A Broad Strategy For Dealing With Risk-Based Capital

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There is little doubt that the risk-based capital proposal issued by the NCUA Board at its last meeting is among the most significant proposals ever issued by the agency. The comments and concerns that we have heard about its impact are clear signs enough of the proposal's weight. As a result, the Credit Union National Association has developed a comprehensive strategy for giving credit unions as much information as possible about this proposal, including:

Calling for a public hearing (or hearings) on the proposal
Because this is an extraordinary measure, we have urged NCUA to reach out to the credit union system to solicit the views of all stakeholders in an interactive setting such as a hearing or hearings around the country. Such a hearing or hearings would produce an official record to supplement the comment letters the agency receives and provide direct input to help the Board determine how to proceed with the proposal.

Bringing key stakeholder organizations together
We will be working closely with our committees, subcommittees, AACUL, and CUNA councils but also want to reach out to other groups to coordinate our overall approach. We will also be talking with state regulators and NASCUS about their take on the proposal and how the proposal will affect the credit unions they supervise.

Analyzing costs, showing $7.3 billion price tag for credit unions
We developed the most thorough analysis of this proposal by anyone to date in our "comment call." Our analysis details flags initial concerns. It also reveals that the proposal will cost credit unions at least $7.3 billion. CUNA looked at the 2,504 federally insured credit unions with more than $40 million in assets, and compared their current margins above being well capitalized to what they would be if the NCUA proposal were in effect. We noted that although the rule would only apply to credit unions with more than $50 million in assets, many — if not most — of the almost 300 credit unions with between $40 million and $50 million in assets will exceed the $50 million level in just a few years. About one-third, or 863 of these 2,504 credit unions, would enjoy greater buffers above well-capitalized thresholds under the proposal, but the total increase among these credit unions would be only $63 million, according to the analysis. The remaining 1,641 credit unions with assets of more than $40 million would see their cushions above well-capitalized thresholds shrink by a combined total of $7.4 billion if the proposal were in effect.

Establishing a simulator that allows credit unions to see the complete impact
We have posted a simulator on our website to help CUs calculate a simulated risk-based capital ratio using changes in various asset holdings, as entered by a credit union. Our tool differs from NCUA's calculator in two important aspects: Ours lets credit unions consider changes in their balance sheets, and; ours is only open for use by CUNA-affiliated credit unions (the NCUA calculator is open for anyone's use — which is of grave concern to us).

Providing access to comprehensive resources
Accessible right from CUNA's home page, www.CUNA.org, CUNA has made available a range of resources to credit unions regarding the proposal. We will be adding to the page with additional resources.

Surveying credit unions
CUNA was the first national association to post its summary of the proposal and included a simplified survey to encourage credit unions to share their views and concerns about the proposal. We know a number of leagues have taken similar action and commend that.

Researching the agency's authority to impose such a rule
We are also focusing on the provisions in the Federal Credit Union Act that limit NCUA's authority in imposing PCA, net worth and risk-based capital requirements.

Reviewing all portions of the law, rules and other related actions
We are reviewing all of the NCUA material loss reviews since September 2008 that catalogue PCA problems and failed credit unions, and which flag mistakes NCUA made in handling them. Further: We are reviewing GAO's report on NCUA's use of PCA, the portion of the proposal and its description that don't address risk-based capital to make sure nothing was slipped in.

While we expect this strategy to be successful, we must consider all options. Most of our efforts are directed toward analyzing the proposal, But we are also considering viable options if the proposal is approved without substantial changes. These include going to Congress and challenging the rule in court.

Bill Cheney is president and CEO of CUNA.

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