ARLINGTON, Va.—NAFCU has expressed concerns to NCUA regarding the agency’s proposal to adopt a complex credit union leverage ratio (CCULR) as an alternative measure of risk-based capital (RBC) adequacy.
The CCULR rule was initially introduced through an advance notice of proposed rulemaking in July. NAFCU has previously requested changes to the agency’s 2015 RBC rule, which will take effect in 2022.
In a letter to NCUA Senior Counsel for Research and Policy Andrew Morris raised concerns with the adoption of CCULR, stating that with a significantly higher leverage ratio compared to the Community Bank Leverage Ratio (CBLR), the rule will only provide marginal relief to qualifying complex credit unions.
Morris is recommending NCUA reevaluate its handling of certain risks under the RBC rule.
“NAFCU appreciates the NCUA’s willingness to explore simplification of risk-based capital requirements and we are pleased that certain recommendations, such as focusing near-term attention on the CCULR (versus the Risk Based Leverage Ratio), using a simple net worth calculation, and avoiding asset-based eligibility criteria, have informed the scope of the current proposal,” wrote Morris. “While these changes are positive, they are overshadowed significantly by the decision to propose a CCULR ratio that is excessively high relative to the CBLR.”
Historical Lessons
“The character of credit union capital, resiliency of the credit union system through the pandemic, and conduct of the industry relative to banks in the period before the Great Recession, are all signs that risk within the credit union system has been and continues to be well managed,” Morris continued. “The CCULR should reflect these historical lessons and important distinctions.”
Morris continued the letter by recommending several changes to ensure the CCULR offers meaningful capital relief for credit unions, including:
- Lowering the CCULR ratio to no more than 9%
- Eliminating restrictive eligibility criteria
- Offering a more gradual transition to a fully phased-in CCULR ratio
- A more flexible opt-out framework for credit unions