Last Thanksgiving—for the first time ever—my wife attempted to make a Tofurky. The commentary from the kitchen was, as we say, rather illuminating:
Tofurky is just like other misnamed foods such as “Spaghetti squash” (which is as far from spaghetti as Lindsey Lohan is from being an actress) and Kale (which looks, feels, and reminds you of lettuce but tastes like something your mother would mend denim jeans with).
And that brings us to something else that isn’t what it seems: NCUA’s Risk Based Capital proposal.
Since the first attempt to establish the rule had a “little bit of pushback,” per NCUA—which is a bit like saying “the defensive front line of the Arizona Cardinals strongly recommends that the opposing running back not advance”—the plan is to try again.
On its surface, NCUA has a daunting task. It must encapsulate all of the following risks into a simple, easy-to-understand ratio:
This will be a difficult task. For example, a credit union may have an extreme risk in one area but be very low in the other two.
The question is, “Do flaws in one area overcompensate on another, which is why your spouse married you?
Or, “Should one be judged by their worst flaw, such as what your spouse’s mother thinks of you?”
While the battle between the regulators, the regulated, and, apparently, the NCUA Board itself rages, it’s time for a more rational proposal—something to which all sides can agree.
As such, I’m proposing the following self-quiz, which is so easy that any examiner, regulator, auditor or 16-year-old reader of Cosmopolitan can easily accomplish:
1. Do you have any members? If so, give yourself one point. You are “risky.”
2. Do any of your members have money? Double up on No. 1.
3. Do any of your members need money? Wow. Skydiving is for you. Add two points.
4. Now concentrate. Did it work? Then you have concentration risk. Give yourself five.
5. Do you have any interest in loan and deposit rates? Give yourself another five. That’s what we call interest-rate risk.
6. Do any of your members have credit risk? For example, are they employed? Give yourself another five points if you are unsure. Even if you are sure, follow each one of them to work once per week just to make sure.
7. Do you do any of the following (one point for each):
Now score yourself:
Above 0: You are teetering on the edge of the abyss. With as much risk as you’ve loaded up on your balance sheet, you should rename yourself “Lehman Brothers” and just ask for a bailout. Immediately stop lending and depositing. That should calm things down in a few years.
At or below 0: Perfect. Keep doing what you are doing. Think of yourself as the industry’s gold standard.