Metsger believes that prudent capital management should include a capital buffer above the minimum requirement for being well-capitalized.
Metsger wrote:
Maintaining a buffer, like a reserve fuel source, is certainly prudent management—but how much of a buffer is actually needed? As currently written and using the most recent data, the proposed rule identifies 20 credit unions that are undercapitalized and an additional 210 credit unions in the “buffer zone” as adequately capitalized. In total, these 230 credit unions represent just 7.6 percent of credit union assets subject to the proposed rule. Another 15.5 percent of credit unions are well-capitalized, but with less than 20 percent cushion above the 10.5 percent threshold as shown in the
graph to the right.
The remaining 1,595 credit unions with more than $50 million in assets—which collectively hold 77 percent of covered credit union [assets] already have at least a 20 percent risk-based capital buffer. In fact, a quarter of a trillion dollars in assets reside in credit unions whose buffer is a whopping 50 percent or more than the well-capitalized standard.
Reasonable people can debate what constitutes a prudential buffer. But a 20 percent cushion above a credit union’s “yellow warning light” is a pretty big buffer.
So while Metsger is trying to tell most credit unions covered by the proposed rule that they are holding more than enough capital and should not worry about the proposed risk-based capital rule, I believe NCUA is signalling its expectations to credit unions that a risk-based capital ratio of 10.5 percent, which is the minimum requirement for being well-capitalized, is not enough.
7.6% of assets are less than well capitalized?
ReplyDeleteAnd that's just the credit union w assets greater than $50 million.
What is the FDIC number?
This seems high.
Credit unions would be well capitalized except for the NCUA assessments imposed upon them because of the extraordinary incompetence from the NCUA. The NCUA failed to competently audit Telesis, CA State#9, WesCorp, USCentral, etc. and they were all placed into conservatorship. Huge losses. NCUA covers the losses by assessments on the credit unions still standing. Now the NCUA complains we don't have enough capital. Of course we don't. The NCUA stole it.
ReplyDeleteLet us not forget NCUA "examiners" had their own offices at WesCorp and still couldn't stop the bleeding. As a 33 year credit union professional, I think it's time to merge NCUA into FDIC, keep the credit union industry intact but have a competent regulator oversee us.
DeleteOnly 0.2 percent of the banking industry's assets reside in banks that do not meet the requirement of being well-capitalized.
ReplyDeleteI believe you are comparing the wrong numbers. Metsger was referring to the proposed ris based capital requirements to derive his numbers. The NCUA is applying much higher risk weights than FDIC so there is no way to correctly compare banks and credit unions. One thing is clear however, credit unions have a higher net worth ratio than banks.
ReplyDeleteYou are incorrect. Re-read his comments. AND the nw ratio of banks is higher. Its easy to look up
DeleteIf this regulation pases as proposed, I predict a significant number of CU conversions to bank charters.
ReplyDelete