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RISK-BASED CAPITAL RESOURCE CENTER
The Risk-Based Capital (RBC) rule requires a second, complex calculation of the capital level of a credit union. Unlike the simple leverage ratio (net worth to assets), this new ratio involves many variables to be factored in the calculation. To be considered well-capitalized by the National Credit Union Administration (NCUA), credit unions will have to have a minimum RBC ratio of 10%, as well as a net worth to assets ratio of 7%.
View our 2015 Risk-Based Capital Webinar Slides
Watch The 2015 Risk-Based Capital Webinar
View our 2014 Risk-Based Capital Webinar Slides
Watch The 2014 Risk-Based Capital Webinar
In light of NCUA's finalization of its Risk-Based Capital (RBC) rule, we've implemented significant updates to the RBC forecasting tool in Peer-to-Peer.
Log into Peer-to-Peer and visit the Hot Topics section for two useful reports:
Log into peer-to-peer
RBC Frequently Asked Questions
It is a finalized rule from NCUA that would require a second, complex calculation of the capital level of a credit union. Unlike the simple leverage ratio (net worth to assets), this new ratio involves many variables to be factored in the calculation.
To be considered well-capitalized by the NCUA, credit unions will have to have a minimum RBC ratio of 10%, as well as a net worth to assets ratio of 7%. If credit unions fall below either one of these, they may be subject to regulatory action to improve the ratio which is deemed too low.
It will also fundamentally change the way every credit union thinks about capital and superimpose a financial screen on every asset a credit union might consider holding, especially loans. As such, it will mean reduced value for members and impose bank-like thinking when offering products and services.
While the concept seems straightforward, these decisions made locally cannot be “scaled up” to a single national formula appropriate for every credit union. One commentator stated, “It’s obvious that neither man nor model can adequately assess a given asset’s risk under all circumstances before the fact.” Or said more succinctly: One size does not fit all.
How did the three board members and NCUA fare during the open meeting in which the agency released the revised risk-based capital proposal?
A condensed review of the changes NCUA made to its proposed risk-based capital rule and the primary takeaways for credit unions.
To craft an effective response, credit unions must understand how board members view the rule.
If NCUA implemented the role of the practitioners in the spirit of member participation, then the precedent could be an important milestone in how the agency works with credit unions.
A speech by the vice chair of the FDIC should be top of mind as the industry considers the new risk-based capital proposal.
Is the RBC approach the best framework for how cooperatives should determine their level of reserves?
The downside of what a regulatory-designed and imposed capital system would do to credit unions
An independent review council with a staff separate from NCUA will enhance the distinct characteristics of the cooperative model.
Conclusions from commentaries and studies about why the risk-based capital requirements did not prevent severe losses.
NCUA’s RBC Rule Would Double Credit Union Capital Requirements Versus Banks For Common Assets Classes Where Risk Weights Are Different.
An analysis of capital requirements for a bank and a credit union with the same asset size and composition.
The new high rate of corporate perpetual capital could drive credit unions to bank with non-credit union organizations.
Bank regulators vote to strengthen the leverage capital requirements for the eight largest banking organizations by taking an approach the cooperative model has used for more than 100 years.