RBC-Lite Weights...?

While we all await the "new" RBC rule coming January 15, 2015, let's recall how we got here ...

North of Bern, left of Zurich !!

As many of you are well aware, the international regulatory community has discussed and debated for over a quarter century the best method for determining capital requirements for banks.

Much of the discussion has been under the auspices of the Bank for International Settlements (BIS) which represents the central banks (such as the Federal Reserve in the U.S.) of the world's major industrialized economies.  BIS is headquartered in Basel, Switzerland and therefore its capital pronouncements are often referred to as the Basel Accords, or simply as Basel I, Basel II, or the most recent Basel III.

The U.S. rep on the BIS Board.

The discussions were intense, complex, difficult; with the brightest minds in international finance seeking the best and most appropriate approaches toward balancing risk-taking with safety and soundness, while supporting growth and economic development. Only the surest hands, the soundest thinkers and practitioners are given a seat at the table. Little is left to chance; too much is at stake.  

Capital is a much discussed and often contentious topic among credit unions also.  CUs are infamous among federally insured institutions for being the only U. S. depositories without a realistic, functioning risked-based capital regime - a weakness which adds substantial risk to both credit unions and the American taxpayer.  CUs also lack access to supplemental and alternative forms of capital - again a dangerous absence unique among U.S. insured institutions.

They don't know jack?

Most folks say the word on the street is that the  backwardness in capital requirements and structures for CUs is the direct result of mistrust by both Treasury and Congressional leaders over the depth of financial capabilities and leadership at the NCUA. Why else, folks ask, has NCUA continually failed to receive support for implementing modern capital standards which would better protect 94 million CU depositors and reduce the potential likelihood of a taxpayer underwritten bailout of credit unions?

No brainer ?

Picture yourself as a Congressional committee member. You have been asked by a respected federal regulator to approve a more rigorous capital structure which will be fairer, reduce the probabilities of loss, require more capital for riskier ventures, is in use by all other federal agencies, is used globally by other countries and is in tune with the best and most current financial thinking.  How would you vote?  It only requires a respected, trusted regulator to get it done.

But, NCUA - in all its glorious independence - has its own, home-grown solution....

According to the CUTimes (2/20/2013): "Credit unions will likely end up with a version of Basel requirements Larry Fazio called "Basel-lite" that would have a general but simplified Basel framework without the bells and whistles that would be required of more complex, for profit institutions."

"... general, more simplified, without bells and whistles... Basel-lite..."  Simplified by whom ? All those BIS complex discussions, conferences, and white papers resulted in just a bunch of bells and whistles? Bernanke's into insignificant fluff - right?

As usual of late, NCUA knows what's best for credit unions. Of course they do; here's how you know from the same CUTimes story:

"The strategic days of managing to 7% are history following the financial crisis, Fazio said."

"I think it was a nice philosophical oriented punch line, but if you ask any risk manager worth their salt, they would say unless you're a clean and simple organization, 7% isn't enough," he said, adding that managing to 7% because Congress set it as a minimum is the wrong way to approach capital."

"Basel-lite" ?

All the tell-tale signs - "I", "nice little philosophical principles", only people who agree with NCUA are "worth their salt"(everyone else is stupid),  who cares what Congress thinks or whether or not it's federal law, with the all-knowing Agency claiming that 7% is "the minimum" capital requirement set by Congress although that is not what the law says... After all, NCUA is an independent federal agency answerable and accountable to neither you, Congress, international BIS standards, federal law, nor to any reasoned challenge to "their thinking" .... or lack there of.



Two outs, bottom of the ninth with Casey coming up to bat once again...???
  

REGULATORY RISK remains the #1 reason credit unions need access to greater levels of capital protection

... through Congressional legislation !!