NCUA Director of Examination and Insurance Larry Fazio saidcredit unions won't be required to adopt Basel III capitalrequirements.

However, as required by statute, credit unions will have tomaintain “comparable” capital to what other regulators enforce.

That means updating Part 702 of NCUA Regulations, which outlinesPrompt Corrective Action and net worth requirements. Part 702 cameup in rotation as part of the NCUA's three-year revolving regulatory review, but Fazio said the rule gets twoyears to contemplate because it's “a big ticket item.”

Basel III would require banks to hold 4.5% of total capital and6% of Tier I capital of risk-weighted assets. It would also allowregulators to require up to another 2.5% of capital during periodsof high credit growth and introduces a minimum leveragerequirement.

Credit unions will likely end up with a version of Baselrequirements Fazio called “Basel lite” that would have a generalbut simplified Basel framework without the “bells and whistles”that would be required of more complex, for-profitinstitutions.

Risk-based capital requirements could also be applied on ascalable basis, Fazio said, with smaller credit unions having asimpler version of rules to comply with compared to largerinstitutions with presumably more risk.

Stock-based entities utilize scalable rules, he said, anddifferent “plug-and-play options” are available for scalable networth models.

However, he said the new rules won't mean a big change for mostcredit unions.

“It will pick up those that take a lot of risk and have littlecapital on top of that,” he said.

NCUA examiners have always looked beyond the 7% net worthminimum requirement for well-capitalized institutions, he said,taking a more customized approach. Examiners expect each individualcredit union to find its own balance between covering expected andunexpected losses and storing up too many reserves and failing todeliver maximum value to members.

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

“I think it was a nice philosophically oriented punch line, butif you ask any risk manager worth their salt, they would say unlessyou're a clean and simple organization, 7% isn't enough,” the NCUAdirector said.

The agency is limited regarding how much supplemental capitalauthority it can write into regulations. The board does have theauthority to allow credit unions to count supplemental capitaltoward its risk-based net worth capital requirements.

However, with the exception of low-income credit unions, itwould take statutory action for supplemental capital to counttoward the leverage ratio.

While risk-based requirements are compared against risk-basedassets, the leverage ratio requires a level of net worth comparedto total assets.

CUNA said Monday it expects Rep. Peter King (R-N.Y.) to reintroduce supplemental capitallegislation within the next week.

FDIC Board member Jeremiah Norton said in a speech Wednesday hethinks banks should be required to meet a stricter leverage ratiothan what was defined in the recent Basel III internationalagreement.

The FDIC currently requires 10% risk-based capital, 6% Tier 1capital and a 5% leverage ratio to be well-capitalized. In additionto the NCUA, the FDIC, Federal Reserve Office of the Comptroller ofthe Currency will be reviewing and updating capital regulationsthis year.