Press
CUNA president Bill Cheney thanks Gingrich, D’Amato on Risk-Based Capital letters
(May 27, 2014) — Former Rep. Newt Gingrich (R-Ga.), who was speaker of the U.S. House of Representatives in 1998 when the Federal Credit Union Act was amended to establish the framework for current credit union capital requirements, submitted a letter May 23 to the National Credit Union Administration (NCUA) regarding its risk-based capital proposal. Additionally, former Sen. Alfonse D’Amato (R-N.Y.), who was chairman of the Senate Banking Committee in 1998 when the current credit union capital requirements were adopted, submitted a letter May 7. After the letters were submitted, CUNA President and CEO Bill Cheney issued the following statement:
“We’d like to thank Former Speaker Gingrich and former chairman D’Amato for their continued support of the credit union system. As two leaders of the 1998 amendment of the Federal Credit Union Act, their involvement today on risk-based capital over 15 years later and their stanch opposition to NCUA’s proposal exhibits the importance of the issue and the need for credit unions to remain at the adequately capitalized level.”
Below is Former Speaker Gingrich’s letter to NCUA:
May 23, 2014
Mr. Gerard Poliquin
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
RE: Comments on Proposed Rule: PCA- Risk-Based Capital
Dear Mr. Poliquin:
As the Speaker of the House in 1998 when the Federal Credit Union Act was amended to require NCUA to implement a system of prompt corrective action, I’m writing you regarding the Board’s proposed rule on risk-based capital. I was actively involved in the House’s work on the bill and in the development of the rule under which the bill was considered on the House floor.
I find NCUA’s proposal extraordinarily troubling because it exceeds the agency’s statutory authority. Under the proposal, NCUA would subject well-capitalized credit unions to risk-based capital requirements that are 2.5% higher than those proposed for adequately capitalized credit unions. This is not what Congress contemplated NCUA should do to establish a Prompt Corrective Action regime. We never intended, nor even comprehended the possibility of, higher risk based capital requirements for well-capitalized credit unions than those that apply to adequately capitalized credit unions.
We said as much: “The Board shall design the risk-based net worth requirement to take account of any material risks against which the net worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection.” 12U.S.C. 1790d(d)(2) (emphasis added). It was our intent to direct NCUA to apply risk-based requirements for a credit union’s capital at the adequately capitalized level. The risk-based component was intended to give the agency additional flexibility to address situations in which riskier assets might render a credit union less than adequately capitalized.
If Congress wanted a different result, we would have indicated that. In fact, in other banking statutes, we did exactly that. At the time of the 1998 statutory change, banks were already subject to risk-based capital ratio standards for both the adequate and well-capitalized classifications. However, both then and now, banks have a lower statutory leverage ratio and access to supplemental forms of capital. The proposal thus creates a system that does not seem ”to take into account that credit unions are not-for-profit cooperatives” that” “do not issue capital stock,” “must rely on retained earnings to build net worth,” and “have boards of directors that consist primarily of volunteers,” contrary to our explicit directives, as required by statute. 12 U.S.C.1790d(b)(1)(B). Banks and credit unions are not the same, and we did not want NCUA to treat them exactly the same.
When finalizing this rule, I urge NCUA to design a system that appropriately considers the unique nature of credit unions and applies the risk-based standards as we intended-at the adequately capitalized level. Thank you very much for considering my views on this matter.
Sincerely,
Newt Gingrich
Former Speaker, U.S. House of Representatives
Below is former chairman D’Amato’s letter to NCUA:
May 7, 2014
Mr. Gerard Poliquin
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
RE: Comments on Proposed Rule: PCA-Risk-Based Capital
Dear Mr. Poliquin:
As a member and Former Chairman (1995-1999) of the United States Senate Banking Committee at the time at which the Federal Credit Union Act was amended to require NCUA to implement a system of prompt corrective action, I am writing you regarding the Board’s proposed rule on risk-based capital.
The proposed rule would apply a risk-based capital standard to determine whether a credit union is well capitalized. Doing so would be inconsistent with the intent my colleagues and I had when we crafted the credit union version of Prompt Corrective Action (PCA) in 1998 and exceed the authority we conveyed to the NCUA under the Federal Credit Union Act (12 U.S.C. 1790d(d)(2)).
When we crafted the credit union version of PCA, we modeled it after the bank version already in place, but we incorporated some very important differences to reflect the different nature of banks and credit unions. In particular, we specified in the law the values of the net worth ratios required for a credit union to be either adequately and well capitalized. We purposely set these levels at 6% and 7%, which were higher than the thresholds then and still in place for banks, at 4% and 5%. Because of this higher pure net worth requirement for credit unions, we called for a different risk-based component in credit union PCA. Rather than the dual risk-based system then in place for banks, with a given risk-based capital ratio threshold to be adequately capitalized and a higher risk-based capital ratio threshold to be well capitalized, we instructed NCUA to construct only a risk-based net worth floor, to take account of situations where the 6% requirement to be adequately capitalized was not sufficient.
In other words, when we included in the law the language: “The Board shall design the risk-based net worth requirement to take account of any material risks against with the net worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection,” we meant just that, adequately capitalized. If we had intended 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.
When finalizing this rule, I urge the Board, consistent with the expressed intent of Congress, to apply the risk-based standards to capital adequacy. Thank you very much for considering my views on this matter.
Sincerely,
Honorable Alfonse M. D’ Amato