From the NCUA'srelease of its first introduced risk-based capital proposal inJanuary 2014 up through this year's revised version, NAFCU's coreposition hasn't wavered: The credit union industry does not needthis rule, and the NCUA must withdraw it immediately.

The first proposal was fundamentally flawed. The second, whileaddressing some credit union concerns, still is unnecessary andwill only impose more regulatory burden on an already extremelywell-capitalized industry. Contrary to NCUA's stated intent, thisrisk-based capital proposal will imperil credit unions in thefuture by forcing them to park more capital on their balance sheetsrather than allowing them to grow and lend within theircommunities.

NAFCU wants to be clear – we support an RBC system for creditunions that would reflect lower capital requirements for lower-riskcredit unions and higher capital requirements for higher-riskcredit unions. The NCUA, however, cannot accomplish the taskalone – Congress needs to be involved.

The NCUA's comment period on its second proposal closes Monday.NAFCU has encouraged the credit union industry to submit lettersand comments to the agency. NAFCU submitted its comment letter tothe agency on April 23. While our comment letter details myriadissues with the proposal, including our staunch disagreement withNCUA's legal authority to promulgate the rulemaking as proposed,our top concerns are as follows:

• cost to the industry;
• definition of complex credit union;
• competitive disadvantage.

While our 22-page comment letter offers detailed recommendationsfor how the NCUA can improve the proposal, NAFCU and our membersfundamentally believe this rulemaking is unnecessary and willunjustifiably constrain credit unions' ability to grow and servetheir communities.

NAFCU has spoken individually with many of our members about howthe proposal will affect the compositions of their balance sheetsand the products they currently provide to their members.

For example, one well-capitalized credit union with about $500million in assets has indicated that it will likely be unable topursue safe, sound and effective growth opportunities, which couldresult in reductions to its employee benefits plan and overalllending capacity. This credit union serves more than 50,000 membersand employs more than 150 people. To balance rising health-carecosts for its employees, this credit union is consideringestablishing member business lending and loan participationprograms, but under the NCUA's proposal, such investments wouldcause the credit union's risk-based capital ratio to drop by almost5% – leaving the credit union with a tough decision to make thatwill likely impact its employee benefits plan.

Another NAFCU member, with about $200 million in assets andlocated in the Northeast, may have to reduce the number ofmuch-needed home equity lines of credit to its members. This creditunion has many members that depend on its offering of HELOCs tomake winter-weather-related repairs to their homes. Because of theelevated concentration thresholds in the NCUA's risk-based capitalproposal, this credit union may not be able to build the necessarycapital required and will have to limit the help it can offer toits community.

These are real-life examples of how this proposal will hurt thecredit union industry and its 100 million members. The NCUAestimates that 19 credit unions would be downgraded if the proposalwere in place today, but the impact of this proposal will spreadfar beyond those institutions. Why put an entire industry at riskfor just a few credit union outliers? NAFCU believes risk in creditunion operations can be addressed on a case-by-case basis and doesnot warrant a broad-brush regulation.

Again, NAFCU supports a fair, comprehensive system of capitalfor credit unions, but this is not the rule that will get us there.For a fair system to be accomplished, changes to the Federal CreditUnion Act — from both legal and operational perspectives – arerequired; congressional engagement is necessary.

NAFCU will continue to do whatever it takes – both legislativelyand on the regulatory side – to achieve a fair, balanced risk-basedcapital system for credit unions. For now, the NCUA should withdrawthis proposal and work with NAFCU and Congress so we get capitalmeasures that reflect true risk. It is not too late for theNCUA to get off the highway.