NEW YORK — Since his initial look at the risk-based capital proposal at the start of the year, Montauk Credit Union chief executive Louis Jimenez is breathing easier — but only a little.
Under the proposal, Montauk — with no member business lending cap and a heavy focus on MBL — would see its 11.94% net worth fall to 6.79% risk based, well below the proposal's 10.5% well-capitalized floor.
Jimenez previously said that if the rule remained as written, the credit union would have to make big changes to how it serves the membership, limiting growth and cutting back on taxi medallion loans, which make up the large majority of its lending. MBL makes up 95% of the $147 million Montauk's loan portfolio. The CU has been successful making taxi medallion loans, whose balances average about $200,000 each.
Jimenez was concerned that under the proposed rule members would be turned away and that his cooperative would be pulled away from its mission of serving the underserved.
After following reports on how the NCUA plans to make significant adjustments to the proposal and speaking with NCUA chairman Debbie Matz at the last listening session, Jimenez's outlook is improving.
"I was encouraged by the movement's strong response to the rule, sending more than 2,000 letters to NCUA," he said.
"NCUA's board and staff involved with this rule are listening to credit unions. And the chairman said at the listening session that she does not want the rule to put taxi medallion credit unions out of business," Jimenez said.
By following what NCUA has shared with credit unions in the past few months, he sees positive movement from the agency toward getting the final rule right.
"They are talking about reworking the risk weights, and MBL is one they are focusing on," Jimenez said. "But before we jump to any conclusions, we have to see the final rule."
Credit unions that make taxi medallion loans have a great deal of interest in what the final rule will look like. Montauk is among a limited number of CUs without a MBL cap, high MBL concentrations, and potential problems under the proposed risk-based capital rule.
Most CUs that offer taxi medallion loans, as well as some faith-based credit unions or cooperatives that serve agricultural communities, have no MBL cap as they were grandfathered in when the MBL cap was established in the late 1990s.
The proposed capital rule applies heavy risk weights to member business loans, 100% below 15% of the loan portfolio, 150% from 15% to 25%, and 200% for any higher concentration.
Not knowing how the final rule will turn out, Jimenez said that Montauk is already looking at ways to make adjustments to its business.
Time can help, said Jimenez, who hopes for a three- to five-year risk-based capital implementation period.
"That would give us the time we need to raise our capital levels, since we have to do that through retained earnings," he said.
The credit union could also participate out more medallion loans, Jimenez said.
"That way we still serve our members but get some of those loans off our balance sheet," he said.
Because NCUA grandfathered in many CUs making taxi medallion loans when the MBL cap was established, allowing them to continue without such a cap, Jimenez hopes that the agency might take the same stance with the risk-based capital final rule.
"That waiver has been built into the credit union statute, perhaps another waiver could be granted here," he said.
Again, Jimenez is waiting to see the final rule before making any formal decisions.
He told Credit Union Journal in a previous report that "all options" are open to keep the credit union serving its members, and one of those options is considering a mutual savings bank charter.
"I am much more confident today that NCUA will get this final rule right," Jimenez said. "But our board has agreed that every option is on the table."
