CUNA
  • Advocacy
    • Priorities we’re fighting for
    • Actions you can take
  • News
  • Learn
  • Compliance
  • Shop
  • Topics
    • Compliance
    • Credit Union System
    • Directors
    • Human Resources
    • Leadership
    • Lending
    • Marketing
    • Operations
    • Policy & Issues
    • Sales & Service
    • Technology
  • Credit Union Magazine
    • Buyers' Guide
    • Digital Edition
    • Credit Union Hero
    • Credit Union Rock Star
    • Subscribe
    • Advertise
    • Contact
  • Advertise
  • Awards
    • Nominate Credit Union Hero
    • Nominate Credit Union Rock Star
  • Podcasts
  • Videos
  • Contact
Learn More about Member Value

News

Member Benefits
Learn more
Learn more about the benefits of membership.
Home » Wrangling With Risk-Based Capital
Compliance
Your Say

Wrangling With Risk-Based Capital

It’s time for a more rational approach to managing risk.

February 23, 2015
James Collins
No Comments

Wrangling With Risk-Based Capital

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:

  • “Wait, which one is the tofu? Wait, that's the gravy?”
  • “Why is the cat circling my feet and why do I smell canned cat food?”
  • “No microwave instructions????”
  • “Would it be bad if I added chicken stock to it?” (Answer is no, chicken stock is like donated plasma from chickens).

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:

  • Interest-rate risk from a mismatch of assets and liabilities;
  • Concentration risk on loans or investments;
  • Credit risk on loans or investments;
  • Business lines which have high risk, such as breathing; and
  • Embezzlement risk from poor regulatory oversight. (Just kidding on this one. Even though fraud accounts for 94% of all losses to the National Credit Union Share Insurance Fund, we don’t want to go silly here do we? It’s all about the 6% here!)

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):

  • Business loans
  • Nonbusiness loans
  • Real estate loans greater than five years
  • Real estate loans less than five years but longer than five minutes
  • Credit card loans
  • Potential credit card loans
  • Future credit card loans

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.

JAMES COLLINS is CEO of O Bee Credit Union in Tumwater, Wash., and Credit Union Magazine's humor columnist.

KEYWORDS credit union ncua regulation Risk-based Capital
  • Related Articles

    Everything’s Coming Up Roses

    Maintain a Focus on Fraud

    CUNA Outlines Top Legislative, Regulatory Priorities

James-collins_500x600
James Collins

Is Honesty The Best Policy?

More from this author

Post a comment to this article

Report Abusive Comment

Subscriber Exclusives Break-through branding

Break-through branding: Build an emotional connection

When Elevations Credit Union expanded into two new counties, senior leadership set out to tell its story in a bold, fresh way.
How technology transforms marketing

How technology transforms marketing

Artificial intelligence improves member conversions, engagement, and retention.
Analytics drives journey toward data nirvana

Analytics drives journey toward 'data nirvana'

Data analytics can provide the 'oh wow' moment of discovering member behavior.
Subscribe Now

Trending

  • It's time to expand our cooperative principles

  • Settlement proposed in data breach lawsuit against Wendy’s

  • Compliance: Checklist consolidates final rules, regs from 2018

Tweets by CUNA_News

Polls

Who should be the 2019 Credit Union Hero of the Year?

View Results
More

Champion of America’s Credit Unions

Credit Union National Association is the only national association that advocates on behalf of all of America’s credit unions. We work tirelessly to protect your best interests in Washington and all 50 states. We fuel your professional growth at every level and champion the credit union story at every turn.

More CUNA

  • About
  • Careers
  • Contact Us
  • Recommended Websites

Resources for

  • CUNA Board Members
  • Credit Union Advocates
  • Leagues
  • Press
  • Vendors