Risk-based capital

by. Anthony Demangone

Sure, leadership is about communicating clearly, creating a vision and motivating your colleagues to reach their full potential.

But sometimes, it is about recognizing when your credit union or the industry is driving into a buzz-saw.

At NAFCU, we think that’s about to happen with NCUA’s Risk-Based Capital proposal.

What’s the big deal? 
The proposal would revise the risk-weights for many of NCUA’s current asset classifications and require higher minimum levels of capital for many credit unions with concentrations of assets in real estate loans, MBLs or higher levels of delinquent loans. It even would allow NCUA to require a credit union to hold higher levels of risk-based capital based on “supervisory concerns.”

If the risk-weights are wrong, which NAFCU believes they are, credit unions will needlessly waste valuable capital. For example, under the proposal, non-delinquent first mortgage real estate loans start at a 50 percent risk-weight for those loans that represent less than 25% of a credit union’s assets, then jumps to 75 percent for those from 25-35% of assets, and finally goes all the way to 100 percent for those that comprise more than 35% of the assets of the credit union’s portfolio. (Compare this to the FDIC, which weights non-delinquent first mortgage real estate loans at 50 percent, regardless of concentration.)

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