by: Henry Meier
The son of a good friend of mine just got braces. He’s been complaining about it for the last week, which is understandable since the contraption will inhabit his mouth for the next 18 months. But a couple of days ago my friend told him the pity party is over, it is time to move on.
NCUA’s second risk-based capital proposal (RBC 2) has been out a little more than a week now and it is time for the industry to have a reality check. Over the past week, I’ve heard questions raised about the legality of the proposal, criticisms of the amount of money it’s going to cost credit unions to comply, and questions raised about why we even need RBC reform in the first place. It’s time for the industry to get serious though. There will be risk-based capital reform and rather than get mired down in the weeds of legal analysis or generic gripes about the cost of implementing this proposal, the industry’s time could be better spent coming up with constructive improvements to NCUA’s regulation which will, whether you like it or not, provide a framework for a more sophisticated RBC framework.
First, there is the legal argument. We have both a current and former member of the NCUA Board questioning the legality of NCUA’s decision to impose requirements for credit unions with $100 million or more in assets to be well-capitalized as opposed to just establishing requirements for complex credit unions to be adequately capitalized. As readers of this blog will know, I love to delve into questions about regulatory authority. But before anyone in the industry rushes out to start a lawsuit, let’s keep in mind that long before NCUA came out with its original RBC recommendation, the industry had been begging NCUA to establish an RBC framework. Rather than roll the dice on a lawsuit that credit unions could very well lose, the industry should be continuing to develop a truly workable and beneficial RBC framework.continue reading »