The CEO of a $1 billion credit union told Credit Union Times the NCUA's proposed risk-based capital rule would hurt his credit union's business model, shifting it from well capitalized to undercapitalized.
“The capital requirements for credit unions with concentration in member business loans is way too high at 14% – higher than what's required for commercial banks,” said Mark Holbrook of the $1 billion Evangelical Christian Credit Union in Brea, Calif., noting that unlike banks, credit unions have no means of raising alternative capital.
“So the effect that has on our credit union is we go from well capitalized, which we’ve been at for years, to now undercapitalized overnight, so of course we feel that it's an outrageous level of capital to be requiring of credit unions that have these concentrations,” Holbrook said.
“So, it's really a direct attack on our business model so I’m deeply concerned about that,” he added.
Holbrook also said there should be a phase-in period to give credit unions adequate time to respond to the new regulation if it gets finalized.
“Why does NCUA make a rule that goes into effect 12-18 months after adoption and then give no time to adjust to the new regulation? That seems pretty arbitrary,” he said.
Holbrook, whose credit union has over 12,000 members, many of them churches and other organizations, expressed concern about the effect of the NCUA's decision to make the risk-based capital calculator available to the public.
“A reasonable person could conclude that we’re undercapitalized today, if that's the NCUA's standard today. Even though it's not official, it appears that by their standards we’re undercapitalized,” said Holbrook.
“From an agency that makes a really big deal about reputation risk, I don't understand why they are choosing to publish information on a proposal that gives the impression that our credit union is undercapitalized. It doesn't make a lot of sense to me,” he added.
According to the NCUA's risk-based calculator, the credit unions that currently would be undercapitalized under the proposed rule are the $120 million Keys Credit Union in Key West, Fla.; the $51 million Union Yes in Orange, Calif.; the $1.4 billion Texans in Richardson, Texas; the $137 million Tri–Co in Randolph, N.J.; $1.9 billion Chartway in Virginia Beach, Va.; the $234 million A.E.A. in Yuma, Ariz.; the $267 million Sperry Associates in Garden City Park, N.Y.; the $105 million Meadows in Arlington Heights, Ill., the $62 million Archer Cooperative in Central City, Neb.; the $278 million America's Christian in Glendora, Calif., the $112 million Transwest in Salt Lake City, Utah; the $72 million School Systems in Troy, N.Y.; the $50 million MED5 in Rapid City, S.D.; the $180 million Bay Ridge in Brooklyn, N.Y., the $83 million Motion in Linden, N.J.; and the $1 billion Evangelical Christian Credit Union in Brea, Calif.
Motion is currently adequately capitalized while Chartway, Bay Ridge, MED5, School Systems, America's Christian, Archer Cooperative and Evangelical Christian are well capitalized under the existing rule.
The risk-based capital rule proposed by the NCUA at January's monthly board meeting rates a credit union with more than $50 million in assets adequately capitalized if it maintains a risk-based capital ratio between 8% and 10.49%, and a net worth ratio of 6% to 6.99%. A risk-based capital ratio above 10.49% and a net worth ratio above 7% would designate a credit union as well capitalized.
Cheryl Hubbeling, CEO of the $43 million Rapid City Telco in Rapid City, S.D., said if the proposed rule is ultimately approved, it could discourage her credit union and others similar in size from growing.
“I do think this will definitely increase the mergers. I don't know but that may very well be the intent of NCUA – to speed up the mergers; to not have to supervise these undercapitalized credit unions,” Hubbeling said.
“This is going to adversely impact the credit unions that are trying to serve people of low and modest income means while rebuilding their capital,” she added.
Hubbeling, who is currently operating her credit union under a cease and desist order issued in 2010, said she has a wonderful working relationship with the NCUA staff.
“Every day we come in and hope for the best,” she told Credit Union Times.
“There were some unfortunate things that came along that required them (NCUA) to intercede and they did and we worked on a plan and we’ve been doing it now for three years,” she said.