Council Corner: Risk-Based Capital

CFO says NCUA's proposal 'would have a material impact' on his CU.

July 16, 2014

Jason PeachWho: Jason Peach

What: Senior vice president/ chief financial officer (CFO)

Where: West Community CU, O’Fallon, Mo.

CUNA Council: CFO

Q What are your main concerns with NCUA’s risk-based capital proposal?

A This rule would have a material impact on our credit union. We have a long history of successfully serving our members’ needs for home equity loans, and that has been our business model for a long time. Due to our concentration in these types of loans, we will move from “well capitalized” to “adequately capitalized.”

We consistently outperform our peers in both delinquency and charge-offs but this new calculation will give the appearance that our loan portfolio is somehow riskier. This rule basically recategorizes the risk we have to manage and reshapes our business model.

This could be a pretty significant change for us and have a big impact on our members, as we’d probably have to reduce the type of lending we do and basically serve members’ needs less.

Q What implementation challenges would you face?

A They could be significant if the 18-month time frame stays in place. Changing a balance sheet, even at our size—a $160 million asset credit union— in 18 months to comply with this rule would be pretty challenging. The decisions we’d have to make to do this would be short-term decisions that might not be best in the long run. So this one-size-fitsall approach is challenging.

Q Is this proposal needed?

A We’ve operated under our risk model for 30 years through good markets and bad—and the Great Recession— and we’ve been fine. We’ve performed more favorably than our peers in terms of delinquency and net charge-offs.

So we have a business model that’s unique to us and that works for us and this new rule basically comes in and makes us consider changing it. It’s important that credit unions get to run their businesses in their communities under the unique structure that works for them and their members. It’s not a one-size-fits-all.

Read more from the 2014 CUNA CFO Council Conference