WASHINGTON -- Corporate credit unions are laying off risk-based capital for the time being.
The Association of Corporate Credit Unions' goal of getting corporate credit unions under a risk-based capital was in full gear this year, but most corporates agree now is not the right time.
Interim ACCU President Eric Richard said because of corporates' unique role as liquidity providers, adopting risk-based capital rules from Basel could cause capital problems for corporates. Richard said it's also difficult to make an apples-to-apples comparison between banks and corporates for risk-based capital, causing more difficulties.
For corporates to get risk-based capital, they would need a carveout from Basel. One of the main impediments is the 4% leverage ratio under Basel. There was discussion of including corporates' paid-in-capital for calculating leverage ratios. Sixteen corporates have issued PIC, but some have issued term PIC, not perpetual PIC, which is what would be included in the leverage ratio. This means some corporates would have to reissue PIC to get to the 4%. Corporates were hoping for a 2% leverage ratio, but that would require a carveout.
While many in the industry viewed the corporates moving under a risk-based system as a way to show lawmakers the credit union industry could handle such a system and as the prelude to natural person credit unions getting risk-based capital, corporate leaders point out that their risk-based initiatives were always viewed as exploratory.
"I think it was good to take a look at risk-based capital. Of course credit unions are moving in that direction. At this point it doesn't make sense for corporates. Basel is fitting for retail institutions, but doesn't fit in our model," said Greg Moore, CEO of Georgia Central Credit Union.
"Corporate credit unions are just kind of a different model, and I just don't know that Basel in its pure form fits us real well. I think it was proper not to pursue it, who knows what the future holds," said Missouri Corporate CEO Dennis DeGroodt.
The ACCU said it will still pursue capital modernization for corporates, but sees it as more of a long-term goal.
"At the appropriate time, the ACCU will encourage NCUA and other relevant government officials to develop an integrated, consistent and rational approach to the modernization of capital standards for credit unions of all types, whether natural person or corporate credit unions," stated ACCU in its proposed statement on capital modernization. --firstname.lastname@example.org