The Federal Credit Union Act provides the NCUA with the“interpretive flexibility” to implement a two-tier risk-based networth system, according to the legal opinion of the law firm PaulHastings LLP.

Section 216 of the Federal Credit Union Act is “at best,ambiguous with respect to the statutory authority of the NCUA toimplement a two-tier RBNW [risk-based net worth] requirement forcomplex credit unions, as the language can be interpreted inmultiple ways,” the opinion said.

According to the firm's opinion, section 2016 “does not preventNCUA from imposing higher requirements on 'well-capitalized' creditunions to provide greater protection against risks” and does notshow “congressional intent to preclude the NCUA from implementingdifferent RBNW requirements for different capital categories.”

NCUA Board Chairman Debbie Matz said she solicited 11 law firmsaround the nation to review the legality of establishing a two-tierrisk-based net worth standard for the credit union industry.

“I solicited the independent legal opinion in order to performmy own due diligence. I ultimately chose the Global Banking andPayment Systems practice of Paul Hastings, based in Washington,D.C. Paul Hastings' partners have years of experience on legalissues related to [prompt corrective action], from the perspectivesof financial institutions as well as from the perspective of afederal agency,” Matz said at the NCUA's monthlyboard meeting Jan. 15 when the revised risk-based capitalproposal was approved.

NCUA Board Member Mark McWatters voted against the proposal,arguing that the Hastings legal opinion was not a strong enoughjustification for the NCUA's legal authority.

“As a practicing attorney, I have served on the legal opinionscommittee of large cross-border law firms and note that a 'could'opinion represents a relatively modest standard of assurance. Inthe obscure, arcane and highly technical and nuanced world of legalopinions, key words such as 'could,' 'would,' 'should,' and 'morelikely than not' truly matter,” McWatters said.

“The recipient of a legal opinion prefers to know that a court'will' or 'should' or, at a minimum, 'more likely than not will'uphold the legal actions of the recipient. An opinion letter merelynoting that a court 'could' uphold the actions of the recipient,although not entirely unhelpful, offers limited comfort to therecipient,” he explained.

McWatters was referring to a section of the opinion that said,“under current principles of applicable law and existing case law,a court of appropriate jurisdiction, in a litigated matter orproceeding, could conclude that NCUA's statutory authority permitsthe NCUA to establish the proposed two-tier RBNW requirement setforth in the Proposed Rule.”