LAS VEGAS—The National Association of Credit Union Service Organizations (NACUSO) told NCUA that even in its revised risk-based capital proposal the risk weights being proposed continue to lack actual quantitative justifications through empirical data and instead it seems the agency is just poking around seeking a “happy median.”
“We understand that NCUA, as administrator of the National Credit Union Share Insurance Fund (NCUSIF), would desire credit unions to retain as much capital as possible,” NCACUSO said in its letter. “NACUSO likewise recognizes the need for credit union capital sufficient to offset institutional risk; however, in our view it is just as important to the long-term viability of the NCUSIF for credit unions to be as successful as possible in generating income through growth. In order to grow, credit unions need to free up capital and put it to strategic use. NCUA seems to have ignored the latter point in its approach to RBC. The regulatory process appears to have taken the form of a negotiation where NCUA's first bid was purposefully high with the expectation that through the rulemaking and official comment process the actual numbers would be where NCUA really wants them in a final regulation. This is not a reasonable approach to regulation in general, and certainly not regulation as far reaching as risk based capital.”
Calling NCUA’s approach “perplexing,” NACUSO said that even after a first round of comments that the risk-weights in the proposal seemed “arbitrary,” the agency “continues to avoid presenting actual quantitative justifications through empirical data and instead is simply negotiating the numerical risk weights upwards or downwards in hopes of hitting some “happy median” without clear industry performance data as justification.
NACUSO said NCUA’s proposal seems far too dependent upon a model developed by the FDIC.
“We feel NCUA is missing an opportunity to take a unique approach to the risk based capital regulation of member owned credit unions and to emphasize that credit unions may be financial institutions but they are not banks,” NACUSO wrote. “In fact, the fundamental structure – both in law and in reality – of credit unions as not-for- profit financial cooperatives is not comparable with the for-profit banking system. Member-owned credit unions generally have a different risk model than the profit-oriented banks, so if anything credit unions should have lower risk based capital requirements than banks.”
NACUSO called the risk weights assigned to CUSOs “counter-productive” and “over-zealous,” and again called on NCUA to demonstrate where CUSOs present the risk that NCUA is assigning them.
The comment letter can be found here.