Peer-To-Peer Regulatory & Risk Analysis

P2P: How To Use Risk-Based Capital (RBC) Forecasting

Introduction to Risk-Based Capital Forecasting

Callahan & Associates is proud to announce the latest enhancement to Peer-to-Peer, Risk-Based Capital Forecasting. Peer-to-Peer now features the ability to input assumptions for both the weights of risk-based capital components and how much the components will grow. This enables Peer-to-Peer to forecast what a credit union’s risk-based capital ratio would be three years into the future. Risk-Based Capital Forecasting is located under Hot Topics within the Risk-Based Capital Ratio folder.

There are two ways that users can forecast differences in the risk-based capital ratio. First is that users can input different weights under the Weight column, allowing for different assumptions about what the final rule may look like or comparison to weights used by other financial regulators. Second is that users can enter an annual growth rate in the Growth Assumption column, which will then assume that component will grow by that amount each year for the next three years. Any changes made to either of these will update the related numbers within the report, and result in changes to the risk-based capital ratio forecasts in the last line of the report. To reset the weights and growth assumptions, there is a reset button located in the top row of the report.

Components of Risk-Based Capital Ratio

The following section details all of the account codes that make up the currently proposed Risk-Based Capital Ratio.

Numerator

  • Liabilities
    • Subordinated Debt included in Net Worth = a925a2
      • Only includes debt > 3 years
    • Subordinated Debt (non low income and non-208) = a867b2
      • Only includes debt > 3 years
  • Equity
    • Undivided Earnings = a940
    • Regular Reserve = a931
    • Appropriations for Non-Conforming Investments = a668
    • Other Reserves = a658
    • Equity Acquired in Merger = a658a
    • Net Income = a602
  • Contra Assets
    • Allowance for Loan and Lease Losses (ALLL) = a719
      • Limited to 1.25% of risk assets (denominator)
  • Other Assets
    • Goodwill = a009d2
    • Identifiable Intangible Assets = a009d1
    • National Credit Union Share Insurance Fund = a794

Denominator

  • Cash
    • Cash on Hand = a730a
    • Investments
      • 0 – 1 Year = a799a1+a730b+a730c-a738a-a739a
        • Includes cash on deposit at corporate credit unions and other financial institutions (including the Federal Reserve)
        • Excludes NCUA Guaranteed Notes (NGNs)
      • > 1 to 3 Years = a799b-a738b-a739b-a769a-a769b
        • Excludes NGNs
      • > 3 to 5 Years = a799c1-a738c-a739c
        • Excludes NGNs
      • > 5 to 10 Years = a799c2-a738d-a739d
        • Excludes NGNs
      • > 10 Years = a799d-a738e-a739e
        • Excludes NGNs
    • Corporate CU Membership Capital = a769a
    • PIC/Perpetual Contributed Capital = a769b
  • Loans
    • Nondelinquent Nonfederally Guaranteed Student Loans = a698a-a041t
    • Nondelinquent Other Loans = A025B – A703 – A386 – A041B – A698A + A041T + A713A + A714A + A715A + A716A + A718 + A400F – A400
      • Includes consumer loans such as credit cards and auto loans
    • Reportable Delinquent Other Loans = a045b + a130b +a041t + a041d + a041c + a041c1 + a041c2
    • Nondelinquent 1st Mortgage Real Estate Loans (excluding Member Business Loans secured by Real Estate) = a703 – a713a – a714a – a718
    • Other Real Estate Loans and Delinquent Real Estate Loans
      • If a703-a713a-a714a-a718 is less than 0, the formula is a703-a718+a386
      • Otherwise the formula is a386+a713a+a714a
    • Small Business Administration Loans = a400f
    • Member Business Loans = a400
  • Other Assets
    • National Credit Union Share Insurance Fund (NCUSIF) = a794
    • Goodwill = a009d2
    • Identifiable Intangible Assets = a009a1
    • Investment in Credit Union Service Organization = a851
    • Mortgage Servicing Rights = a779
    • All Other Assets = a003+a798a+a007+a008+a009-a851-a779
      • Foreclosed and repossessed assets, accrued interest on loans and investments, land and building (less depreciation on building)
  • Off Balance Sheet Items
    • Loans Sold with Recourse = a819
    • Unfunded Commitments on Business Loans = a814b
      • 75% conversion
    • Unfunded Commitments for Non-Business Loans = a816e
      • 10% conversion

Related Content

  • P2P: How To Use The Formula Wizard

    What is the Formula Wizard? In addition to the pre-built displays and peer groups in Peer-to-Peer, the software allows you to build custom peer groups and custom displays to best...

  • Intro To Callahan Analytics Support Site

    Callahan has recently launched its new Callahan Analytics Support Site! Watch this short video to learn more about all of the resources available to you.

  • P2P: How To Analyze Vendor Relationships

    Looking to go through a core processor conversation? Want to see who your peers use as their credit card processor? We track several vendor relationships here at Callahan & Associates...

  • P2P Tutorial: How To Select Your Primary & Comparison Set (101)

    Properly setting up your primary and comparison set is the first step to using the vast amount of data readily available in Callahan & Associates’ Peer-to-Peer software. Watch this four-part...