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NCUA seeks comments from CUs on proposes new risk-based capital requirements

Credit unions, including those through out Alabama and Florida, with more than $50 million in assets and that are federally insured will be subject to additional capital requirements according to a proposed risk-based capital rule the NCUA board recently introduced. Those credit unions that have credit concentrations in real estate loans, member business loans or delinquent loans would be subject to the increased risk-based capital.  

According to the proposed rule, to be classified as well capitalized, credit unions would be required to maintain a risk-based capital ratio of 10.5 percent or above, and pass net worth ratio and risk-based capital ratio requirements. Adequately capitalized credit unions would have to maintain risk-based capital ratios between eight percent and 10.49 percent and pass ratio requirements. Undercapitalized credit unions would fall below eight percent risk-based capital ratio.

The risk-based capital proposal for natural person credit unions would replace the current net worth risk-weighting method, putting them more in line with the NCUA’s risk-based capital requirements for corporate credit unions, the NCUA said, as well as capital requirements adopted previously by the FDIC, Federal Reserve and Comptroller of the Currency. The proposed risk-based ratio would be determined by the percentage of a credit union’s net worth available to cover losses, divided by the credit union’s defined risk-weighted asset base, the NCUA said. 

The NCUA estimated that more than 90 percent of affected credit unions – approximately 2,237 institutions – would be in compliance with the proposed rule, based upon June 30, 2013 call report data. However, 189 credit unions would experience a decline in their PCA classification from well capitalized to adequately capitalized, and 10 well-capitalized credit unions would experience a decline to undercapitalized status. The NCUA estimated that, collectively, those 10 undercapitalized credit unions would need to retain an additional $63 million in risk-based capital to become adequately capitalized, assuming no other adjustments. The capital requirements and PCA supervisory actions for “new” credit unions and credit unions with fewer than $50 million in assets would remain largely unchanged.The rule was given a longer-than-usual comment period of 90 days.

Early reaction among effected credit unions to NCUA's proposed risk-based capital rule is that growth for a number of institutions will falter under the new standards, some CUs will benefit from a beneficial capital cushion, but not enough was done by the agency to reward effective risk management performance.   

The proposal has not yet been published in the Federal Register, so a specific comment due date has not been set; the League will update our comment call on this issue to include the date when it appears in the Register. Prior to that update, you are encouraged to submit your comments and opinions to LSCU as soon as possible. The League will be filing a comment letter to NCUA prior to the comment period deadline.

For more information about the proposal, please contact Scott Morris at 1-866-231-0545.