MCUL publishes Comment Call for NCUA Risk Based Capital Proposal (Misc News: March 4, 2014)
Credit unions are encouraged to review the MCUL & Affiliates’ comment call on the NCUA Risk Based Capital Proposal. As mentioned in a previous Monitor article, the proposal would revise and replace the NCUA’s current prompt correction action rules for federally insured credit unions. The proposed rule would apply to “complex” credit unions, which are credit unions with more than $50 million in assets. The rule restructures the NCUA’s current PCA regulation to involve a calculation of a capital to risk assets ratio, similar to risk-based capital requirements for community banks required by Basel III and corporate credit unions. The requirements to maintain a seven percent net worth ratio would remain unchanged; however the proposed revisions would also require a 10.5 percent “risk-based capital” ratio to be “well capitalized.”
In the new proposal, risk weights will be set for certain assets. For example, credit unions holding member business loans, real estate loans, CUSO investments and longer-term investments (to name a few) will have higher risk weights assigned to them in their calculation of the risk-based capital ratio. To illustrate, if the credit union has a $20,000 investment in a CUSO, under the proposed rule it would have to double that amount (200 percent risk weighting) and include $40,000 in their denominator when calculating their actual risk-based capital ratio.
MCUL and CUNA have significant concerns with the rule as proposed. The league encourages significant credit union advocacy via a comment letter directly to the NCUA. MCUL would also appreciate feedback from credit unions on how this proposal would specifically affect them. This information will be useful in communications with the NCUA on this proposal. Comments are due to the NCUA by May 28.
For reference, the proposed rule can be found here.