Was it Over When the Germans Bombed Pearl Harbor?

Posted by Greg Michlig Tuesday, April 01, 2014 10:58:00 AM

A commentary on the reaction to NCUA’s proposed Risk-Based Capital rule.

I’m guessing many of you know the scene from the movie Animal House when Dean Wormer comes down hard on Delta Tau Chi Fraternity. If you don’t, you should stop what you are doing, write a comment letter to NCUA on the Risk-Based Capital proposal, and then rent/download the movie and watch it.

For those of you who do recall, you’re probably chuckling to yourself right now. However, in the context I’m thinking, you shouldn’t be. The scene begins with John “Bluto” Blutarsky (played by John Belushi) walking in to find his fraternity brothers and exclaiming:

“Hey! What’s all this laying around stuff? Why are you all still laying around here for?”

His brothers fill him in on what’s happened…the administration has laid the groundwork for expulsion of the fraternity and its members from the college. Blutarsky goes on with the well-known, historically inaccurate, yet strongly motivational:

“What? Over? Did you say ‘over’? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!”

Funny, I know…especially if you have seen it.

The reason this comes to mind, though, is that I have the same question for all of you when it comes to NCUA’s proposed Risk-Based Capital rule (available here).

“Hey! What’s all this laying around stuff? Why are you all still laying around here for?”

There has been a massive amount of information published in the press, provided by CUNA and NJCUL, and discussed at small meetings, large conferences, through Webinars, and on conference calls since the day this proposal was rolled out. The consensus is…this rule as written, will, among other things:

- Disincent many forms of credit union lending and long-term investments.

- Restrict capital investment, in order to re-establish acceptable risk-based capital levels.

- Increase the need for non-interest income.

- Increase the pressures for consolidation.

- In short: Cripple the credit union movement.

This is a BIG DEAL, folks. And to that, I say:

Was it over when the NCUA rolled out the Risk-Based Capital proposal? Hell no!

But you need to get up off the couch and run out the door (or to your desk) yelling “Let’s do it!”

We have held two of three collaborative comment letter writing sessions in New Jersey and have had minimal participation. This is disappointing.

We have heard people say a) this doesn’t affect our small credit union, b) I’m not good at writing comment letters, c) I don’t want retribution from the regulator, and the list goes on.

Simply put: a) regulation on one credit union inevitably affects all credit unions, b) there are tools, resources, and FREE workshops to help you craft your comment letters, c) if you sit idly by, they’ve already won the battle.

The New Jersey Credit Union League will be filing its first (there may be more) comment letter this week. If you have visited www.njcul.org recently, you will see this is the preeminent issue on the home page. There is a countdown to the closing date for comment letters and a tally of how many of you have stepped up to the plate. CUNA president/CEO, Bill Cheney, will be here for an NJCUL Town Hall meeting today and you can bet this will be a topic of significance.

This is a BIG DEAL!

There are a myriad of issues to comment on with regards to this proposal.

- First and foremost, excessive capital requirements, primarily on lending, but also CUSO investments.

- No recognition of the fact that while a credit union may remain “Well Capitalized” in the new system, the amount to reach the buffer credit unions now have above the minimum requirement is an additional $7.3B that will need to be raised.

- Length of time allotted to restructure balance sheets if passed, is far too short (18 months, vs. 2019 for banks to conform to Basel III).

- NCUA examiners have the ability to subjectively require higher risk-based capital for individual credit unions.

- With credit unions’ success in weathering the recent Great Recession relative to other financial institutions, is this rule even necessary?

- Is it in violation of the Federal Credit Union Act?

This is not the place to list all the concerns, but it is also not the last you will hear from us on this. 

The New Jersey Credit Union League will be sending information directly to credit unions regarding the financial and regulatory realities of this rule very soon. We will also continue to provide assistance through our Compliance Hotline (800-792-8861 ext. 112) and in league publications.

CUNA has provided great resources and documentation on this issue at www.cuna.org/rbc. There, in addition to a detailed review of the rule in several forms, you can find a calculator that provides more depth in its ability to analyze your current and projected realities based on this rule, than what you would find on the NCUA Web site.

This is a CALL-TO-ACTION, my friends. Whether a credit union or a provider for credit unions, YOUR LIVELIHOOD IS AT STAKE. It is not the time to sit on the sidelines, idly by. It is time to step up and say:

“Let’s do it!”

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