Risk-Based Capital Buzz Continues, CUs Mull Bitcoins
Several credit union industry leaders spoke on what may have been the hot topic at CUNA's America's Credit Union Conference: Risk-based capital.
The headliner at CUNA's America's Credit Union Conference in San Francisco was compliance, and particularly NCUA's proposed risk-based capital rule.
“On everyone's top of the mind was the NCUA and imposing risk-based capital. There's still some uncertainly there because there has not been a decision made but information was provided to us and we will wait and see what comes out of that,” said Deb White, vice president of operations at the $239 million University Credit Union in Orono, Maine.
“We’ll still be in line with our ratios but it's absolutely going to take away from our members–whether it's new products or whatever it might be,” she added.
Larry Fazio, director of the NCUA Office of Examination and Insurance, participated in a risk-based capital panel discussion with CUNA representatives during the conference. Despite his assurance that many changes would be made to the proposal, some attendees left the event with unanswered questions.
“All it does is add more time and expense to us to have to be compliant. It's a very expensive thing–it takes time, it takes people but you have to do it,” said John Worthington, EVP at the $7.9 billion Security Service Federal Credit Union in San Antonio.
Worthington added, “We have to take the actions necessary but it's a drain on our credit union and it's a drain on our members. It looks like they are trying to throw us into some of the things other financial institutions do not have to do so we find that somewhat inconsistent.”
Following the panel discussion, Fazio was asked why the NCUA is rushing to finalize a risk-based capital rule.
“Could you re-write the proposal and come back to us and have another comment period?” asked a conference attendee.
Fazio said the agency would take as much time as it needs to get the proposal right.
“I don't know exactly how long that will take,” he said, adding that he is not sure if there will be a second comment period.
Fazio named a few areas the NCUA knew it would end up recalibrating in the final rule.
“I think we’ve got some opportunities in the commercial lending space, member business loans, especially in terms of the concentration, probably some fine tuning to do in real estate,” he predicted.
He also said the agency would take a look at how it handles equity exposures in the proposal.
“We are listening. Everything is on the table,” Fazio said.
A second comment period for the RBC proposal would be necessary if the NCUA makes major changes to the final rule, said CUNA SVP of Legislative Affairs Ryan Donovan.
“They need to take their time. I think it would benefit everyone for them to complete their analysis on the comments, listen to what credit unions are saying and take their time to carefully recalibrate the proposal and hopefully put it out for comment again,” Donovan said.
At a June 26 listening session in Los Angeles, some credit union executives asked the NCUA to permit a second comment period and initially, NCUA Chairman Debbie Matz said the agency is not considering one at this time. However, after she heard the request repeatedly from the session's attendees, she said the agency would take it under advisement.
Helen Pearce, president/CEO of the $95 million Cedar Falls Community Credit Union in Cedar Falls, Iowa, said her credit union is waiting until the proposal is amended before making any changes to its operation.
“We have to wait and see what tweaks that they do to risk-based capital. As it stands, our credit union is OK, but moving forward, we want to be there to serve our members. And if we can't afford to offer them certain products and services, then that puts us at a disadvantage compared to other financial institutions that can,” Pearce said. “Until they come out and say exactly what those tweaks will be, we’re going to keep pushing forward and hope that they make those changes.”
Chad Kaeppel, vice president of lending at Cedar Falls, echoed Pearce's thoughts.
“We didn't come out of this rest assured everything is going to be hunky-dory. I think there are still a lot of question marks and still a lot of concerns as we move forward,” he said.
Pamela Turner, SVP/CFO at the $676 million University of Virginia Community Credit Union in Charlottesville, Va., said she is cautiously optimistic about the RBC rule after attending the event with Fazio. She called the overall ACUC conference a huge energy boost for her credit union.
“On the top of everybody's mind right now is the risk-based capital rule and how that's all going to play out, as well as general compliance issues,” Turner said. “Honestly, what I got out of the conference was more energy and inspiration rather than the compliance. It doesn't mean my needs were not met, it's just, I really didn't come to the conference expecting to have those issues resolved.”
Turner said she felt inspired to re-evaluate some aspects of her credit union's operations. When asked what changes she would like to make, better engagement topped the list.
“I think it's more the personal interactions with staff and how the staff interacts with members,” she said. “We have always been so member-centric but we don't focus enough on how people in the organization have to be happy, too. If the team is happy, then the members will automatically feel that.”
Meanwhile, a breakout session on bitcoins at the ACUC conference with Cointrust CEO Steve Kirsch also was well-attended. Even though he gave credit unions an in-depth look at the virtual currency, many attendees left the event hesitant to get involved.
“It's quite scary that it is out there and unregulated. It certainly is something that could be a competitor for us, but I’m not sure if it's something we would make available to our members,” White from University Credit Union said. “From a compliance standpoint, it's very scary.”
Kirsch said he has made money every year on his bitcoin investment of $1 million.
“You have to be willing to take a risk to get involved. You might find it's the best investment of all time,” he told attendees.
Kirsch pointed out that only 21 million bitcoins will be produced. He told the audience the most important aspect to remember about bitcoin is the value, currently $650 per bitcoin, is set by supply and demand.
“It's kind of an arbitrary number – 13 million have already been used,” he said. “It's not until 2025 when all bitcoins will be used. They keep slowing the rate of issuance.”
Worthington said there are a lot of variables about bitcoin that have no answers.
“I’m confused. It's a very interesting concept but it's not ready for primetime,” the Texas credit union executive acknowledged.
Pearce found Kirsch's bitcoin presentation interesting but not enough for her Iowa credit union to get involved.
“I don't think so because we are more conservative. I have had members come into my office and ask me about it so I’ve gone on the Internet to find out a little more,” Pearce said. “It's one of those things you do not want to give any advice on but it was very interesting.”