The CEO of a $1 billion credit union told Credit UnionTimes the NCUA's proposed risk-based capital rule would hurthis business model.

“The capital requirements for credit unions with concentrationin member business loans is way too high at 14% – higher thanwhat's required for commercial banks,” said Mark Holbrook, CEO ofthe $1 billion Evangelical Christian Credit Union in Brea, Calif.,noting that unlike banks, credit unions have no means of raisingalternative capital.

“So the effect that has on our credit union is we go from wellcapitalized, which we've been at for years, to now undercapitalizedovernight. So of course we feel that it's an outrageous level ofcapital to be requiring of credit unions that have theseconcentrations. It's really a direct attack on our business model,so I'm deeply concerned about that,” he said.

Holbrook also said there should be a phase-in period to givecredit unions adequate time to respond to the new regulation if itgets finalized.

“Why does NCUA make a rule that goes into effect 12 to 18 monthsafter adoption and then give no time to adjust to the newregulation? That seems pretty arbitrary,” he said.

Holbrook, whose credit union has more than 12,000 members, alsoexpressed concern about the effect of the NCUA's decision to makethe risk-based capital calculator available to the public.

“A reasonable person could conclude that we're undercapitalizedtoday,” he said.

“From an agency that makes a really big deal about reputationrisk, I don't understand why they are choosing to publishinformation on a proposal that gives the impression that our creditunion is undercapitalized. It doesn't make a lot of sense to me,”he added.

According to the NCUA's risk-based calculator, EvangelicalChristian is not the only credit union with more than $1 billion inassets that lose its well-capitalized status under the proposedrule. Other large credit unions that would be undercapitalizedinclude the NCUA-controlled $1.4 billion Texans Federal CreditUnion in Richardson, Texas, and the $1.9 billion Chartway FederalCredit Union in Virginia Beach, Va.

Other credit unions that would be undercapitalized under theproposed rule include:

• $120 million Keys Credit Union in Key West, Fla.;
• $51 million Union Yes Federal Credit Union in Orange,Calif.;
• $137 million Tri–Co Federal Credit Union in Randolph,N.J.;
• $234 million A.E.A. Federal Credit Union in Yuma, Ariz.;
• $267 million Sperry Associates Federal Credit Union in GardenCity Park, N.Y.;
• $105 million Meadows Credit Union in Arlington Heights,Ill.;
• $62 million Archer Cooperative Credit Union in Central City,Neb.;
• $278 million America's Christian Credit Union in Glendora,Calif.;
• $112 million Transwest Credit Union in Salt Lake City;
• $72 million School Systems Federal Credit Union in Troy,N.Y.;
• $50 million MED5 Federal Credit Union in Rapid City, S.D.;
• $180 million Bayridge Federal Credit Union in Brooklyn, N.Y.;and, the
• $83 million Motion Federal Credit Union in Linden, N.J.

Motion is currently adequately capitalized while Chartway, BayRidge, MED5, School Systems, America'sChristian, Archer Cooperative and EvangelicalChristian are well capitalized under the existing capital requirements.

Read more: Risk-based capital rule would cause moremergers, stifle growth …

The risk-based capital rule proposed by theNCUA at January's monthly board meeting rates a credit union withmore than $50 million in assets adequately capitalized if itmaintains a risk-based capital ratio between 8% and 10.49%, and anet worth ratio of 6% to 6.99%. A risk-based capital ratio above10.49% and a net worth ratio above 7% would designate a creditunion as well capitalized.

School Systems CEO Mark Hatfield told Credit UnionTimes that the existing risk-based capital requirementscould be improved greatly.

“If you've got a two-year car loan on your books and you've gota low delinquency rate, why should that be rated the same as a10-year or 15-year mortgage or home equity?” Hatfield said. “Thecurrent rule just doesn't make sense.”

Hatfield was hesitant to comment on the specifics of theproposed rule since he has not read through the entire regulationyet.

“Our delinquency percentage is .47, so we're half of what theindustry average is. And we have no business lending,” Hatfieldsaid. “If that's the case, then why are we going into a differentcategory – from well capitalized to below – when we don't have whatthey're [NCUA] considering risky assets on the books?”

Cheryl Hubbeling, CEO of the $43 million Rapid City TelcoFederal Credit Union in Rapid City, S.D., said if the proposed ruleis ultimately approved, it could discourage her credit union andothers similar in size from growing.

“I do think this will definitely increase the mergers. I don'tknow but that may very well be the intent of NCUA – to speed up themergers; to not have to supervise these undercapitalized creditunions,” Hubbeling said.

“This is going to adversely impact the credit unions that aretrying to serve people of low and modest income means whilerebuilding their capital,” she added.

Hubbeling, who is currently operating her credit union under acease and desist order issued in 2010, added that she has awonderful working relationship with the NCUA staff.

“Every day we come in and hope for the best,” she toldCredit Union Times. “There were some unfortunate thingsthat came along that required them [NCUA] to intercede and they didand we worked on a plan and we've been doing it now for 3years.”