WASHINGTON–The American Bankers Association has a comment letter critical of two NCUA proposals related to risk-based capital. Ironically, one of the proposals is based on a model used for community banks.
The comment letter was filed in response to NCUA’s plan to simplify the current risk-based capital requirements for so-called “complex” insured credit unions with more than $500 million in assets.
In its letter, the ABA said “neither suggested approach fully and appropriately implements the requirement for a risk-based net worth calculation generally comparable to that applicable to banks insured by the [FDIC].”
As CUToday.info has reported, NCUA’s proposed first approach seeks to replace the risk-based capital rule with a risk-based leverage ratio requirement that uses relevant risk attribute thresholds to determine which complex credit unions, if any, would be required to hold additional capital.
Under the second approach, NCUA would establish a “complex credit union leverage ratio,” modeled after the community bank leverage ratio framework. This approach would retain the 2015 risk-based capital rule, but would enable eligible complex credit unions to opt into the CCULR framework.
Banks As Model
Rather than pursue either of these approaches, which the ABA said would not sufficiently capture risk, the bankers’ trade group urged NCUA to draw on banking industry experience and adopt provisions similar to the risk-based capital rules that banks are required to adhere to.
The ABA noted that NCUA’s 2015 capital rule is conceptually similar to bank risk-based capital rules, but that the agency’s board has twice voted to delay the rule, with the ABA opposing the decision both times.
“The generally desirable objective of regulatory simplification cannot justify compromise of legally required safety and soundness standards,” the ABA stated. “An effective [risk-based capital] regime is critical to the safety and soundness of the federally insured credit union industry and the protection of the public resources that support it. NCUA’s [risk-based capital] development process . . . must be concluded, and the path to an appropriate RBC rule is clear.”
CU Trade Group Response
Coverage of NAFCU’s comment letter on the risk-based capital proposal can be found here.
Coverage of CUNA’s comment letter can be found here.
Coverage of NASCUS’ letter can be found here.