ARLINGTON, Va.-CUNA and NAFCU are split on whether Basel III rules will eventually affect CUs, while NCUA is saying very little about the subject.
If Basel III rules make it to the CU industry in some form, NAFCU is adamant that the rules have to be significantly changed from how they are currently proposed for banks, and that there should be a lengthy implementation period.
Carrie Hunt, VP of regulatory affairs and general counsel, said NAFCU is preparing a comment letter on the topic. "We will briefly say that Basel III rules do not apply to credit unions, but if something similar would apply, we would want the unique nature of credit unions to be taken into consideration."
For example, noted Hunt, the current structure of the rules need to take into account how CUs define net worth.
Hunt said NAFCU would also emphasize to NCUA an appropriate implementation period is needed. "Any time credit unions have to make changes regarding capital requirements, we want there to be an appropriate implementation period because, as we have seen with corporate credit unions, they had retained earnings requirements that were changed and had to make a number of adjustments. So it certainly can be done, but there was a long implementation period and we would want the same thing for natural-person credit unions."
Hunt acknowledged the trade association sees potential, as a result of Basel III, for capital requirement changes to trickle down to CUs. "Any time you have additional requirements for banks, in general, regulators want to create some sort of even playing field."
When Basel III was released, NAFCU spoke with NCUA. "They have not given any indication they have short-term plans to create a type of (Basel III) regime for credit unions. But this is something I believe the agency is taking into consideration as they look at PCA reform and other capital issues."
CUNA Senior Economist Steve Rick does not believe Basel III rules will work their way to CUs for several reasons. First, he thinks credit unions' already high industry capital level (near 11%) that is approaching a pre-recession high (11.5%) is reason enough for Washington and NCUA to leave credit union capital standards alone.
"Credit unions somewhat impose high capital standards on themselves," said Rick. "You could argue that 11% is overcapitalized, for the amount of risk CUs have on their balance sheets."
Rick said CUNA, too, has not seen any indication NCUA is considering applying Basel III rules to CUs in any form. "What we have been hearing in some recent Q and A meetings with credit unions and NCUA higher-ups is that at this point, higher capital standards are not on the agency's radar. No one right now is putting pressure on them, not the bank lobby nor Congress, and NCUA says they have a lot of other things on their plate."
When contacted by Credit Union Journal and asked if NCUA was considering higher CU capital standards as a result of Basel III, NCUA spokesperson John Fairbanks said, "The PCA rule is currently under review, as part of our normal regulatory review process. We do follow developments around BASEL III."