. The proposal’s impact on credit unions’ capital cushions above the well-capitalized level as well authority on a case by case basis for the agency to impose additional capital requirements over and above what the rule would require were among the top areas of concern that the group focused on and raised with the NCUA officials. Some of the proposal’s highest risk weightings such as for mortgages, investments, and member business loans were also flagged as well as the proposal’s impact on business and agricultural lending in rural areas.
CUNA has estimated that the proposal will reduce credit unions’ capital buffers (the amount of capital they have accumulated in addition to 7% net worth for the well-capitalized level), by about $7.6 billion. Well-capitalized credit unions have a higher leverage ratio than other financial institutions and have lower risk generally. In light of this, the Subcommittee raised a number of questions regarding the need for a such a high well capitalized risk based capital requirement, which would be a ratio of equity to cover losses divided by risk weighted assets as defined by NCUA and set at 10.5% under the proposal.
An examiner’s subjective use of the proposed authority to require even more capital than the new level for a well-capitalized credit union was also a major focal point of concern.
While CUNA plans to push for many significant changes in the proposal, CUNA Subcommittee members indicated the meeting was probing and productive. They appreciated the opportunity to discuss the proposal and their concerns in detail with Larry Fazio. Also attending for CUNA were Chief Economist Bill Hampel, General Counsel Eric Richard, Deputy General Counsel Mary Dunn, and Counsel for Special Projects Robin Cook.
Comments on the proposal are due to NCUA by May 28, and all credit unions with assets above $40 million are encouraged to visit CUNA’s RBC Action Center to view the many resources CUNA has developed to help credit unions assess the impact of the proposal on their operations and to file a comment letter with the agency, copying their members of Congress.