WASHINGTON – The Association of Corporate Credit Unions wrote the Federal Housing Finance Board in opposition to its recent proposal that would overhaul the Federal Home Loan Banks' capital system and likely lessen the chances of member dividend payouts.
ACCU Executive Director Mike Canning pointed out that corporate credit unions "are uniquely qualified" to discuss the proposal as their entire capital framework is being revisited in favor of a more risk-based system.
"There are some basic principles that we would urge all financial regulators to respect as they deliberate ways to find the `right' amount of capital," he wrote. "We understand and believe that a strong capital base is important to the financial well-being and an integral part of maintaining confidence in a safe and sound financial institution. Additionally, the cooperative nature that the Credit Union system utilizes for its basic business model is common ground shared between Credit Unions and the Banks."
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Canning continued, "In our opinion, the proposed rule as written would require a level of capital that would be disproportionate from Bank to Bank and does not take into consideration differences in asset mixes, portfolio management, or other types of risk-weighted factors. The proposed formula for requiring a starting point of $50 million for each Bank results in varying degrees of capital that may be adequate for some while inadequate for others. The additional capital requirement of 1% of `non-advanced assets' deems all of these types of assets as having the same degree of risk, disregarding the actual risk being born by the Banks. Furthermore, the proposed formula for calculating capital requirements diminishes the value of cooperative capital by restricting the use of capital stock as a viable tool for capitalizing the Bank's activities."
ACCU advocated for more practical capital requirements for the Federal Home Loan Banks and further study.
CUNA and NAFCU also recently wrote the FHFB requesting the body to withdraw its proposal for further review. [email protected]
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