How a Credit Union Works AND WHY THE RISK-BASED CAPITAL PROPOSAL FOR NCUA IS BAD FOR BUSINESS

How A Credit Union Works 101  ‘Figuring the Spread’  Deposits (Assets) -  Loans (Liabilities) +  = Spread (not sandwich, but interest)

How a Credit Union Works 101  Why the Spread isn’t enough today - The Mortgage Collapse of 2008  Catch a Ride! – Dave, Raymond and Lucy  More conservative lending means less loan volume  Alternative Income methods  Increased Fees  Participation Lending  Investments

The Role of Net Worth in Credit Unions  Net worth is the value of all your assets minus all your liabilities  Net Worth / Total Assets = Net Worth Ratio Total Net Worth $10,000,000 Total Assets$100,000,000 ______________________________________ Net Worth Ratio10%  As long as a credit union is above 7% Net Worth, it is considered ‘Well Capitalized’

The New RBC Rule Proposal  It gets complicated, but here it is in a nutshell:  Credit Unions get to add up a list of assets and liabilities

The New RBC Rule Proposal  Then divide the numerator by a weighted risk rate as seen here:  These weights were arbitrarily determined by NCUA  Mortgage Servicing and Investments in CUSOs are the highest risk on the chart!  This could place currently ‘well capitalized’ credit unions into Prompt Corrective Action (PCA)

PCA – What it means to credit unions  Examiners can take control of the credit union  Staff and boards have no choice to comply  The Proposed Rule even grants broad powers to examiners to subjectively put a credit union into PCA *even if well capitalized*.  Examiners can force management changes, vendor changes, divestment of portfolios or even liquidation of the credit union!

PCA2 – What It means for CUs  It unfairly would treat all credit unions equally (a Volvo is the same as a 1977 Chevy 4x4)  NCUA is attempting to propose a two-tiered RBNW (Risk Based Net Worth) system that as mentioned earlier, allows a wide interpretation of NCUA control.  The Proposed ruling bases a Credit Union’s health off of industry balance sheets from 2007 (reaction to the mortgage industry crash)  NCUA’s prior acts and interpretations are at odds with their own new RBC2 ruling

What Can YOU Do?  Educate Yourself:  Read the whitepaper at  Write/ your congressman OR  Visit raise-your-voice/ to leave a comment (This final option ends in 50 days!) This leads us to…

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