What do NCUA’s new risk-based capital rules mean for you?

by. Vincent Hui

The National Credit Union Administration just released its proposed new risk-based capital rules. While the new rules were somewhat expected (as they aligned credit union capital requirements closer to Basel III), they will cause significant changes in how credit unions need to manage their businesses, capital and balance sheet.

NCUA kept the net worth ratio minimum the same and adopted higher levels for its new risk-based capital requirements–especially the 2.5 percent buffer that bank regulators are implementing. The calculation methods are also different and in alignment with the broader financial services industry. (Whether CUs should have the same capital approach as banks is a separate discussion for another time.)

Assuming that the proposed rules stay the same, here’s our initial thoughts on CU business impact:

  1. These new rules will mean a smaller capital buffer for some CUs, which may impact the level and pace of investments in such areas as remote channels and branches, as well as growth in certain asset classes. Capital allocation and planning will take on more prominence during strategic planning.
  2. On the flip side, some CUs may actually have higher buffers, e.g., the amount that exceeds the risk capital minimum is more than the amount that exceeds the net worth minimum. In this case, the CU actually has an opportunity to take on a little more risk and still have a strong capital position. This is especially important as CUs seek yield/net interest margin growth.


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