The National Association of Credit Union Service Organizations is concerned that the NCUA's risk-based capital rule proposal does not reflect a fair assessment of the actual risks of assets held by a particular credit union.

NACUSO President/CEO Jack Antonini shared that point in the organization's March 5 comment letter to the NCUA on the proposal.

“This proposal seems to supplement the current one-size-fits-all net worth system in place since 1998 with what is little more than a revised, and more complicated, one-size-fits-all risk based capital version,” Antonini wrote.

He added, “The one-size-fits-all nature of the proposed risk ratings is admittedly easier to apply for NCUA than would be a system with credits for historical risk management performance and risk weights that are documented by empirical data on a large scale basis.”

For instance, all types of business loans should not be risk weighted the same in every credit union and all CUSO investments should not be rated as high-risk, Antonini said.

NACUSO believes the risk weighting of 250% assigned in the proposal to investments in CUSOs which “is arbitrary, not supported with any empirical data and counter-productive to the collaborative risk mitigating model that CUSOs represent as a net income resource for credit unions.”

“While we support a truly well-balanced risk-based capital system that replaces the current PCA net worth standards and incorporates both benefits and penalties based upon the structure and management of balance sheet risk, this proposed rule has a considerable number of improvements needed in order to accomplish its stated purpose,” Antonini said.

The NCUA has proposed that in order for a credit union to be classified as well-capitalized, it must maintain a risk-based capital ratio of 10.5% or above, and pass both net worth ratio and risk-based capital ratio requirements. Adequately-capitalized credit unions would have to maintain risk-based capital ratios between 8% and 10.49% and pass ratio requirements.

“Credit unions cannot generate sufficient net income in today's economic and regulatory climate if they are shackled to a regulatory scheme that is designed to regulate the credit union industry as if it were the 1980s,” Antonini said. “Just as the credit union business model is changing to meet today's economic challenges, so must the approach of the regulator.”

Antonini said while there is certainly a danger to credit unions not having enough capital to cover the risks credit unions pose to the share insurance fund, “there is also a danger to the sustainability of credit unions if an unnecessary amount of capital must be reserved in proportion to an individual credit union's balance sheet risk.”