Friday, November 15, 2013

Fryzel: Goldilocks Risk-Based Capital Requirement

In a speech to the American Association of Credit Union Leagues, NCUA Board Member Michael Fryzel outlined his thoughts regarding risk-based capital requirements for credit unions.

While Fryzel noted that credit unions are not covered by Basel, the capital regime of credit unions is required to be “comparable” to that of the banking industry.

Fryzel's goldilocks moment came when he stated: "I advocate neither an overly stringent nor an overly permissive approach. I advocate “right sizing” NCUA’s risk-based capital rules."

He goes on to state that an undeniable lesson from the financial crisis is that capital needs to be ample, durable, and readily deployable to shore up a balance sheet under duress.

Moreover, the amount of capital (net worth) required by a credit union will ultimately depend on the activities pursued by a credit union.

Read the speech.

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