Credit union executives have expressed a host of concerns aboutthe NCUA's risk-based capital rule proposed at the agency's January boardmeeting.

Under the proposed rule, a credit union with more than $50million in assets is rated adequately capitalized if it maintains arisk-based capital ratio between 8% and 10.49%, and a net worthratio of 6% to 6.99%. A risk-based capital ratio above 10.49% and anet worth ratio above 7% would designate a credit union as wellcapitalized. A risk-based capital ratio under 8% and net-worthratio between 4% and 5.99% is considered undercapitalized.

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NCUA Chairman Debbie Matz announced Feb. 20 she will host threelistening sessions, in San Francisco, Chicago and Washington,D.C., this summer. Credit unions and other industry stakeholderscan attend and ask NCUA officials questions about the rule and onother regulatory topics.

Click through to read concerns credit unions have shared aboutthe proposal.

Read more: Risk matrix askew …

1. Tougher standards than banks'

“An improved risk-capital measurement is needed within thecredit union movement. The NCUA will, however, have difficultyexplaining some significant differences in capital requirementsvis-a-vis the capital requirements for the same assets at banks,”said Jim Blaine, president/CEO of the $27 billion State Employees'Credit Union in Raleigh, N.C. “There appears to be nojustification for the NCUA to penalize members for borrowing andsaving at their credit union,” he added.

“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 of the $1 billion Evangelical Christian Credit Union inBrea, Calif., noting that unlike banks, credit unions have no meansof raising alternative 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 added.

Read more: Credit unions growing nowhere…

2. Growth Impact

David Osborn, president/CEO of the $1.4 billion Anheuser-BuschEmployees' Credit Union in St. Louis, said the 10.5%“well-capitalized” requirement underthe proposal rule is a huge jump from the current level.

“Even though I was pleasantly surprised that our numbers cameout well above that – we are in a growth mode – I think our concernhere is that if we start growing, obviously capital will beaffected and we might bump down to the 10.5% figure so in the longterm you've got to be concerned about what growth would do to yournumbers,” Osborn said.

Read more: What about IRR?

3. Interest Rate Risk

“Interest rate risk in the loan portfolio is ignored. Creditrisk is not totally ignored but it's not carefully calibrated,”said Denise Boutross McGlone, executive vice president and chieffinancial officer of the $2.2 billion Affinity Federal Credit Unionin Basking Ridge, N.J.

“How could a 50% LTV mortgage be considered the same as a 100%LTV?” she added.

Read more: Unintended run ondeposits?

4. The NCUA's Risk-based Rule Calculator

“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,”Holbrook said.

Read more: Fueling the consolidation fire…

5. More Mergers

“I do think this [rule] will definitely increase the mergers. Idon't know but that may very well be the intent of NCUA – to speedup the mergers; to not have to supervise these undercapitalizedcredit unions,” said Cheryl Hubbeling, CEO of the $43 million RapidCity Telco Federal Credit Union in Rapid City, S.D.