CUSOs Urge Better Model to Rate Risk
More questions than answers continue to shake the industry since the NCUA proposed a rule that would set higher capital requirements for credit unions with more concentrations in member business loans and other assets.
“The message that NCUA is sending, intentionally or not, is that CUSOs are risky and you need to reserve a hefty amount of capital if you dare to invest in them,” said Guy Messick, general counsel for the National Association of Credit Union Service Organizations. “NCUA is even proposing to risk weight the profits of CUSOs. In other words, if your CUSO makes money and the equity value increases, you must reserve for the profits made as well as the original investment.”
Investments in CUSOs are considered by the NCUA to be among the riskiest asset classes for credit unions, according to the proposed rule's risk weighting table.