NCUA Makes the Case for Bifurcating CU Industry

In its proposed risk-based capital rule, the National Credit Union Administration (NCUA) makes the case for two credit union industries -- one comprised of large, complex credit unions and the other made up of smaller, more traditional credit unions.

Analysis by NCUA found that the line of demarcaation is at $100 million in assets. All credit unions with over $100 million in assets are defined as "complex" and would be subject to the proposed risk-based capital requirement.

The NCUA Board believes there are a number of products and services offered by credit unions with $100 million or more in assets "that are inherently complex based on the nature of their risk and the expertise and operational demands necessary to manage and administer such activities effectively."

These products and services include member business loans, participation loans, interest-only loans, indirect loans, real estate loans, non-federally guaranteed student loans, non-agency mortgage-backed securities, derivatives, internet banking, and more.

NCUA notes that "as of June 30, 2014, all credit unions with more than $100 million in assets were engaged in the products and services listed above, with 99 percent having more than one complex activity, and 87 percent having four or more. On the other hand, less than two-thirds of credit unions below $100 million in assets are involved in even a single
complex activity, and only 15 percent have four or more."

NCUA points out that complex activities are always present once a credit union reaches $100 million in assets. That is not the case for credit unions with less than $100 million in assets.

The same argument can be made for taxing credit unions. Large credit unions are distinctly different from smaller, more traditional credit unions with regard to the products and services they offer and their level of complexity.