What's good and bad about NCUA's proposed risk-based capital rule? The credit union community certainly has a lo t of opinions.
From viewing the rule as necessary as well as needed, to disappointment that there was no accompanying supplemental capital proposal incorporated into new rule, here are five takes from credit union executives and insiders:
1. Lighten Lending Penalty
Ron Burniske, CEO at the $2 billion Chartway FCU in Virginia Beach, Va., says capital reform is needed, and that risk-based capital will ensure the safety and soundness of the credit union system.
However, he does not think the rule should penalize lending to the degree that it does.
"When it comes to lending, the rule should focus primarily on MBL and construction lending," said Burniske. "Those are the things that have gotten credit unions in trouble, not everyday loans that meet members' needs."
2. Account For Less-Risky Investments
While "applauding" NCUA for its proposed rule, Evan Clark, CEO of the $330 million Department of Commerce FCU in Washington, would like to see the agency adjust some of the weighting for less-risky investments.
"I have not perused the entire rule yet," said Clark, "but NCUA says all deposits (investments) have 20% risk weighting. Think about that. Is there really any risk if you have money deposited at the Federal Reserve?"
Clark added that the rule needs a little tweaking, especially since it does not pay attention to the liability side of the balance sheet.
"What if a credit union has a very large and long member certificate program? This will mitigate an enormous amount of interest rate risk in the balance sheet."
3. Ready For New Rule
The $464 million-asset SeaComm FCU in Massena, N.Y., lands at 15.74% risk-based under the rule, and CEO Scott Wilson said he was not surprised by the new capital number.
"I wasn't too concerned of where SeaComm would stand," said Wilson. "We have been planning for some time for these new standards to come to fruition. If you have been paying close attention to what has been going on with the banking side, it was inevitable to happen to our industry."
4. Top Five Well-Capitalized
Jim Blaine, president of the $27 billion State Employees' CU in Raleigh, N.C., while emphasizing the new rule shows that under any capital system his credit union is sound, pointed out that the top-five asset shops fare well under the proposed rule.
NCUA's new risk-based capital calculator shows the $56 billion Navy FCU, Vienna, Va., stands at 14.42% risk based; SECU at 14.38%; the $17 billion Pentagon FCU, Alexandria, Va., at 12.42%; the $12 billion BECU, Tukwila, Wash., at 13.08%; and the $9.9 billion Schools First FCU, Santa Ana, Calif., at 19.22%.
"All are very well-capitalized under the proposal," noted Blaine.
5. Secondary Capital Needed
Sharing concerns about credit unions' ability to grow under the proposed new capital structure, former NCUA Chairman Dennis Dollar firmly believes a supplemental capital proposal should have accompanied the new risk-based rule.
"It would seem that it's a good time to do that," said the Dollar Associates principal, Birmingham, Ala.
"Since the agency is taking the initiative to supplement the statutory requirements on capital with this new regulatory ratio that creates a second capital track beyond what the law requires, there is no reason why they cannot also move forward with an accompanying supplemental capital proposal that could be incorporated into the new risk-based capital calculation since it is regulatory — and not statutory."
