CUNA letter outlines risk-based capital concerns

July 16, 2018

CUNA Monday sent a letter to the House subcommittee on Financial Institutions and Consumer Credit regarding the subcommittee’s hearing upcoming on, “Examining Capital Regimes for Financial Institutions.” 

In the letter CUNA suggested there are two steps Congress should consider with respect to credit unions’ capital regime: delaying the implementation of the NCUA’s recently finalized risk-based capital rule and enacting legislation that permit all credit unions to issue supplemental capital instruments. 

“Credit unions are subject to statutory and regulatory capital requirements, including Tier I leverage ratio that is hardwired into statute and a risk-based capital requirement,” the letter reads.  

“These requirements differ from requirements on for-profit financial institutions in recognition of the structural dissimilarities between credit unions and banks,” the letter adds. “Nevertheless, capital is king for all financial institutions and it is essential that credit unions’ capital regime is modernized to ensure credit unions remain safe and sound, and can grow to serve their members and communities.” 

In the letter, CUNA said credit unions have a concern with the new risk-based capital standards for determining whether credit union are well-capitalized. The Federal Credit Union Act permits the NCUA to impose a risk-based standard to determine capital adequacy only.  

CUNA said it is also concerned with the additional regulatory burden with the risk-based standards, as well as their costs. “Our analysis shows that it would have done very little to reduce costs to the National Credit Union Share Insurance Fund (NCUSIF) had it been in effect during the most recent financial crisis,” the letter reads. 

There is also pending legislation that would help provide credit unions with access to capital. H.R 1244, the Capital Access for Small Business and Jobs Act, introduced by Reps. Peter King (R-NY) and Brad Sherman (D-Calif.), would allow credit unions to accept other forms of capital, provided that capital does not disrupt the cooperative ownership structure of the credit unions. The legislation requires that this capital be uninsured and subordinate to other claims against the credit union.