Filson Says RBC Is the Wrong Approach
In two related articles, Chip Filson, cofounder of Callahan and Associates, says that after 25 years of attempting to define a risk-based capital methodology for banks and credit unions, the experts agree that RBC and similar Basel approaches don’t work as well as a simple leverage ratio. Filson points out that the risk-based capital format used by banks for many years did not prevent the latest banking crisis or continuing bank failures. Doug Alldredge, CPA and CFO of First Credit Union has done a comparative study of a hypothetical $100 million bank to a $100 million credit union using the current bank risk-based capital formula and the proposed RBC formula for credit unions and found that credit unions would have to maintain a capital level that was 128% higher than a similar bank even though credit unions have outperformed banks in all economic cycles. See also. [4/8]
