Congress Joins Credit Unions in Urging NCUA to Reconsider its Risk-Based Capital Proposal

Ken Olson, president and CEO of Old West Federal Credit Union, tells the NCUA in this video that the regulator’s Risk-Based Capital proposal would have a negative impact on his members and on the community where they live.

Pressure continues to mount on the National Credit Union Administration to make significant revisions to its Risk-Based Capital proposal, with more than 320 members of Congress urging “changes and clarifications” and a former chairman of the Senate Banking Committee telling the agency it would exceed its legal authority if it adopts the proposal as written.

Northwest credit unions are also adding their voices to the national debate, filing dozens of comment letters that specifically address the negative impact of the proposal on their members. Ken Olson, president and CEO of Old West Federal Credit Union, even created a video to drive his point home.

As a grandfathered credit union, Old West has used its exemption from limits on member business lending to serve the farmers and ranchers around John Day for more than 60 years, Olson tells the NCUA. “It literally puts the wheels on the tractors and food on the table,” he says.

But if the NCUA’s proposal isn’t revised, Olson says in the video, making those loans becomes “simply impossible. We’d have to stop our MBL lending. And if we’re not there to do it, it’s going to impact our low-income community very negatively.”

D’Amato Says Congress Never Authorized a Two-Tier System

“If we had intended there should be a separate risk-based requirement to be well capitalized, we would have said so.”
– Former Sen. Alfonse D’Amato in a letter to the NCUA

Former Sen. Alfonse D’Amato (R-N.Y.), who chaired the Senate Banking Committee from 1995 to 1998 and spearheaded changes to the Federal Credit Union Act that implemented a system of Prompt Corrective Action (PCA), added a new wrinkle to the debate with a May 7 letter to the NCUA. In it, D’Amato says that Congress never wanted the agency to set up a two-tiered, risk-based standard — one for adequately capitalized credit unions and one for well-capitalized credit unions.

“If we had intended there should be a separate risk-based requirement to be well capitalized,” D’Amato writes, “we would have said so.”

The Federal Credit Union Act does direct the NCUA to devise a risk-based requirement for adequately capitalized credit unions, but it does not authorize the regulator to create a separate risk-based component for well-capitalized credit unions. Under the NCUA’s proposal, however, that is exactly what would happen.

An adequately capitalized credit union would need to maintain a net worth ratio of 6 percent (as required by statute) and a risk-based capital ratio of 8 percent, the NCUA proposal says. But a well-capitalized credit union would need a net worth ratio of 7 percent (as required by statute) and a higher risk-based capital ratio of 10.5 percent.

D’Amato says that while the credit union PCA was modeled after a bank version already in place, the committee “incorporated some very important differences to reflect the different nature of banks and credit unions.” Rather than the dual risk-based capital system in place for banks, “we instructed the NCUA to construct only a risk-based net worth floor,” he says.

When Congress said “adequately capitalized,” D’Amato writes, “we meant just that.” 

Current Congress Expresses Its Concerns, Too

Meanwhile, 322 current members of Congress (172 Republicans and 150 Democrats) have added their names to a letter written by Reps. Peter King (R-N.Y.) and Gregory Meeks (D-N.Y.) that raises concerns about the economic impact of the Risk-Based Capital proposal, the calibration of its concentration-based risk weights and the requirement for implementation of a final rule in 18 months.

Eleven members of the Northwest delegation have signed on to the bipartisan letter. Oregon Democrats Earl Blumenauer, Suzanne Bonamici, Peter DeFazio and Kurt Schrader added their names, as did Republican Greg Walden. Washington Democrats Suzan DelBene, Derek Kilmer, Denny Heck and Jim McDermott also signed the letter, as did Republicans Jaime Herrera Beutler and Dave Reichert.

The letter questions the need, given credit unions’ strong performance in an economic downturn they did not create, for a higher risk-based capital requirement in order for credit unions to be considered well capitalized. “Because of credit unions’ limited avenues for raising capital,” the letter says, “it is likely this proposal would force them to charge higher lending and financial services fees, reduce dividend payments to members and deter new depositors.” 

Before adopting a final rule, the letter says, the NCUA should consider “the economic impact and consequences of reduced liquidity and lending on families and small businesses.” The agency should also take into account how its concentration-based risk weights could hinder lending to homeowners and small businesses, and whether its 18-month compliance timeline is too short.

NCUA Sticking to May 28 Deadline for Comments

NCUA Chair Debbie Matz and Board Member Rick Metsger have both said no to requests from CUNA to extend the May 28 deadline for comments. Metsger signaled his willingness to consider changes to the rule, but “the comment deadline remains May 28 — that is hard and fast,” he says. “A credit union must meet that deadline to become a part of the official record on this historic proposal.”

To help make that happen, the Northwest Credit Union Association has created a resource-rich Web page that includes key talking points and a draft letter that credit unions can use as a starting point to craft their own messages. The page also includes links to the NCUA’s Risk-Based Capital calculator and to CUNA’s RBC Action Center, which contains more information and tools.

John Trull, the NWCUA’s director of regulatory advocacy, says it’s crucial that Northwest credit unions share their concerns.

“The proposed rule lacks sufficient justification, ignores two key statutory requirements, blatantly disregards Congressional intent and skips the standard regulatory practice of Advanced Notice of Proposed Rulemaking,” Trull says. “There also are a litany of fundamental policy flaws that could have the unintended consequence of adding risk to the credit union system.”

If implemented as proposed, Trull says, the NCUA proposal would create volatility and instability throughout the credit union system, and — as Olson’s Old West video attests — have a negative impact on low-income designated and grandfathered credit unions’ ability to offer business loans.

“That should create concern throughout the credit union movement,” Trull says.

Many Northwest credit unions have already submitted their comments, and some of those letters are included on the NWCUA’s Web page.

Roger Michaelis, president and CEO of iQ Credit Union, says the rule as written would force a reduction in mortgage loans, for example, and force the credit union to start and stop its member business lending depending on fluctuating capital levels.

“I would prefer that my NCUA examiners would be able to actually look at my loan portfolio and make a judgment decision on how risky it is based on actual facts, rather than be forced into a ‘one size fits all’ regulation which does not come close to reflecting the reality of my portfolio.”
—Rhonda Baggarley, CEO of Sunset Science Park Federal Credit Union in a comment letter to the NCUA

Rhonda Baggarley, president and CEO of Sunset Science Park Federal Credit Union, says that while her small credit union is now exempt from the rule because of its asset size, she’s concerned that “we will be held to the same standards by our regulators, if not now, then eventually.”

“I would prefer that my NCUA examiners would be able to actually look at my loan portfolio and make a judgment decision on how risky it is based on actual facts,” Baggarley writes, “rather than be forced into a ‘one size fits all’ regulation which does not come close to reflecting the reality of my portfolio.”

Those kinds of credit union-specific comments are crucial to the debate, says Jennifer Wagner, the NWCUA’s senior vice president for advocacy.

“Early indications are that credit unions’ advocacy on this issue is already having an impact,” Wagner says. “It is imperative that we take advantage of every opportunity over the next several months to improve this rule — through comment letters as well as visits with regulators and our Congressional delegation. This issue is too important for anyone to sit on the sidelines; the future of the credit union movement as a whole is at stake.”

Questions about this story? Contact Gary M. Stein: 503.350.2216,

Posted in Advocacy News, Federal, NCUA.