NCUA Begins Discussions On Risk-Based Capital

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NCUA has begun preliminary discussions with Congress aimed at enacting a risk-based capital system for credit unions. In draft language sent to the House Financial Services Committee and obtained by The Credit Union Journal, NCUA proposes amending the Federal CU Act to enact a risk-based capital system for all federally chartered credit unions under the prompt corrective action provisions of the Act.

Agency officials stress the discussions are still in the preliminary stages, but indicated Chairman Dennis Dollar is expected to discuss the proposal in greater detail when he responds to a congressional inquiry later this summer on credit unions' needs for additional capital. Dollar has been touting the enactment of a risk-based capital system, similar to the requirements for banks, as a way to deal with dilution of capital caused by massive inflows of new savings into credit unions.

Dollar, whose days at NCUA are numbered as he awaits nomination of a successor, was coy about his plans, but indicated he plans to spell out his proposal in greater detail when he answers to the congressional inquiry on credit unions' capital needs. Those answers will be submitted to Congress by Sept. 2.

While Dollar has already left a legacy at NCUA with his Reg-Flex (regulatory flexibility initiative) easing restrictions on the healthiest credit unions, the enactment of a risk-based capital system for credit unions could turn out to be his greatest legacy. Of course, because his successor is widely expected to be confirmed over the coming months, he won't be around to see it come to fruition.

Credit unions have seen a 30% increase in savings the past two years, diluting net capital ratios from a high of 11.4% to 10.6%.

Under the NCUA draft language the risk-based system for all federally insured CUs would replace the current system under which only "complex" credit unions are subject to risk-based net worth.

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