CUs Get First Look At NCUA's Risk-Based Capital Proposal

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Credit unions got their first look at NCUA's plans for reforming the capital standards under Prompt Corrective Action at a meeting here sponsored by the California league and WesCorp.

NCUA is submitting its draft report of proposed reforms to Congress with the hope of getting legislation passed that would introduce a risk-based capital measurement system for credit unions, and in the process alleviate some of the growing pains being felt by many credit unions where growth has outpaced capital ratios.

"It will be comparable to FDIC-insured institutions," said NCUA Chairman JoAnn Johnson. "A well-designed system would provide management the ability to manage capital levels."

Johnson had praise for Rep. Ed Royce's efforts to pass the Credit Union Regulatory Improvements Act, or CURIA, during last year's Congressional session.

"Banks were allowed to modernize under the Gramm-Leach-Bliley Act. CURIA would allow credit unions to modernize," she asserted. "The biggest item is raising the member business lending cap from 12.25% to 20%. Credit unions started with member business lending. It is unfortunate the cap got put into HR 1151 at the last minute."

Royce, who is a member of the House Financial Services Committee, said a new version of CURIA will be appearing shortly. "To get this bill through in the 109th Congress, we'll have to work together," he said. "I ask for your support to lobby Congress to get CURIA passed. I hope you will energize your colleagues and your members to write, call and visit their representatives and tell them why it is important for regulatory reform for credit unions."

Last year's version of CURIA contained a provision to redefine the net worth ratio to include a risk-based asset approach to PCA. Johnson said if the revived bill, or a similar version, were to pass, it would help CUs.

'A Whole Lot Of Sense'

Royce agreed. "Modernization of capital requirements is the most significant part of this legislation," he said. "It makes a whole lot of sense to let credit unions live under a smart system. Modifications are being considered for risk-based capital considerations. Throughout the process, we have engaged the California Credit Union League and Chairman Johnson. We will soon see this legislation introduced, and hopefully, passed."

California league CEO David Chatfield added, "A modernized banking system and an antiquated credit union system is no answer at all," Chatfield added

Rick Hoffman, CEO of Inland Empire Credit Union, said of the meeting,

"It is good to see a congressman and our regulator together. We are all in different positions. Member business lending is an issue at many credit unions. The 20% cap gives us more leverage."

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