WASHINGTON–Credit unions and banks have staked out opposite positions on a provision that would delay the effective date of risk-based capital rules for credit unions for two years, with the bankers saying a proposed change puts taxpayers at risk.
While the credit union trade groups are supporting the measure, the American Bankers Association said the provision creates a competitive imbalance by allowing for a lower cost of funds for credit unions.
At issue is Section 701 of H.R. 5841, the “Foreign Investment Risk Review Modernization Act of 2018.” Section 701 would delay the risk-based capital rule finalized by NCUA.
In this letter to Rep. Robert Pittenger (R-NC) in support of the provision, CUNA President Jim Nussle called on the House Financial Services Committee to consider and approve Section 701. Nussle called NCUA’s risk-based capital rule a “solution in search of a problem.”
"Credit unions throughout the United States have expressed their significant concerns regarding the NCUA’s risk-based capital standards for credit unions. Specifically, many of these concerns pertain to whether NCUA has legal authority to impose the requirements," the letter reads. "In addition, credit unions have a particular concern with risk-based capital standards for the purpose of determining whether a credit union is well capitalized as the Federal Credit Union Act permits the NCUA to impose a risk-based standard for the purpose of determining capital adequacy only."
But in its memo to House Financial Services committee members, the ABA pressed lawmakers to reject the provision, saying it would “place taxpayers at risk and increase the already unlevel playing field between taxpaying banks and credit unions.
Banks have long been subject to a robust regulatory capital regime, including the complex Basel III standards, ABA pointed out. Given the expansive growth the credit union industry has seen in recent years and the almost universal agreement about the need to modernize the National Credit Union Administration’s current risk-based capital rules to ensure financial stability, ABA highlighted the importance of implementing the new rules without delay.“Having to hold less capital than banks provides credit unions with a lower overall cost of funds that artificially distorts market pricing, and can lead to the underpricing of risk,” the ABA said. “It likewise artificially drives business away from competing industries, and compounds the competitive advantage conferred by the credit union’s tax-exempt status.”