WASHINGTON — The two national credit union trade associations supported flexibility in the application of capital standards for banks in comment letters to the Federal Reserve last week.
CUNA Chief Economist Bill Hampel noted that credit unions do not currently have a risk-based capital system like Basel but a provision for this is in the works. He acknowledged that many credit unions have simple balance sheets and that many smaller banks are similarly situated. "To address this, we support allowing institutions to choose between the current Basel I standard and the standard under the new Basel IA that are very similar to those contained in the [notice of proposed rulemaking]," he wrote.
Hampel also asked for improved risk evaluation of mortgages, taking into account credit scores and the seasoning of a loan; small business loans; and business loans secured by non-residential real estate. He also encouraged the agencies to allow institutions to opt for risk-weights under 100% on consumer loans based on credit scores and loan-to-value.
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NAFCU President/CEO Fred Becker wrote, "NAFCU endorses risk-based capital standards for both natural person and corporate FCUs that are progressive in nature, consistent with the fundamental principles of the Basel Accords, and comparable with the risk-based capital measures used by the other depository institutions."
He listed out certain principles that should be applied in any risk-based capital scheme, including providing proper management incentives such that moral hazard concerns are minimized and risk-reducing activities are encouraged and provide flexibility within each asset portfolio for adaptation to new innovations and complex financial instruments and transactions.
NAFCU also backed allowing for the institutions to choose for themselves between Basel and Basel Ia.
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