RBC Proposal Could Reduce Products and Services Credit Unions Offer; Join Conference Call (Misc News: May 12, 2014)
Many credit union leaders have told MCUL & Affiliates that NCUA’s Risk Based Capital proposal will be detrimental to credit unions and subsequently their members if adopted in its current form. The proposed risk weightings for determining the RBC ratio may require credit unions to reconsider what products and services they offer members.
MCUL will have a conference call Tuesday, May 13, with CUNA Deputy General Counsel Mary Dunn to talk about how credit union leaders can impact the NCUA proposal.
The current formula for risk weighting member business loans varies based on the percentage of assets the credit union holds in MBLs. Credit unions managing their RBC ratio may stifle their growth in MBLs, as to avoid more than a 15 percent ownership with a corresponding 150 percent risk weighting, as opposed to the 100 percent risk weighting for MBL portfolios of less than 15 percent.
One credit union executive said in a comment letter that RBC could impact his credit union’s ability to contribute to local economic growth.
“These excessive risk weights make it more and more difficult to revive our local communities through business growth and job creation,” wrote Jake Darabos, vice president of finance/CFO of CASE CU.
The proposed risk weights for CUSO investments and mortgage servicing is 250 percent. Will credit unions need to limit the services they offer members because the impact on their ratio is so adverse it drops their ratio to undercapitalized?
How will the proposed risk weightings impact real estate lending or portfolio diversification through investments? The NCUA needs to hear how the rule would impact individual credit unions.
Credit unions are all going to be impacted differently if the NCUA’s rule is passed as proposed. However, it is evident that all credit unions are going to be impacted. Management and boards will need to make decision about how portfolios will be adjusted in order to stay at the well or adequately capitalized levels. Even if the credit union believes they have appropriately managed their portfolio and asset allocation, the NCUA would have the ability to impose higher capital requirements at their discretion.
Credit unions would be forced to increase their capital levels in order to maintain adequately or well-capitalized status. To retain well-capitalized status, credit unions would need to maintain a risk-based capital ratio of 10.5 percent on top of the current prompt correction action 7 percent net worth requirement. Attached is Michigan specific data which shows the impact of the proposal. Credit unions are encouraged to review the MCUL & Affiliates comment call and RBC talking points and draft a comment letter to the NCUA. The more comments the NCUA receives, the greater chance credit unions have to impact change. Comments are due to the NCUA by May 28. For reference, the proposed rule can be found here.
Join MCUL along Dunn on Tuesday, May 13, at 1 p.m. to talk about the impact of the proposed rule and what credit unions can do to impact change. The conference call number is (800) 917-9796 and the passcode is 655773. All Michigan credit unions are encouraged to participate.