Reps Back Risk-Based Capital Relief
Almost 75% of the U.S. House of Representatives has agreed to sign a letter to NCUA Board Chairman Debbie Matz requesting changes to the agency's proposed rule on risk-based capital for credit unions.
Reps. Peter King (R-N.Y.) and Gregory Meeks (D-N.Y.), both members of the House Financial Services Committee, wrote the letter, which is expected to include signatures from 173 Republicans and 151 Democrats. CUNA said that includes 49 of the 60 members of the Financial Services Committee.
“The risk weightings include concentration-based weights which, at the higher levels, would be considerably higher than those applied under the Basel system for banks,” the letter said. “We are concerned this portion of the proposal could unnecessarily hinder credit union lending to homeowners and small businesses.”
“We encourage the board to 1) take into account the cost and burden of implementing new risk-based capital requirements beyond the current leverage ratio; 2) provide justification and more clarity as to why the proposed risk weights differ from those applied to other community financial institutions; and 3) give credit unions more time than the proposal's allotted 18 months to come into compliance after it is finalized,” it said.
“We are concerned that the amount of time the board has proposed is much too short for credit unions to appropriately recalibrate their books without adversely impacting their service to their members,” it added.
The lawmakers strongly urged the NCUA to give credit unions and other stakeholders more time to comment on the proposal as well as additional time for implementation of the final rule.
“Because of credit unions’ limited avenues for raising capital, it is likely this proposal would force them to charge higher lending and financial services fees, reduce dividend payments to members, and deter new depositors,” the letter said. “Before proceeding with a final rule, we urge the NCUA to consider the economic impact and consequences of reduced liquidity and financing for families and small businesses.”
“CUNA supports risk-based capital, but not the way that the NCUA has proposed it. The fact that so many members of Congress have added their voices of concern bolsters credit unions’ views that this proposal must be changed significantly,” said CUNA President/CEO Bill Cheney.
“We appreciate the leadership shown by Representatives King and Meeks, and their colleagues from both sides of the aisle, in expressing their concerns about NCUA's seriously flawed risk-based capital proposal,” said NAFCU President/CEO Dan Berger. “The numbers speak volumes as to how invested Congress is in this issue. The NCUA needs to get this right for all credit unions across the country.”
Comment letters continue to flow in from credit unions around the country.
“This proposed regulation will impede my credit union's ability to be competitive in the market place in providing sound and safe financial member services,” wrote Everett Gull Jr., volunteer board member at the $1.9 billion Chartway Federal Credit Union in Virginia Beach, Va.
“Loan products impacted include member/consumer lending, mortgage lending and the use of our collaborative CUSO. Saving products impacted include reduced dividends on member shares and CDs. Because traditional ALM/ALCO strategies will be replaced with the new proposed regulatory balance sheet requirements all our products will be adversely affected,” he added.
Steve Rasmussen, president/CEO of the $563 million FAA Credit Union in Oklahoma City, said the rule would put an undue burden on some credit unions with its short implementation date.
“We have all been in a recessionary environment since 2009, and the low interest rate environment has taken its toll on earnings,” he wrote. “It is obvious that higher interest rates are on the way, and will provide some relief for compressed spreadsheets, but the improved earnings will not happen overnight. Please consider something more of a three-year implementation period or longer.”
The $4 million Corpus Christi S.P. Credit Union in Corpus Christi, Texas, said it opposed the definition of “complex” credit union in the proposed rule.
“The proposal would define a ‘complex’ credit union as ANY credit union with over $50 million in assets,” wrote Karen Sims, president/CEO. “There is nothing magical about $50 million in assets; size alone does not make a credit union complex. The NCUA has provided no justification for expanding the definition of complex credit union.”
Sims said her credit union would be affected by the proposed rule even though it has less than $50 million in assets. She cited the paperwork burden estimates in the proposal as an example.
“That equates to over 160 hours of work (or one full month) for a small credit union that might only have a couple of employees,” she wrote. “Does the NCUA really think it is reasonable that a small credit union should spend a month of the year on this rather than serving its members?”
NCUA Board Member Michael Fryzel has said he is confident the final rule will include changes requested by trade associations and credit unions.