10 risk-weight ‘buckets’ described in new RBC rule summary

Feb. 8, 2016 -- The 10 “buckets” for risk-weighting off-balance sheet items by complex credit unions under NCUA’s new risk-based capital rule are described in a new summary of the final rule, which is now posted on the NASCUS website.

The summary describes the 10 “risk-weight buckets” – ranging from 0% risk-weighting to 1,250% risk-weighting – and the items that fall into the buckets for determining their respective risk.

The summary notes that the final rule (which takes effect Jan. 1, 2019 and applies to federally insured credit unions (FICUs) with more than $100 million in assets) amends Part 702 of NCUA Rules to add the risk-based net worth requirement to prompt corrective action (PCA). The summary points out that the new rule eliminates several provisions in the current rule, including provisions related to the regular reserve account, risk-mitigation credits and alternative risk weights.

“Complex credit unions” under the new rule will be required to maintain a net worth ratio of 7% or more and a risk-based capital ratio of 10% or more in order to be well-capitalized, the summary notes. To be “adequately capitalized,” complex credit unions must maintain a net worth of 6% and a risk-based ratio of 8%, the summary points out.

“The final rule incudes a tiered risk weight framework for high concentrations of residential real estate loans and commercial loans,” the summary notes. “Therefore, as a credit union's concentration in those asset classes increases, incrementally higher levels of capital are required.”

NCUA has stated that it will update its call report by early 2018 to automatically calculate each FICU’s risk-based capital ratio.

LINKS:

Summary of final risk-based capital rule (NEW)

NCUA call reports