WASHINGTON CUNA is confirming what several analysts have already told Credit Union Journal: that NCUA's proposed new risk-based capital rule will cost many credit unions a lot more to maintain healthy capital cushions needed for growth-in fact, a net $7.3 billion more.
CUNA examined 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.
CUNA Chief Economist Bill Hampel explained that though the new rule applies to CUs 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 level in just a few years."
A final capital rule is not expected to go into effect until 2016 or later.
About one-third, or 863, of these 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, Hampel said.
The remaining 1,641 credit unions with above $40 million in assets would see their cushions above well-capitalized thresholds shrink by a combined total of $7.4 billion if the proposal were in effect.
CUNA's analysis indicates that a number of CUs would fall from being comfortably well capitalized under the current system to being merely well capitalized under the proposed system. Currently, 68% of credit unions with more than $50 million in assets maintain more than a two-percentage point buffer above being "well capitalized."
This total would fall to about 62% under the proposal, according to CUNA, which noted that almost 10% of credit unions would drop below "well capitalized" under the proposed rule.
Former NCUA Chairman Dennis Dollar, principal at Dollar Associates in Birmingham, Ala., told CU Journal last month that If the new rule is not structured correctly, NCUA could add additional capital expectations on those credit unions that are performing and growing the best.
"They do not want to end up penalizing those credit unions building the very capital NCUA wants to see through growth and innovation," Dollar said.
CUNA President Bill Cheney pointed out the challenge that may be ahead for many in the community. "Meanwhile, earnings at credit unions continue to be squeezed by low interest rates, downward pressure on other revenue streams, and moderate, but rising, loan growth," Cheney added.