Monday, March 24, 2014

Risk-Based Capital: Commenting on Your Future - Part 6: KEEP IT SIMPLE STUPID!….

Run that by me again!
Was asked to clarify the issue of being "complex" in NCUA's new risk-based capital (RBC) proposal.

Under current Law: The Federal Credit Union Act (FCUA) specifically states a definition of "net worth" and the levels of net worth a credit union must maintain to be considered "well capitalized", "adequately capitalized", etc.  Additionally, the FCUA suggests an additional level of reserve requirements "if" a credit union is "complex". The additional level of reserves is called "risk-based net worth"(RBNW).  

Under the current law,  "if" a credit union has a RBNW ratio of greater than 6% "and" the credit union's RBNW ratio is also greater than it's net worth ratio, "then" additional reserves may be required.  So, if a credit union is not "complex", then risk-based standards do not apply under current law.  Effectively the credit union system already has a "risk-based" system for determining "riskier credit unions" and has had that system since 2000.

One would assume that the largest credit
Say what?
unions by assets are the most "complex" - a mis-assumption that the NCUA purposefully and wrongfully keeps attempting to insinuate to justify much of it's recent efforts at self-justification and self-preservation. The NCUA Chair even has taken it beyond the pale describing the largest credit unions as the "riskiest"!

Here's a look at the RBNW ratios of the largest credit unions. Don't let the truth shock you…

You'll note in the middle column that only seven of the top 25 credit unions are above the 6% RBNW threshold and most just slightly - only one is above 7%.  So, only 7 of the top 25 credit unions are "complex" under existing law, and subject to additional risk review. You'll note that no large credit union's RBNW ratio is even close to be being above it's net worth ratio!  

(… despite the Chair's hopes!)

… without unilaterally declaring all CUs above $50 million to be "complex", NCUA doesn't have much of a case for imposing  its new RBC on the credit union movement.  Commented yet?

Don't wait for "never"...

1 comment:

Anonymous said...

What the Harsh Mistress, or head Robusterian, fails to realize and adequately analyze is the fact that there already is significantly sufficient Risk Based Capital in excess of Risk Based Net Worth in even for the credit unions above 6%.

This unnecessary regulation is an attempt to establish a faux necessity to aggrandize an already blotted bureaucracy.

Regulations should address real safety and soundness issues that present a real threat to the system.

Ms. Matz robustian career has been mostly serving on Boards. These position are just political patronage given to her husband for his political activities. Clearly she does not have the analytical skill to regulate the credit union industry.