Thursday, April 10, 2014

NCUA Clarifies Comment on Supplemental Capital and Risk-Based Capital

NCUA's General Counsel Mike McKenna sent a letter on April 9 to House Financial Services Committee Chairman Hensarling (R-TX0 and Ranking Member Waters (D-CA) clarifying the agency's position on supplemental capital as it relates to its risk-based capital proposal.

During the hearing, Rep. Sherman (D-CA) asked NCUA General Counsel Mike McKenna a series of questions regarding the NCUA's risk-based capital proposal, including one about supplemental capital as it relates to the proposed risk-based capital rule. McKenna stated that NCUA might allow credit unions greater access to supplemental capital as it finalizes the proposed rule.

In the letter, McKenna notes that NCUA has very little authority to establish supplemental or secondary capital for credit unions unless Congress changes the definition of net worth. McKenna states that with the exception of low-income credit unions net worth is limited to retained earnings as defined by generally accepted accounting principles.

McKenna wrote that NCUA will allow low-income credit unions to count supplemental capital as net worth for the purpose of calculating the credit union's risk-based capital ratio.

Below is the letter.

3 comments:

  1. The final rule in 2000 implementing PCA (as demanded by the bankers and Treasury) stated that supplemental capital could be used for regulatory capital. The whole risk-based capital approach NCUA is proposing is regulatory capital. NCUA has that authority for that calcuation (not the 7% well-capitalized in the Federal Credit Union Act) the same as FDIC/OCC/FRB do for banks in their regulatory capital schemes.

    ReplyDelete
  2. The commenter is correct. The following appeared in the July 20, 2000 Federal Register.

    "1. Regulatory capital. Numerous commenters reiterated the call for new forms of ‘‘regulatory capital’’ to play a role in PCA. NCUA may have the statutory authority to permit new sources of capital for federally-chartered credit unions. 12 U.S.C. 1757(7), 1757(9)
    (permitting NCUA to authorize regulatory capital in the form of shares and subordinated debt). However, CUMAA’s express, limited definition of net worth—retained earnings under GAAP—clearly precludes all but low income-designated credit unions from classifying such regulatory capital as net worth for PCA purposes. § 1790d(o)(2). Nevertheless, NCUA recognizes that, if established, regulatory capital would be available to absorb losses, thereby insulating the NCUSIF from such losses. See § 702.206(e) (criterion in evaluating net worth restoration plans). Depending
    on how it is structured, regulatory capital on the balance sheet of a credit union that meets the definition of ‘‘complex’’ could conceivably reduce
    the risk for which the RBNW requirement is designed to compensate. In the future, therefore, NCUA may
    consider proposals to amend part 702 to allow regulatory capital to offset an RBNW requirement."

    ReplyDelete
  3. The comment is correct.
    Good luck getting capital relief of any kind.
    Not happening. Will be addressed in the RW or IMCR or likely BOTH.

    ReplyDelete

 

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