Dollar Uses GAC to Float Risk-Based PCA Idea

WASHINGTON-NCUA Chairman Dennis Dollar told attendees of CUNA’s Governmental Affairs Conference last Monday that the prompt corrective action law should be modified to take into account a credit union’s risk. Dollar pointed out that different diversifications of a portfolio makes a credit union a higher or lower risk entity and should be considered under PCA instead of the current “one size fits all” approach. “There is a significant difference in risk between a credit union with net worth of 7% that is invested heavily in short-term Treasury securities and one that has a portfolio full of long-term higher risk loans,” Dollar said during his presentation. The chairman recommended the trade associations raise the issue during talks regarding the regulatory relief legislation under consideration in Congress. Dollar commented that a minimum capital ratio would still be required, similar to the leverage ratio required of banks and the core capital requirement of corporate credit unions. He suggested using the Basel accords’ capital standards as a template but added that it should also take into account interest rate risk in addition to credit risk. “A risk-based PCA would provide an incentive for better managing risk,” Dollar advocated. “For example, credit unions who take the initiative to offer shorter-term and adjustable rate mortgages should get some credit for these risk management decisions. Right now, under PCA those mortgages carry the same risk weighting as do 30-year fixed rate mortgages. There needs to be different weighting for different risk factors. The challenge is not to avoid risk but to manage risk.”