Now that he's cleaned his plate of some unfinished business at NCUA, namely the latest round of field of membership (FOM) rules updates, the foreign branching and natural-person credit union investment rules amendments, NCUA Chairman Dennis Dollar is focusing on his proposal to introduce a risk-based capital system to credit unions.
Dollar has been out stumping for his proposal, still in concept form, to amend the prompt corrective action (PCA) minimum capital rules in HR 1151 to allow credit unions to base their net worth on risk-weighting. This system, Dollar points out, has been adopted successfully by bank regulators around the world based on the so-called Basle Accords.
Adoption of such a system could alleviate much of the credit unions' concerns over the need for additional capital buffers, highlighted now by the flood of new deposits that is diluting credit unions' capital levels. A risk-based system, Dollar maintains, could add as much as 200 basis points to the capital levels currently scored under the existing PCA system. Dollar, speaking to more than 600 executives at the Michigan CU League's annual meeting, said legislative action is needed to improve on PCA's current "one-size-fits-all" minimum capital rules.
Michigan lawmakers are currently considering a credit union modernization bill that would allow state-chartered credit unions to enhance their net capital by offering secondary capital instruments, something a half-dozen other state are also considering. But even if those states approve those proposals, the secondary capital could not be counted as net worth under NCUA's PCA rules. The rules restrict the definition of minimum capital, or net worth, under PCA, to retained earnings. It will take an act of Congress to change the PCA rules.
Dollar has been reluctant to raise the issue directly with Congress, maintaining it is up to the credit union lobby to do so. It's not clear yet whether he will take the opportunity afforded him in an invitation by Senate Banking Committee Chairman Richard Shelby of Alabama to raise the issue as part of the committee's regulatory relief process.
Both CUNA and NAFCU said they are studying the issue and may ask Congress to act on it.