The National Credit Union Administration is asking Congress to approve new capital requirements for credit unions.
An NCUA proposal released Wednesday recommends that credit unions maintain a net-worth-to-assets ratio of 4% to be considered adequately capitalized and 5% to be considered well capitalized.
Earlier proposals had set the adequate ratio at 2%. Current rules require credit unions to maintain a ratio of 6% to be considered adequately capitalized and 7% to be considered well capitalized.
Keith Leggett, an economist with the American Bankers Association, said that Wednesday's proposal was "a step in the right direction" and that the new ratios would be "comparable" to the risk-weighted credit standards governing banks.
"We're encouraged it is retaining a meaningful leverage ratio," he said.
But Chris Cole, a regulatory counsel for the Independent Community Bankers of America, said the change would free up capital that credit unions could then use to compete with banks.
The NCUA proposal would establish a system to weight assets according to risk, so that credit unions engaging in less risky businesses, such as mortgage lending, would not have to hold as much capital as those involved in riskier activities, like commercial lending.
This risk-weighted ratio would be layered over the revised net-worth-to-assets ratio, also known as a leverage ratio. Changes in the capital rules, which currently do not involve risk weighting, require an act of Congress.
Sources on both sides of the bank-credit union divide said it is too early to predict what Congress will do. But NCUA officials say the absence of risk weighting in the current capital system penalizes the industry in general and conservatively run credit unions in particular.
"A prompt corrective action system comparable to that employed in the banking system will provide sufficient protection for the insurance fund," the NCUA said in its report unveiling the proposal. "Such a system for credit unions would also remove charter bias and level the playing field by eliminating differing capital standards unrelated to risk."
Dan Mica, the president and chief executive of the Credit Union National Association, said in a press release Wednesday that the NCUA proposal "contains a number of positive aspects for credit unions."
Jay Morris, the vice president for communications at the National Association of Federal Credit Unions, lauded the NCUA for taking up the issue.
