Explanation of Listing of Credit Unions Under Three RBC Approaches

Explanation of Listing of Credit Unions Under Three RBC Approaches

These files contain lists of all credit unions sorted alphabetically. For each credit union, we show its capital classification under the current PCA system, last year’s Risk-Based Capital proposal (RBC1), and the revised RBC proposal (RBC2), using data as of September 2014.

Under the current PCA system, a credit union’s capital classification depends on its Net Worth Ratio (NW Ratio) and its Risk-Based Net Worth Requirement (RBNW Req.). With RBC1 and RBC2, the classification depends on its NW Ratio and its Risk-Based Capital Ratio calculated using the RBC numerator and asset risk weights of each proposal.[1]

For RBC1 and RBC2, in addition to providingproposed capital classifications, we also show the ratio of risk assets to total assets, the dollar amount of risk assets, the RBC numerator, and the Risk-Based Capital Ratio (RBC Numerator / Risk Assets). All dollar amounts are in millions.

For RBC1, risk assets are calculated using the risk weights that were published with the original proposal. Because some of the asset categories in RBC2 do not correspond to the current structure of the call report, we made a number of assumptions about credit unions’ call report data to generate estimates of RBC ratios under RBC2. The assumptions are very similar to those used by NCUA in estimating the effects of the proposal, and include:

• No goodwill is included in the numerator & denominator of the RBC ratio (i.e., no credit union is assumed to have goodwill and/or other intangible assets related to supervisory mergers, which would raise RBC ratios).
• All municipal securities are considered to be revenue bonds with a proposed weight of 50%, and NONE are assumed to be general obligation bonds, which would have a weight of 20%.
• All current MBLs are assumed to be “commercial loans,” and thus get a weight of 100% (for concentrations < 50% of assets) or 150% (for concentrations >50% of assets). There are no assumed exclusions for MBLs that are 1-4 family non-owner occupied real estate loans or for those that are personal use vehicle loans, which would have risk weights of 50%, 75% or 100%.
• All deposits in US federally insured depository institutions are assumed to be uninsured, with an associated 20% weight. No deposits in federally insured depository institutions are assumed to beinsured, which would have a risk weight of 0%.
• Delinquencies are based on a 60+ day basis, while the proposal defines delinquencies on a 90+ day basis.
• The investment residual (investments not contained in any other defined bucket) is given a weight of 20%, which may be low given that a number of the investments in the residual could have weights of 50% or higher.

All but the last of these assumptions will tend to produce RBC ratio estimates that are higher than those that would be calculated using actual data. Credit unions can use CUNA’s RBC Calculator to produce more precise estimates.

CUNA Research and Policy Staff, January 29, 2015

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[1]A credit union must maintain a net worth ratio of 7% or more to be “well capitalized”, between 6% and 7% to be “adequately capitalized” and is “undercapitalized” if the net worth ratio is less than 6%. This net worth criteria applies under all three systems. Under the current PCA system, if a credit union’s RBNW Requirement exceeds its Net Worth ratio, it is “undercapitalized”, regardless of whether its net worth ratio exceeds 6% or 7%. Under RBC1, a credit union would also have to have had a RBC Ratio of greater than 10.5% to be well capitalized, and above 8% to be adequately capitalized. Under RBC2, the 10.5% requirement would be reduced to 10%. The 8% requirement to be adequately capitalized would remain unchanged.