Risk Based Net Worth Survey

The Credit Union Association of Rhode Island, the Massachusetts Credit Union League and the New Hampshire Credit Union League are seeking the assistance of member credit unions to provide comments on the pending NCUA Risk Based Net Worth proposal in light of its impact on credit union operations. The assessments and concerns of your credit union are essential to our advocacy to successfully impact change and will greatly assist in the development of a comment letter on your behalf to the NCUA. Please respond to this survey at your earliest convenience but no later than March 7, 2014. The estimated time to complete the survey is 15 minutes or less.

Overview of Proposed Rule:

The proposed rule would replace the risk based net worth method currently used by credit unions to apply risk-weightings to their assets with a new risk-based capital ratio method (Basel) that is more commonly applied to other depository institutions. However, unlike Basel, which is based on credit risk, NCUA’s risk weights also cover credit risk, interest rate risk, concentration risk, and other risks. In general, the proposal will require higher minimum levels for credit unions with concentrations of assets in real estate loans, member business loans, high levels of delinquent loans, and other factors.

The proposal would:
• Cover credit unions with assets over $50 million;
• Require a well-capitalized credit union to continue to maintain a 7% net worth ratio and a new, 10.5% risk based capital ratio;
• Adequately capitalized credit unions would be required to maintain risk-based capital ratios between 8% and 10.49% and pass ratio requirements.
• Undercapitalized credit unions would fall below 8% risk-based capital ratio.
• Restructure NCUA’s current PCA regulation to involve calculation of a capital to risk assets ratio, analogous to Basel III for community banks, with different risk weights;
• Change many of the effective risk-weights for most of NCUA’s current asset classifications;
• Set higher risk weights and therefore higher capital requirements for credit unions with higher concentrations of assets in real estate loans, member business loans, longer-term investments and some other assets;
• Authorize the NCUA to require even higher capital on a case-by-case basis;
• Set further restrictions on the ability of a credit union to pay dividends;
• Eliminate several regulatory requirements, including provision relating to regular reserve account, risk-mitigation credits and alternative risk weights.

Calculation of Capital for the New Risk-Based Capital Ratio

The proposed risk-based capital ratio is the percentage of a credit union’s net worth available to cover losses, divided by the credit union’s defined risk-weighted asset base. It focuses more broadly on the various types of risks to credit unions by addressing additional risk factors and assigning specific risk-weights to:
-Delinquent loans,
-Concentrations of MBLs and real estate-secured loans,
-Equity investments, and
-Additional off-balance sheet exposures.