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Your League's President John Murphy complimented the National Credit Union Administration (NCUA) for listening to feedback and comments from credit unions and addressing many of the issues and topics that were flagged in the original Risk-Based Capital (RBC) Proposal in the revised proposed RBC rule that was released last week. However, Murphy cautioned, "We believe it is important for Maine credit unions to review the proposal in-depth, analyze the changes, and advise us of any concerns."
Below are some of the changes NCUA made in the revised proposal:
- Raising the asset threshold at which the rule would apply from $50 million to $100 million, a level that exempts four-fifths of all federally-insured credit unions. In Maine, approximately 60% of Maine credit unions would be exempted, as opposed to only 30% under the old proposal;
- Agreed to count all of a credit union's loan loss reserves as capital. The inital draft capped the amount of the allowance that counted at 1.25% of risk-weighted assets. The revised rule would also alter the way NCUA defines delinquent loans, from 60 days to 90 days;
- Dropped consideration of interest rate risk from the proposed rule, eliminating five tiers of risk weights that would have applied to investments. The new draft focuses entirely on credit and concentration risk;
- In operation, the rule is relatively simple. A credit union's assets are multiplied by an associated risk-weight. The total is divided into capital with the result counting as an institution's risk-based capital. A minimum of 10% - down from the original 10.5% is required for an institution to be classified as "well-capitalized."; and
- In general the activities deemed riskier have higher weights. Thus, the weight for an unsecured consumer loan or a commercial loan (both 100%) is lower than the weight for a secured consumer loan (75%). Current loans are also weighted more favorably than non-current loans.
Murphy said the comment letters and feedback from members of Congress, the Credit Union National Association and others clearly had "a positive impact on the drafting process of the revised RBC proposal. We appreciate the fact that more than two-thirds of Maine's credit unions submitted comment letters on the original proposal, the vast majority of which addressed many of the issues that have been revised in the new proposal. Bringing additional concerns to our attention during the current comment period will determine the direction of our comment strategy."
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