WASHINGTON (5/7/14)--Former senator Alfonse D'Amato clarified congressional intent for the National Credit Union Administration in a May 7 comment letter, telling the agency that if the U.S. Congress wanted the regulator to set a different two-risk-based net worth standard for well versus adequately capitalized credit unions, it would have said so.
D'Amato notes in his letter that the NCUA's proposed risk-based capital plan, issued for comment in January, would apply a risk-based capital standard to determine whether a credit union is well capitalized.
"Doing so would be inconsistent with the intent my colleagues and I had when we crafted the credit union version of Prompt Corrective Action (PCA) in 1998 and exceed the authority we conveyed to the NCUA under the Federal Credit Union Act," D'Amato stated. The New York Republican is a former member and chairman of the Senate Banking Committee.
D'Amato went on to clarify that while credit union PCA was modeled after the bank regime, there are "some very important differences." For instance, the standards for a credit union to be adequately or well capitalized are higher than those set for banks.
"Because of this higher pure net worth requirement for credit unions, we called for a different risk-based component in credit union PCA.
"Rather than the dual risk-based capital system in place for banks, with a given risk-based capital ratio threshold to be adequately capitalized and a higher risk-based capital ratio to be well-capitalized, we instructed the NCUA to construct only a risk-based net worth floor, to take account of situations where the 6% requirement to be adequately capitalized was not sufficient."
D'Amato urged the NCUA as it works to finalize its RBC rule to apply the risk-based standards to capital adequacy.