Many, Not All, Agree Higher Capital Rules Coming Higher Capital Standards Could Be Coming Soon

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ARLINGTON, Va.-One analyst's bold prediction that higher capital standards are coming for CUs is not being refuted by industry experts.

A number of industry leaders did not discount the opinion shared by Mike Moebs, CEO and economist of Moebs $ervices, and first reported by Credit Union Journal in the May 9 issue, that credit unions will need to meet a higher capital minimum to be considered well-capitalized.

Those same sources, however, were not comfortable speculating on a new minimum capital standard, which Moebs is projecting at 11%, and disagreed with Moebs that higher requirements would be in place within the next year.

Instead, analysts forecast that if capital reform occurs, credit unions will be given more time to build capital and that supplemental capital will likely also be permitted. One source, too, opposed Moebs' stance, including Moebs' assertion that the end is coming for the independent share insurance fund.

Congressional capital reform discussions currently slated for this year will certainly include credit unions, reminded NASCUS President Mary Martha Fortney. "There is a focus on higher capital requirements so I can't imagine credit unions will be left out of the equation."

Fortney also noted that Basel III rules could lead to higher capital standards. "If credit unions were to be held to Basel III capital standards, it would take a considerably lengthy period of time for them to reach those levels just by relying on retained earnings. This would be another argument NASCUS would present to Congress to allow all credit unions to access supplemental capital."

Parker Cann, SVP general counsel at the $9.3-billion BECU in Tukwila, Wash., and former credit union regulator in Washington state, agreed that if higher capital standards are required, credit unions will need time and supplemental capital to reach the new levels.

"Congress has teed up capital reform as something to be looked at. I have no crystal ball, but if they do raise capital standards it will be primarily driven by Basel III and the recent financial crisis, and some of that will likely spill over to credit unions, even though our much higher capital standards today are adequate to protect the share insurance fund."

As far as the NCUSIF eventually being folded under the FDIC, "That is speculation," countered Cann. "There has been talk about that on and off over the years. So I don't know why now it would be more likely to occur."

Yet when it comes to politics, no one can be certain, advised Robert Genetski, president of ClassicalPrinciples.com and former chief economist at Harris Bank. Genetski sees a distinct possibility the FDIC could make a power play to scoop up the NCUSIF. "The political power that can be used to get whatever you want accomplished is just enormous in this day and age. People would have to be naïve to think the FDIC could not take over regulation of credit unions."

Genetski pointed out, too, that logic is often not the guide behind legislation, pointing to looming congressional capital reform discussions that may lead to higher capital requirements for financial institutions. "Capital requirements, from an economic perspective, are a tax. The weaker the economy and financial system the less sense it makes to raise that tax. A sensible policy would be to raise capital requirements during boom times."

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