May 27, 2014

Berger says RBC proposal 'devastating' to CUs, members

May 28, 2014 – NAFCU supports the idea of a risk-based capital regime for credit unions, but NCUA's proposed rule "is one-size-fits-all and would serve to stifle growth, innovation and diversification," association President and CEO Dan Berger said in a comment letter submitted yesterday.

In the letter, 35 pages in all, Berger expressed hope that upon review of credit unions' responses, NCUA's board "will realize the devastating effect that this proposal will have on the credit union industry, the American consumer, and our nation's small businesses." Meanwhile, he urged that the agency either withdraw its proposed rule or make major modifications before any rule is finalized.

Berger cited numerous serious concerns about the proposed rule, key among them:

  • NCUA's legal authority to issue the rule as proposed, particularly as it affects comparability with banking rules, legal terms defined by statute, the individual minimum capital requirements and the definition of a "complex" credit union;
  • the need for a legislative solution in order to achieve a fair and balanced risk-based capital system;
  • the need for an additional notice of proposed rulemaking with a public comment period;
  • NCUA's drastic understatement of the number of credit unions affected and whose balance sheets and business plans will need adjustment;
  • NCUA's proposed setting of a 10.5 percent risk-based capital ratio for well-capitalized credit unions;
  • NCUA's treatment of risk-weighted assets and the lack of explanation for deviation from similar banking risk weights;
  • NCUA's incorporation of interest rate and concentration risk into risk weighting for real estate, investments and member business loans;
  • individual minimum capital requirements for credit unions and the subjectivity of their imposition;
  • components not included in the numerator of the risk-based capital ratio, such as goodwill;
  • the 1.25 percent cap on allowance for loan and lease losses, or ALLL, especially considering the Financial Accounting Standards Board's most recent proposal on ALLL.

In Tuesday's letter, Berger said supplemental capital authority "is needed now more than ever considering the restrictions brought on by this rule." He added that the proposed 18-month implementation is not long enough for a rule this complex and having this much impact.

NAFCU is recommending at least a three-year implementation period.