The National Association of Credit Union Service Organizationsis concerned that the NCUA's risk-based capital rule proposal does not reflect a fairassessment of the actual risks of assets held by a particularcredit union.

NACUSO President/CEO Jack Antonini shared that point in theorganization's March 5 comment letter to the NCUA on theproposal.

“This proposal seems to supplement the current one-size-fits-allnet worth system in place since 1998 with what is little more thana revised, and more complicated, one-size-fits-all risk basedcapital version,” Antonini wrote.

He added, “The one-size-fits-all nature of the proposed riskratings is admittedly easier to apply for NCUA than would be asystem with credits for historical risk management performance andrisk weights that are documented by empirical data on a large scalebasis.”

For instance, all types of business loans should not be riskweighted the same in every credit union and all CUSO investmentsshould not be rated as high-risk, Antonini said.

NACUSO believes the risk weighting of 250% assigned in theproposal to investments in CUSOs which “is arbitrary, not supportedwith any empirical data and counter-productive to the collaborativerisk mitigating model that CUSOs represent as a net income resourcefor credit unions.”

“While we support a truly well-balanced risk-based capitalsystem that replaces the current PCA net worth standards andincorporates both benefits and penalties based upon the structureand management of balance sheet risk, this proposed rule has aconsiderable number of improvements needed in order to accomplishits stated purpose,” Antonini said.

The NCUA has proposed that in order for a credit union to beclassified as well-capitalized, it must maintain a risk-basedcapital ratio of 10.5% or above, and pass both net worth ratio andrisk-based capital ratio requirements. Adequately-capitalizedcredit unions would have to maintain risk-based capital ratiosbetween 8% and 10.49% and pass ratio requirements.

“Credit unions cannot generate sufficient net income in today'seconomic and regulatory climate if they are shackled to aregulatory scheme that is designed to regulate the credit unionindustry as if it were the 1980s,” Antonini said. “Just as thecredit union business model is changing to meet today's economicchallenges, so must the approach of the regulator.”

Antonini said while there is certainly a danger to credit unionsnot having enough capital to cover the risks credit unions pose tothe share insurance fund, “there is also a danger to thesustainability of credit unions if an unnecessary amount of capitalmust be reserved in proportion to an individual credit union'sbalance sheet risk.”