NCUA-proposed risk weights eyed in Compliance Blog
NAFCU's Compliance Blog today addresses the risk weights presented in NCUA's proposed capital rule, which is aimed at capturing both interest-rate risk and concentration risk in credit union balance sheets.
Today's post is the second in a series the blog will present on different portions of NCUA's proposed rule. In today's, Regulatory Affairs Counsel PJ Hoffman looks at the way in which the proposed rule applies risk weights to different types of assets in the credit union portfolio. The weights vary based on the type of asset in question and how much of the balance sheet is made up of that type of asset.
Hoffman says this can be seen in the proposed rule's treatment of real estate loans, member business loans and higher levels of delinquent loans. Non-delinquent first mortgage real estate loans, for example, get a risk weight of 50 percent if they total less than 25 percent of assets; 75 percent if they make up 25 percent to 35 percent of total assets; and 100 percent if they exceed 35 percent of total assets.
"These risk weights were not chosen at random," Hoffman notes. "Unfortunately, NCUA did not include much of their analysis in the text of the proposed rule."
NAFCU, in a letter to agency Chairman Debbie Matz soon after the proposed rule's issuance, questioned whether the proposed risk weighting actually matches risk in the system. Hoffman notes, for example, that NCUA's proposal assigns rigid risk weights to many investments that, "when properly examined, represent much less risk than the assigned risk weights."
He invites credit unions to weigh in themselves: "Which risk weights did NCUA get right and which ones do they need to change?"
Comments on the proposal are due to NCUA May 28; NAFCU is seeking members' input by April 1.
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