Wednesday, March 26, 2014

Risk-Based Capital: Commenting On Your Future - Part 8: MAKING DELINQUENCY COMPARABLE...

Ashamed to show their faces
 and the beauty of their logic?
NCUA has festooned the proposed risk-based capital (RBC) rule with such a wide-range of missteps and unforced errors that it's easy to become discouraged.  Who were "the experts" who drafted this proposal?  What were they thinking? Where is the data to support their lack of reasoning?  How did this rule pass muster with the NCUA Board?

We've seen how the proposed RBC rule penalizes credit unions and increases costs for credit union members in the areas of 1) mortgage and MBL lending, 2) member savings, 3) CU investments, 4) overrides the Congressional definition of "net worth" and "complexity", 5) dispenses with any form of "redress of grievances" by a CU against an increasingly capricious and autocratic Agency, and 6) makes a mockery of the cooperative nature of the NCUSIF.

Should be enough - right?  It isn't.  Not even close….

Here's another absurdly bizarre discrepancy in the proposed RBC rule vis-a-vis other federally insured depositories:

Risk Capital Required for Delinquent Loans:

                              Banks:          150%
                 Credit Unions:          150%   

So?  If the risk capital percentages required for banks and credit unions are "the same" (150%), how are credit unions penalized? 

Because NCUA has chosen to define the benchmark for a CU delinquent loan as one which is 60 days past due. Under the banking benchmark a loan is considered delinquent at a bank when it becomes 90 days past due. 

Logically, every institution's > 60 day delinquency is  always higher than its > 90 day delinquency - right?! (Absolutely!)  Why would NCUA penalize credit unions by requiring this extra capital charge on delinquent loans between 60 and 90 days?

Dum-d-dum dumb!
Perhaps of even greater significance, NCUA's insupportable, bad habit of reporting aggregate credit union delinquency levels based on 60 days vs. the banks 90 days, often gives comparative observers - such as Congress, the press, and the public - the false impression that credit unions are experiencing higher levels of delinquency on their loan portfolios, than our for-profit peers. 

Why is NCUA encouraging this false impression? Why does NCUA want credit unions to look weaker to the outside world? 


Don't wait for "never"...  

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