Matz – Credit unions don’t need no stinking buffer

by. Henry Meier

When virtually every member of the House of Representatives signs a letter raising substantive concerns about one of your regulations, you can bet regulators take crafting an appropriate response seriously. So, I am bemused, confused and more than a little concerned by the NCUA’s response to Congressman King’s letter about NCUA’s risk-based capital proposal. Specifically, the NCUA’s position on capital buffers.

Remember NCUA has always argued that with over 90% of affected credit unions already “well capitalized” under its RBC proposal, most credit unions won’t be impacted. In contrast, the trades have argued that NCUA has overlooked the fact that many well capitalized credit unions will lose a good chunk of their capital buffers since most credit unions like to be well above a 7% PCA threshold.

In reality, we now know that NCUA doesn’t think buffers are all that important. Chairman Matz explained that she was “very concerned about the dissemination of misinformation about the costs of the proposed rule.” She went on to explain why these disseminators of risk weighted propaganda were so misguided:

“In reality, the decision whether to hold a capital cushion and how large that should be is a business decision that each credit union makes. I emphasize that the proposed rule does not require credit unions to maintain any specific capital cushion above the regulatory minimum standard for being well-capitalized.”

Wow. If NCUA’s position is that the maintenance of cushions of capital buffers to maintain well-capitalized status doesn’t raise safety and soundness concerns, then the agency is taking a position on examiner oversight vastly at odds with other financial regulators who are also implementing risk-based capital rules. For example, in the preamble to its final risk-based capital rules this past October the OCC explained:

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