Thank Goodness the Proposed Risk-Based Capital Rule Doesn’t Affect Me!
April 24, 2014
If you’ve looked at NCUA’s calculator and determined that the rule won’t hurt you, go ahead and breathe a sigh of relief. Then set aside some time to at least look at the table of risk weightings and some of the many analyses that have been done by various groups. This is a cooperative industry and bad rules chip away at the credit union ideal. Understanding whether you think it’s a bad rule or not is the first step, even if it doesn’t affect your credit union today. You will want to ask if it could affect your business model in the future, but the questions are really bigger than that:
- How long has it been since the industry has faced regulatory changes of this magnitude?
- Look at each of the risk weightings – do they adequately address interest rate risk, concentration risk, credit risk, market risk and liquidity risk? (NCUA states the proposed rule is focused on these risks)
- Would you rely on the calculated capital requirement from this rule to make decisions in running your own credit union instead of the rigorous analysis you are doing today?
- How do you feel about the proposed authority that enables NCUA to require an individual credit union to hold a higher level of risk-based capital (even if they meet the new risk-based capital requirement and their net worth shows them as Well Capitalized)?
- Do you think the industry will be safer with the rule in place?
- The rule doesn’t address relevancy risk, but will it increase or decrease the ability for credit unions to remain relevant to their memberships in the face of changing competition, member behavior, etc.?
- What are the unintended consequences of the rule?
- Will credit unions with certain business models be forced to convert to banks? Does it matter?
- Are there other ways to better address the issues the rule is trying to solve?
- Will the industry be better off with this rule or without it?
Responses are due by May 28, 2014. We will post our response soon!
