After months of collaboration with industry leaders, NCUA sent its proposal on a new risk-based capital system to Congress last week.
The proposal, which would replace the current system of minimum capital popularly known as Prompt Corrective Action, will be included in a broad regulatory relief bill for credit unions, according to congressional sources. That bill, the CU Regulatory Improvements Act, or CURIA, is expected to be formally reintroduced (it was briefly contemplated in the last Congress) in early May.
Rather than a generic capital system, the NCUA proposal would institute standards similar to those required of banks by setting risk-weights for various assets. For example, those with low risks, like U.S. Treasuries, would be counted greater than those with greater risks, such as mortgage-backed securities. Proponents of the system say this will give credit unions greater flexibility than the current system.
The NCUA proposal is a carefully measured design that has been discussed and negotiated with all the major constituencies in the credit union movement, including CUNA and the leagues, NAFCU, the state regulators, the corporates, and with other federal agencies, including the Treasury Department, which designed the current system of PCA.
The broad base of support, of course, is necessary to gain the support of Congress.
The NCUA proposal sets similar net worth requirements for credit unions as those required of federally insured banks. A major difference is the NCUA system would recognize the 1% deposits all federally insured credit unions have with NCUSIF.
The rapid growth of credit unions over the past five years, which diluted many credit unions' net capital, fueled an industry call to allow credit unions to obtain additional capital. The institution of the current system of PCA helped add to the pressure. But a slowing of growth over the last year-and-a-half and a realization that few credit unions are being threatened by the PCA standards, has reduced the ardor for immediate relief. A landmark study conducted by the Government Accountability Office last year noted there is no immediate need for additional sources of capital for credit unions.
Still, NCUA and the credit union lobby, looking towards the long-term, will push to get the proposed risk-based system passed.
