Risk-Based Capital Rule

The NCUA released its final rule on risk-based capital requirements. Complex credit unions (those over $100 million in total assets as of its latest Call Report) will be required to calculate their risk-based capital ratio instead of its net worth to determine capital adequacy.

Recommended Actions:

In preparation for the rule’s effective date of January 1, 2019, credit unions with over $100 million in assets should consider doing the following in 2018:

  • Monitor the credit union’s risk-based capital ratio. The NCUA indicated that the first Call Report of 2018 will be revised so that it will calculate the risk-based capital.
  • Review any operational policies and strategic plans to see how those policies/plans will affect risk-based capital.
  • Develop a capital plan. The examiner guidance that NCUA plans to distribute in 2018 will address the process of developing a capital plan. Under NCUA’s current rule on capital planning and stress testing, credit unions that have $10 billion or more in assets are already required to have a capital plan in place. The NCUA has indicated that those plans used by the credit unions with $10 billion or more in assets will suffice.

Detailed Analysis:

The calculation for the risk-based capital is the risk-based numerator (undivided earnings + appropriation for non-conforming investments + other reserves + equity acquired in mergers + net income + allowance for loan losses + secondary capital accounts that are included in net worth + Section 208 assistance that is included in net worth) minus (NCUSIF capitalization deposit + goodwill + other intangible assets + identified losses not reflected in the numerator) divided by risk-weighted assets (various on and off balance sheet assets multiplied by the risk ratio of each).

Capital Categories

Capital classification Net worth ratio   RBC ratio And subject to the following condition(s)
Well Capitalized 7% or greater And 10.0% or greater
Adequately Capitalized 6% or greater And 8% or greater And does not meet the criteria to be classified as well capitalized
Undercapitalized 4% to 5.99% or Less than 8%
Significantly Undercapitalized 2% to 3.99% N/A Or if “undercapitalized at <5% net worth and (a) fails to timely submit, (b) fails to materially implement, or (c) receives notice of the rejection of a net worth restoration plan
Critically undercapitalized Less than 2% N/A

Final Rule


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