Capital Is Not King: Guest Opinion
The NCUA has been announcing for months that it is going to change rules relative to risk-based capital for credit unions. The agency intends to have some credit unions who engage in activities that the NCUA deems risky to hold more capital.
Capital is safe. Capital is the regulators’ cure-all to risk. Capital is the easy way out.
Since the NCUA first announced it was looking at capital rules, NAFCU has pushed back every step of the way. We have asked the agency to show us why new capital rules are necessary. We asked to be included in the discussions prior to any rulemaking. Yet the agency plodded forward with its look at capital rules, keeping everyone in the dark as to what exactly it would propose.
Credit unions are already well-capitalized as an industry. Capital is at an average 10%. The statutory minimum capital level for a well-capitalized credit union is only 7%. If you look at credit union failures going back as far as 10 years, the story is the same, both pre-financial crisis and post-financial crisis: the greatest proportion of credit union losses has involved credit unions with less than $50 million in assets. Yet the NCUA has indicated that those credit unions are not going to be included in any rulemaking. If the credit unions that generate the most cost to the share insurance fund are not going to hold more capital, why create new rules designed to put safety in the system for those credit unions that are well-managed and well-capitalized?
At NAFCU, we believe that “enough is enough.” Credit unions are drowning in regulatory burden, and the latest push from NCUA could not come at a worse time. Credit unions are different. The fact that capital rules are changing for banks does not mean that there is additional risk in the credit union system.
NAFCU supports a risk-based capital system for credit unions. We support less capital for low-risk and more capital for higher-risk credit unions. But we need Congress to make statutory changes to achieve a fair system.
What we do not support is NCUA's effort to force credit unions to hold more capital as a substitute for appropriate examinations or to address mismanagement.
NAFCU will continue to oppose all unnecessary rules. And this proposed rule coming out of NCUA is the king of them all.
Carrie Hunt is senior vice president of government affairs and general counsel at NAFCU. She can be reached at firstname.lastname@example.org.