LOS ANGELES — Reactions were mixed following NCUA's first "Listening Session" on the proposed risk-based capital rule here last week.
"Overall I was impressed with how the board is trying to explain the proposal," said NAFCU Director of Regulatory Affairs Mike Coleman. "But I think, judging by the comments, that a number of issues deserve the agency's immediate attention."
About 150 credit union executives attended last Thursday's session
Matz did suggest that the agency was considering some changes to the proposal, including re-examining the risk weights on some asset classes in the final rule.
NCUA Director of Examination and Insurance Larry Fazio explained that agency's plan does not include asking the credit union system to hold more capital, but to ask "outliers" to hold more capital.
"The bottom line is that it's not a simple solution," Fazio said. "NCUA doesn't address interest rate risk or concentration risk limits in the risk-based capital rule, it would have [happen] in the exam process."
Some CU executives said they were concerned with the proposed rule's definition of a complex credit union, which is based on asset size.
Fazio said when the NCUA researched the rule, credit unions with more than $50 million in assets generally offered a full array of products and services.
"We could have done something more complex in the sense of a formula, but 99 times out of 100, everybody over $50 million would have triggered it, so it seemed like a good way to simplify things," Fazio said.
Fazio explained that the proposed change will require a well-capitalized credit union to maintain a 7% net worth ratio and a new, 10.5% risk-based capital ratio, while setting higher risk weights, which in turn will require higher capital requirements for CUs with higher concentrations of assets in real estate loans, member business loans, longer-term investments and some other assets.
The risk weights have been a major bone of contention, with critics pointing out that what is proposed in the rule are higher than the FDIC and Basel III requirements for banks.
Matz stressed more than once that this proposed rule would only affect around 200 credit unions and that number is reduced for institutions whose net worth classification will be downgraded.
Gregg Stockdale CEO at the $35 million 1st Valley CU in San Bernardino, Calif., expressed his concern that the risk-weighting would hurt his institution.
"Why is this a problem for you?" Matz asked.
"Because I plan on being a larger credit union one day," Stockdale responded to laughter. "And then this is going to hurt us down the road."
Later, Stockdale expressed more concerns about the proposed rule.
"I think the regulations are more punitive than enabling," he said. "When I first heard about this it was a total shock to me. I think the smaller credit unions are really going to be hurt. I don't like what I'm hearing. I feel that they have their cards face down on the table and all of our cards are face up."
Mike Koch, VP of finance at the $1 billion Evangelical Christian Credit Union in Brea, Calif, said NCUA's proposed rule threatens his niche credit union's business plan and attended the meeting with one of his members who spoke at the session
"I truly believe that these new rule will impact the very communities that credit unions are helping," said Marc T. Little, CEO and general counsel for Faithful Central Bible Church in Inglewood, Calif.
In 2000, Evangelical Christian CU wrote the church a mortgage loan to purchase the 17,500-seat Great Western Forum, making it the nation's only African-American-owned entertainment venue of its kind, and the first of its kind to be owned by a faith-based organization.
The majority of Evangelical's assets come from churches, schools, missionaries and other ministries, according to Koch. "I am afraid that if these new rules come to pass, credit unions will not be able to change communities such as they have in the past," he added.
"It's just getting harder and harder for small credit unions to survive," said Beth Carr, president and CEO of $105 million Santa Cruz Community Credit Union in Santa Cruz, Calif."I'm trying to be hopeful if these new rules are passed, but it seems like they're hurting us more than they're helping us."
In a letter sent by NAFCU immediately following the session, the trade group wrote: "While NAFCU is supportive of a risk-based capital regime for credit unions, we do not believe that the NCUA proposal as it currently stands is appropriate. If it were to be implemented as proposed, credit unions could find themselves at a competitive disadvantage to banks. The proposed rule is one-size-fits-all and would serve to stifle growth, innovation and diversification at credit unions."
That was the general consensus at the meeting with credit union executives standing, paying respects and then disagreeing with the proposed rule.
"The smaller the credit union, the greater the regulatory burden will be," said Scott Norris, chief sales and marketing officer at $406 million CBC Federal Credit Union in Oxnard, Calif."Try as you might to get ahead, these changes will set us back," Norris said.
NAFCU's Economics and Research department prepared an impact analysis graph, which they also sent to Matz and the board.
They found that the impact of the proposed rule "determined that credit unions with more than $50 million in assets will have to hold $7.1 billion more in additional reserves to achieve the same currently maintained capital cushion. Because credit unions cannot raise capital from the open market like other financial institutions, this cost will undoubtedly be passed on to the 97 million credit union members across the country in the form of higher loan rates and lower rates on share accounts."
While Matz and the board seemed pleased at the end result of the meeting, most of the credit union executives went home hoping that another comment session would come about.
Two more "listening sessions" — Chicago (July 10) and Alexandria, Va., (July 17) — are at capacity with 167 and 150 registrants, respectively, according to NCUA.
