Al to the rescue?
by. Henry Meier
This is one of those rare days when the credit union news I want to talk about is all good. First, former New York U.S. Senator Alfonse D’Amato issued a comment letter on NCUA’s risk-based capital proposal sharply questioning NCUA’s authority to promulgate these regulations as proposed. D’Amato’s comments are particularly noteworthy as he was the chairman of the Senate Banking Committee when Congress passed the law that NCUA is now using to promulgate its risk-based capital proposal. Second, the House of Representatives passed two bills that would help credit unions. One that expands their authority to accept trust accounts and another that would allow financial institutions, including credit unions, to have a greater say in the process used for designating financial institutions as serving rural areas. Today I am going to talk about Senator D’Amato’s letter but will get to the other proposals in a future blog.
As you know, all credit unions are subject to minimum PCA capital requirements requirements. The Federal Credit Union Act authorizes NCUA to develop a risk-based net worth ratio for complex credit unions. Section 216(d) of the Act requires the risk-based capital requirement to be designed “to take into account any material risk against which the net-worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection.” NCUA responded to this directive by promulgating a risk based net worth requirement that in its own words imposes a “pass-fail” requirement on complex credit unions. They are either adequately capitalized or under capitalized
With its latest proposal NCUA is proposing a more advanced risk-based capital framework for complex credit unions to replace what it describes as the current “pass-fail” system. Under the new capital program framework credit unions with $50 million or more in assets would be placed in one of five categories including well-capitalized and adequately capitalized. Which brings us back to the Senator.
In his letter, Senator D’Amato explains that it was never the intention of Congress to mandate that complex credit unions be subject to risk-based net worth requirements beyond being adequately capitalized for net-worth purposes. “If we had intended that there should also be a separate risk-based requirement to be well capitalized (in addition to the 7% net worth ratio) we would have said so.” In other words if you are an adequately capitalized credit union of $50 million or more NCUA can’t impose even more requirements on your credit union.
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