ARLINGTON, Va. — While the credit union community sees NCUA's new risk-based capital calculator as valuable, some question whether making the tool accessible to the public is the right move.
Concerns exist over letting consumers see preliminary ratios, in advance of a final rule, particularly for CUs whose risk-based number is below the "well capitalized" threshold.
The agency released its proposed risk-based capital rule at its January board meeting, and at the same time introduced an online tool for calculating a CU's risk-based capital under the new regulation. The tool received 5,400 unique visits in its first two days, NCUA reported.
NAFCU shared that it is concerned that credit unions whose risk-based capital ratio falls below the 10.5% well-capitalized floor may face unfair reputational harm and lead to members and consumers misunderstanding a credit union's health.
"We certainly have concerns about reputation risk, because someone, outside credit unions, may not really understand what they are looking at," said Carrie Hunt, NAFCU's SVP of government affairs and general counsel.
Credit union execs have acknowledged the calculator is a good tool to quickly know where the CU stands under the new rule and to better understand the reg.
Greg Smith, CEO of the $4.2 billion Pennsylvania State Employees CU in Harrisburg, stated in a previous report (
"A significant change like this is made a lot easier when CUs are reassured that they won't be impacted in a negative way," said Smith, whose credit union shows 16.37% risk-based capital under the proposed rule.
Ron Burniske, CEO at the $2 billion Chartway FCU in Virginia Beach, Va., agrees the calculator is a good for credit unions — as long as the public does not have access to it. "This should not be for public distribution because I think the calculator, when used by those who do not really understand it, can do more harm than good."
Chartway shows 6.09% risk based capital under the proposed rule. It troubles Burniske that anyone in the local community can see the CU's net worth under the new rule, not understand what actually is going into the calculation and that the rule is not final, and make inaccurate conclusions about Chartway's health.
"The worst thing is that this regulation is not even in effect and NCUA is posting, for everyone to see, what our risk-based score could be," said Burniske.
The score, too, noted Burniske, does not reflect that an accounting change — excluding goodwill from the risk-based calculation—drops the 7.34% net worth CU to near 6% risk-based, and that the CU has plans to make adjustments with its investments to raise the CU to well-capitalized under the risk-based rule if the proposal stands as written.
Burniske explained in his case the goodwill appears on the CU's books as the result of Chartway taking over three troubled credit unions in the last 18 months.
"I think NCUA should make changes to the calculator to make it accessible with a passcode, for example," offered Burniske.
NAFCU's Hunt concurred, saying there should be discussion over whether the calculator should be accessible to the public, or possibly put behind a firewall for credit union access only.
Hunt acknowledged the value to CUs and the effectiveness of the calculator to inform and educate credit unions, adding that "risk-based capital and risk weighting are very complex issues, and NCUA may have oversimplified (via the calculator) what this rule does, making it easy for people who don't know the rule to make wrong assumptions."
Asked if NAFCU considered just how many consumers would actually use the calculator, Hunt did not comment.
CUNA Deputy General Counsel Mary Dunn said NCUA has developed a very useful tool to help CUs determine how the proposal would affect their operations. However, the trade association has concerns, which have been raised with NCUA. "The calculator shows the risk-based net worth of a CU under the proposal. But the tool is not as clear as it should be that a credit union's net worth category is not subject to change now, based on the fact the rule is still proposed."
NCUA CIO Ronnie Levine, in a previous report, emphasized the agency hopes the calculator helps credit unions manage some of the rule's complexity.
"It's a complicated rule and we wanted a way that makes the rule easier to digest and understand its major components, as well as quickly let a credit union know where its stands," said Levine.
The calculator provides users a comprehensive overview of a credit union's capital ratio and Prompt Corrective Action category under both the current rule and the proposed regulation. After selecting a credit union to review, users can see each component of that particular credit union's risk-based capital ratio, and also learn what data from the call report are used and how the proposed risk-weights are applied at each point in the ratio calculation.
Levine said the agency thinks this level of clarity will lead to a better final rule. "This way we think credit unions can provide more meaningful comments so we can get the rule right," she added.
