Capital: A Chance To Set The Standard... To Demonstrate "The Difference"... Or Just More Business (BS) As Usual?

"The United States has the opportunity to lead the world in bringing forward a financial system that is sounder in the long run." said Thomas M. Hoenig, Vice-Chairman of the F.D.I.C., in an interview last week.  (NYT - 7/14/2013)

Mr. Hoenig

"With stronger capital, banks still have the ability to make loans, but if they do have losses they can absorb those losses without imploding the economy."

U.S. banks have now been moved into a new "Basel III-based" capital regime. The FDIC, Fed, and other U.S. regulators have already stepped up to the plate and established tough, prudent capital standards. The new capital standards require both a leverage ratio (up from 3% to 5 or 6%) and revised "all balance sheet" risked-based capital formulas which mandate 10%++ risk-capital goals to be reached by 2019.

So, where does that leave credit unions.....

..... behind as usual!

The current 7% "leverage ratio", required by federal statute for "well-capitalized" credit unions, remains more than adequate given the demonstrably lower risks on our balance sheets. And, a 7% credit union leverage requirement puts to rest any fabricated bank complaints over some mythic CU capital advantage.  In truth, banks are riskier institutions, yet will be held to a lower leverage ratio (6%) standard. Go figure!

But as NCUA plods slowly toward the "coming soon", "better late than never", "what's the rush", "can't you see we're busy with less important things" release of its "new" risk-based capital proposal.... the credit union movement should collectively hold its breath. 

A miss on risk-based capital could be the last straw... the critical "evidence" of a lack of depth and gravitas within the Agency. 

World Class?

Is the NCUA "up to the task" of becoming a world-class regulatory body?  One would hope that the often "inward looking", preening, "our world view or the highway" regulatory mindset of the NCUA will not make its new risked-based capital formula "too distant" from the Basel III line of reasoning and measurement.  

Clueless?

There is no asset, liability or other risk category within credit unions which is not encompassed within the new banking risked-based capital formulas.  Is there any real, significant difference between a bank or CU car loan? Credit card? Mortgage? Operational, reputation or strategic risks? Most folks think not.  Lower risks definitely favor the credit unions - no contest!

Check/Checkmate

There are strong financial arguments against having higher risk-based capital requirements for credit unions; there are strong political reasons against having weaker risked-based capital requirements for credit unions.

Certainly our forward thinking NCUA folks "get it", don't they?

Hold Your Breath!!