ALEXANDRIA, Va.-In the latest sniping from the American Bankers Association at NCUA, ABA Senior Economist Keith Leggett questioned why NCUA did not participate in an advance notice of proposed rulemaking to modify domestic risk-based capital standards. “The American Bankers Association (“ABA”) believes that NCUA should set forth for comment its plan for risk-based net worth reform and to work in tandem with the four federal banking agencies as they develop a uniform risk-based capital standard for depository institutions.” Leggett wrote in a Nov. 9 letter to NCUA Chairman JoAnn Johnson. “In April 2005, NCUA sent to Congress a plan to reform its risk-based net worth standard for credit unions. However, nearly six months have passed and the agency has not issued a proposed risk-based net worth requirement rule. ABA believes that NCUA should stop delaying and issue for public comment its proposal to reform the risk-based capital requirements for credit unions.” He pointed out that NCUA has the authority to create a risk-based standard for `complex’ credit unions stemming from the Credit Union Membership Access Act. The ABA further recommended that NCUA expand its definition of a complex credit union since so many credit unions are bank-like in their offerings. Leggett noted that none of the five largest credit unions qualify as a complex credit unions and just one of the top 10 largest credit unions do. “NCUA should proposed a broader, more encompassing definition of complex credit union when it submits its proposed risk-based capital requirement for comment,” he added. Chairman Johnson, in a tongue-in-cheek manner, responded, “I can assure you we are coordinating with the other federal banking agencies in regard to revised capital standards. Thus, you can lay to rest your concerns that NCUA has been left out of this process.” However, she pointed out, the Federal Credit Union Act requires the agency to “take account of any material risks against which the net worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection (Johnson’s emphasis). This language, along with legislative history, requires our RBNW requirement to incorporate all material risks, such as interest rate risk,” Johnson said. “Since the four federal banking agencies do not have such a legal requirement, and consistent with BASEL have chosen to focus on primarily credit risk in designing risk-based capital standards for their depository institutions, our participation would only have serve to unnecessarily complicate the ANPR process.” She added, “First let me say that I wholeheartedly agree with you that uniform (i.e., comparable) capital standards for federally insured depository financial institutions are important. One of the primary foundations of our proposal to reform prompt corrective action (PCA) standards for credit unions is to provide comparability. However, as I explained above NCUA does not have complete latitude to design the RBNW requirement for credit unions. As a result, we lack the authority necessary to implement our proposed reforms designed to achieve comparability. Thus, it is premature to issue a proposed rule to adjust credit union capital standards until we have enabling legislation.” Johnson said NCUA’s PCA proposal is available on the agency’s Web site ( and public insight is “welcome.” In response to Leggett’s suggestion that NCUA expand its definition of a complex credit union in order to propose the risk-based capital requirements, the NCUA chairman indicated that the PCA reform proposal already out expands the risk-based capita requirements to all credit unions. As for most of the large credit unions not qualifying as complex, Johnson said that goes to their “relatively conservative risk profiles.” The average level of retail real estate lending is below 20% of assets, she said, while business lending comprises just 2.2% of assets. Johnson added that 16 of the top 100 credit unions are defined as complex, but, if a capitalization standard comparable to the FDIC-insured institutions’ were applied, one might count as complex. [email protected]

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