Larry Fazio's commentary (“Revised RBC Proposal Reflects Lessons Learned,” Jan. 22, 2015, CU Times) cites the financial crisis as the catalyst for the NCUA's second risk-based capital proposal, stating that many of the failures would have been prevented in part if this new rule had been in place. Unfortunately, this is an overgeneralization of a complex issue; capital is only part of the equation. In fact, credit unions experienced many fewer failures than their banking brethren during the crisis, and banks were operating under a risk-based system similar to what NCUA had proposed at that time.
While we are pleased that the NCUA listened to some credit unions' concerns in its second proposal, NAFCU still supports withdrawing this rulemaking and addressing capital reform in Congress. Credit unions need a risk-based system that can account for both higher and lower risk. Neither the current system nor the proposed one achieves this.
If the NCUA proceeds with this rulemaking, credit union growth and innovation will be stifled.
Under NAFCU's financial analysis, the proposed two-tier system could cost nearly half a billion dollars more than a one-tier system. Here's why: If the NCUA were to promulgate a single-tier approach and only establish an RBC ratio for “adequately capitalized,” today's credit unions would need to raise an additional $270 million to maintain their current capital levels. However, because the NCUA is proposing a two-tier approach, under which there will be separate RBC ratios for “well capitalized” and “adequately capitalized,” credit unions will need to raise an additional $760 million to maintain their current capital levels. That means the proposed two-tier system is $490 million more expensive than a one-tier system.
NAFCU believes the cost to the industry in capital alone does not match the true risk in the system. That does not even take into account the millions of dollars credit unions will have to spend on compliance or the millions that the NCUA will need to spend to update the call reports and train agency staff.
Given the legal questions which still remain with this proposal and its huge economic impact, NAFCU does not understand why the NCUA is moving forward with this rulemaking.
We welcome a hearty dialogue during this new comment period and ask credit unions to make their concerns known.
NAFCU believes legislative changes are needed to create a risk-based capital system that is fair for all credit unions, and we are committed to leaving no stone unturned to help make these changes a reality.
Carrie Hunt
Senior Vice President of Government Affairs and General Counsel
NAFCU
Arlington, Va.
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