Let’s Put a Stake in the Concept of Risk-Based Capital

Like Dracula in a horror movie or Covid outbreaks, risk-based capital (RBC) keeps showing up on NCUA’s agenda.

It is again on this Thursday’s June 25th NCUA Board meeting. No details are provided, but hopefully this will be the decision to finally kill this burdensome, ineffective and most importantly, wrong-headed effort

Banking Regulators Repeal RBC

The most important FACT is that RBC does not work. Just ask the FDIC, FED and OCC which unanimously ended RBC requirements and all related calculations.

On September 17, 2019, the Federal Deposit Insurance Corporation passed a final rule providing community banking organizations under $10 billion in assets a simple, single capital standard. The new adequacy standard is the bank leverage ratio.

As stated in the press release: “The leverage framework will greatly simplify regulatory determinations regarding capital adequacy and eliminate the need for qualifying community banking organizations to calculate and report quarterly risk-based capital ratios in their Call Reports.”

Bankers Adopt the Credit Union Capital Adequacy Measure

This singular, clear banking capital adequacy standard is the same calculation credit unions have used in their 100 plus years of existence.

Since 2014 NCUA has brought this proposal forth, time and again. The final rule adopted, but implementation postponed several times, runs over 400 pages.

Credit unions have universally found fault and opposed it. One board member, McWatters, has questioned the legal basis for it. It will be important for Hood and McWatters to be aligned as board member Harper has defended the RBC rule in the face of all contrary evidence.

Now is the time to completely withdraw this totally flawed, burdensome and useless concept.

The banking regulators unanimously concluded there is no benefit, even in calculating the multiple ratios.

What more evidence does the Board need to end this costly effort? It has too long distracted NCUA and its examiners from the real work of helping credit unions better serve members.

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