Mon, Jul 22, 2013
The National Credit Union Administration will build a "new risk-based capital framework" to protect credit unions and consumers from losses, and replace the "outdated and insufficient" one-size-fits-all capital requirement, NCUA Chairman Debbie Matz told credit unions last week.
The NCUA plan could result in higher capital levels for credit unions with high concentrations of risky assets, she said. The current 7% leverage capital standard, which is required by the Federal Credit Union Act, would remain the floor. However, Matz said, credit unions with assets of $50 million and above could be subject to improved risk-based capital requirements to better correlate required capital levels to risk.
The current 7% leverage capital standard "was really just a best guess" at future requirements, she emphasized. That standard was set in 1998. Recent financial crisis and industry changes require a newer approach, Matz said. However, Matz reaffirmed that Basel III is not right for the credit union industry.
"For many, if not most, credit unions, seven percent of assets may still be appropriate. For higher-risk credit unions, it can be a prescription for disaster when the next crisis hits. We need a flexible, forward-looking standard that makes sense for today and tomorrow," Matz said.
"Job one is preventing another crisis...Our challenge is to make sure that, in the future, credit unions that choose to take on higher risks will be required to meet higher capital standards," she added.
"CUNA has called for risk-based capital standard changes, and has also been urging the agency to adopt a more productive approach to rulemaking that focuses on problem areas rather than issuing rules with blanket applicability, regardless of the credit unions level of risk," CUNA Deputy General Counsel Mary Dunn said.
"This is a very important issue and our Examination and Supervision Subcommittee met with NCUA officials on this issue in June. The subcommittee is meeting again shortly to follow up with NCUA," she added.
Source: CUNA News Now