Fryzel: Right Size Risk-Based Capital Rules
NCUA Board Member Michael Fryzel has advocated for what he called the “right sizing” of risk-based capital rules for credit unions.
“Whether it is in an enhanced examination process that apportions our resources in an effort to mitigate, or prevent entirely, problems that can cripple an otherwise healthy credit union and cost your members money, or whether it is new regulations designed to foster a safer, sounder, more realistic capital regime, NCUA is working to stay abreast of an evolving industry,” Fryzel said Friday in a speech to the American Association of Credit Union Leagues.
“For example, consider NCUA’s contemplated changes to risk-based capital. While I am not prepared to discuss specifics today, I would draw your attention to parallel evolutions occurring in the banking system, driven by Basel III requirements. Credit unions are not statutorily covered by Basel, but NCUA is required to maintain a system that is “comparable” to that of the banking industry,” he said.
“Comparable is an interesting word, primarily because it is subjective,” Fryzel continued.
“I advocate neither an overly stringent nor an overly permissive approach. I advocate ‘right sizing’ NCUA’s risk-based capital rules. One of the undeniable lessons learned from the crisis is the value of a financial institution’s capital – capital that is ample, durable and can be readily deployed to shore up a balance sheet under duress,” he said.
A credit union’s function of serving consumer financial needs carries risk, Fryzel added.
“I want NCUA to view risk, not as an extraordinary characteristic that should be avoided, but as a part of doing business as a 21st century, relevant provider of financial services. Risk can and should be managed,” he said.
“Risk-based capital, properly formulated, should match up with the real-world activities of a credit union. Greater net worth might be necessary, depending on the type of activities that credit unions pursue as they serve their members,” he added.
Fryzel’s address was delivered before 110 credit union league presidents, board chairmen and government affairs professionals at the AACUL’s 2013 winter meeting in Palm Beach, Fla.
Fryzel vowed to retain his position on regulation while risk-based capital rules are debated.
“Consistent with something I said about regulation when I appeared before the Senate Banking Committee for confirmation as NCUA Chairman in 2008, I want to see standards that are as minimal as possible, and as much as necessary. I will be keeping this vision in mind as NCUA considers changes to the industry’s risk-based capital rules,” he said.
“Capital is essential, but increasing requirements is not a panacea for all problems. As an example, it will do little or nothing to help a credit union avoid cyber-threats,” he said.