NEW YORK—CEOs of credit unions that issue taxi medallion loans are evaluating the new risk-based capital rule’s impact on their business, with at least one taxi CU optimistic that the new rule may be an improvement over its predecessor.
Under the original RBC proposal, taxi medallion credit unions faced issues with a heavy risk weighting to member business loans—a 100% risk weighting when MBLs were 15% of the loan portfolio, 150% from 15% to 25%, and 200% for any higher concentration. Taxi medallion CUs’ loan portfolios are comprised primarily of MBLs.
A limited number of CUs—some taxi, agricultural and faith-based CUs—don’t have a member business lending cap, as they were grandfathered in when the MBL cap was established in the late 1990s.
At Montauk Credit Union, MBL makes up 95% of the $147-million CU’s loan portfolio, most of it in taxi medallion loans that average about $200,000 each. “At first glance, and let me repeat, at first glance, RBC2 looks much more palatable for Montauk CU,” said CEO Louis Jimenez. “I need to further my understanding of the proposal, but it appears it's something we can work with.”
Last year, reacting to the first version of RBC, Jimenez told CUToday.info his credit union had placed every option on the table—including a charter change—to find ways to continue to serve members after the credit unions net worth fell to 6.79% from 11.94% when using the proposed risk-based calculation, well below the proposed 10.5% well-capitalized floor under the original proposal.
New Rule Kinder
Dennis Dollar, principal at Dollar Associates in Birmingham, Ala., said there was considerable movement on the MBL question under the new rule, particularly as it relates to credit unions with higher MBL percentages.
“Under the new proposal the concentration risk weight was increased from 25% of portfolio in MBLs to 50% before the additional risk weighting from 100% to 150% is applied,” said Dollar. “This is quite helpful to those credit unions with a historical business lending purpose, although it still has a concentration risk component that will have to be monitored and managed going forward.”
The former NCUA chairman said some might say that concentration risk, like interest rate risk that was removed from the revised proposal, should be managed by NCUA through the examination process, because each credit union’s risk tolerance is different.
“This will likely be a source of a lot of comments on the revised proposal,” predicted Dollar. “But there was some significant movement from the original to the revised proposal on the MBL question as it relates to those historical credit unions chartered primarily to make business loans, such as taxi medallion, agriculture and church credit unions. Was it enough? The commenters will speak."
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