Bankers Endorse Risk-Based Capital ForCUs

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ARLINGTON, Va. - (01/10/06) – A representative of theAmerican Bankers Association said last night the bankers groupsupports credit unions’ efforts to enact a risk-based capitalsystem for credit unions, but not the one NCUA has proposed toCongress. “We think it’s wise that you (credit unions)have risk-based standards that are comparable to the banks’risk-based standards,” said Keith Leggett, economist for theABA said during a debate on risk-based capital with NAFCU PresidentFred Becker before the Metropolitan Area CU Managers Association.The ABA, though, continues to oppose the NCUA proposal on arisk-based system sent to Congress because it fails to properlymeasure certain risks for credit unions, like the capital investedin corporate credit unions and the 1% of assets deposited with theNCUSIF, said Leggett, who called on credit unions and NCUA to workwith the bankers on developing a new risk-based system based on theso-called Basel 1A capital plan. He said a risk-based system forcredit unions should recognize the numerous risks to capital posedby the marketplace other than credit risk, including operationalrisk, interest rate risk, liquidity risk and reputational risk. ButBecker said the proposal introduced by NCUA is similar to arisk-based system currently in use by the FDIC for banks. He saidNCUA’s current minimum capital rules, known as promptcorrective action, or PCA, need to be changed to recognize thevarying degrees of risk posed by different credit unions.“The current system needs to be improved and this doesit,” said Becker.

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