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Home Newsbytes

ABA Opposes NCUA’s Capital Simplification Proposals

May 11, 2021
Reading Time: 1 min read

The American Bankers Association yesterday panned two proposals by the National Credit Union Administration to simplify current risk-based capital requirements for “complex” insured credit unions with more than $500 million in assets. The association noted that “neither suggested approach fully and appropriately implements the requirement for a risk-based net worth calculation generally comparable to that applicable to banks insured by the [FDIC].”

NCUA’s proposed first approach would replace the risk-based capital rule with a risk-based leverage ratio requirement, which uses relevant risk attribute thresholds to determine which complex credit unions, if any, would be required to hold additional capital. Under the second approach, NCUA would establish a “complex credit union leverage ratio,” modeled after the community bank leverage ratio framework. This approach would retain the 2015 risk-based capital rule, but would enable eligible complex credit unions to opt into the CCULR framework.

Rather than pursue either of these approaches—which ABA said would not sufficiently capture risk—the association urged NCUA to draw on banking industry experience and adopt provisions similar to the risk-based capital rules that banks are required to adhere to. (ABA noted that NCUA’s 2015 capital rule is conceptually similar to bank risk-based capital rules, but NCUA twice voted to delay the rule—a move strongly opposed by ABA.)

“The generally desirable objective of regulatory simplification cannot justify compromise of legally required safety and soundness standards,” ABA emphasized. “An effective [risk-based capital] regime is critical to the safety and soundness of the federally insured credit union industry and the protection of the public resources that support it. NCUA’s [risk-based capital] development process . . . must be concluded, and the path to an appropriate RBC rule is clear.”

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