Credit Union Administration Board last week finalized its Prompt
Corrective Action (PCA) regulation, and the credit union movement
should heave a collective sigh of relief at the outcome.
PCA, which was
mandated by Congress in the Credit Union Membership Access Act,
has been a source of apprehension since that law was passed nearly
two years ago. Credit unions were particularly worried about which
of them would end up defined as "complex" and thus be
subject to new risk-based capital requirements.
proposed, the rule would have applicable to all "complex"
credit unions regardless of asset size. It would also have assigned
significant "risk weight" to things such as money market
mutual funds and CUSO investments.
final rule as passed is substantially different than the proposal.
Rather than a "one-size-fits-all" approach, the rule more
realistically takes into account the differences between credit
unions. To begin with, all credit unions with assets of $10 million
or less are exempted. Only those above that asset size with a risk-based
net worth calculation above 6% will be subject to the risk-based
net worth (RBNW) requirement.
Herb Yolles, NCUA's Deputy Director of Examination & Insurance
and leader of the Agency's PCA Task Force, only 452 credit unions
will be defined as "complex" under the new rule. That
number is less than a third of those who would have been defined
as "complex" under the proposed rule. Yolles also said
that only 17 of those 452 are likely to be subject to PCA.
The final rule
uses a three-step process to determine if the RBNW requirement is
applicable (Step One); to calculate the risk to yield a "standard
component" (Step Two); and to substitute any of three specific
standard components with a corresponding "alternative component"
if that reduces the RBNW requirement (Step Three).
be assigned weight according to which of eight "buckets"
they belong to. These "buckets" represent risks ranging
from zero (for example cash and the 1% NCUSIF deposit) to "above
average" (for example equity securities).
The rule will kick in with the first quarter 2001 Call Reports (for
quarterly filers; for semiannual filers the date will be mid-2001).
As NCUA Board member Dennis Dollar noted, the rule is subject to
a one-year review process. "At that time we will be able to
address any unanticipated implications of the rule," said Dollar.
"We will be particularly interested in revisiting the issue
of regulatory burden."