Last month, the National Credit Union Administration (NCUA) approved the long-awaited final rule on risk-based capital requirements for credit unions. The rule aims to reduce the possibility of high-risk credit unions exhausting their capital and causing systemic losses, which all federally insured credit unions would have to cover for through the National Credit Union Share Insurance Fund (NCUSIF).
According to Debbie Matz, NCUA Board Chairman, the new rule fulfills the NCUA’s obligations under the Federal Credit Union Act and targets high-risk, outlier credit unions that have the potential to contribute substantial losses to the NCUSIF. “The Federal Credit Union Act requires NCUA to update its risk-based capital standards to be comparable with the federal banking agencies,” Matz added.
The rule applies only to federally-insured, natural-person credit unions with more than $100 million in assets. This means that more than three-quarters of the nation’s credit unions are exempt from the rule. To match risk-based capital rule implementations of other federal banking agencies, the NCUA rule will become effective on January 1, 2019.
If the rule were to become effective today, only 16 of the 1,489 credit unions impacted by the rule would fall into a lower capital category, according to Matz. Prior to the effective date, those 16 credit unions will need to reduce the risk on their balance sheets, raise capital to cover the risks or employ some combination of reducing risk and raising capital.continue reading »