Matz: Risk-Based Capital Rule Could Have Saved NCUSIF $180 Million
Had the NCUA's proposed risk-based rule been in effect in 2007, it could have saved the NCUSIF as much as $180 million.
NCUA Board Chairman Debbie Matz included that statistic in a letter July 18 to House Financial Services Oversight and Investigations Subcommittee Chairman Patrick McHenry (R-N.C.), in response to his concerns about the agency's proposed risk-based capital rule.
“We back-tested the proposed risk-based capital rule on consumer credit union failures that created the largest losses to the [NCUSIF] since 2007. In 14 of the 15 failures tested, the credit unions would have held substantially more capital if they had been operating with the level of risk-based capital required in the proposed rule,” Matz wrote. “The maintenance of higher minimum risk-based capital levels in these institutions may have prevented their failure and would have reduced the amount of losses incurred by the [NCUSIF] by as much as $180 million.”
The letter also included a chart that compared the NCUA's proposed asset risk weights to the FDIC's rule. While many of the NCUA's asset class risk weights mirror those enforced by the FDIC, there were some exceptions.
Credit unions would have it easier than banks when it comes to current consumer loans; the NCUA's proposal risk weights the assets 75%, compared to the FDIC's 100%.
However, the FDIC's rule does not address concentration risk, while the NCUA's proposal does. For example, the FDIC risk weights all current mortgages at 50%, regardless of concentration. The NCUA's proposal would also risk weight mortgages up to 25% of assets at 50%, but would up the ante to 75% for mortgages that represent 25% to 35% of assets, and increase risk weighting to 100% for mortgages more than 35% of total assets.
Concentration risk is also addressed by the NCUA's proposal for junior lien and delinquent first mortgages and for member business loans, while the FDIC's rule does not increase based upon concentration.
Matz told McHenry the NCUA estimated that credit unions covered under the proposal would need to collectively hold an additional $633 million in capital to reach the well-capitalized level, assuming all 201 decide to keep their balance sheets’ current risk exposures.
She said that figure is equivalent to 0.80% of their combined assets of $80 billion.