WASHINGTON — Despite over 1,000 letters reaching NCUA Wednesday morning, CUNA and NAFCU contend the risk-based capital rule comment period has been too short and may lead to a final rule that would negatively impact credit unions.
NCUA, however, is confident it has its finger on the pulse of the community's risk-based capital concerns and that the right changes will be made in the final rule.
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NAFCU estimates that CUs with $50 million or more in assets — those impacted by the rule — would have to hold another $6.7 billion in reserves to maintain their current capital cushion; while CUNA sets the figure at $7.3 billion.
Both trade associations are concerned the final rule may not carry enough, or all the right changes, saying CUs needed additional time to provide more thoughtful comments backed by strong data.
The comment period ends May 28.
The trade associations have asked NCUA twice to extend the comment period 90 days so more credit unions can effectively weigh in. But NCUA has turned down the requests--twice.
Bill Hampel, CUNA SVP of research and policy analysis and chief economist, who will take over June 11 as CUNA interim president, acknowledged the comment period has been long, but not long enough. "This rule is quite complicated and I think a longer comment period is appropriate and called for."
Hampel said the depth of the rule has kept CUNA busy preparing its comment letter.
"We have not been dillydallying and have been spending all of our time on this proposal — and we won't end up being done early. This is a big deal and a big job."
NCUA Fully Aware: Matz
Pointing out that the current comment period for the risk-based rule is one of the longest in the agency's history,
She emphasized that the agency is fully aware of credit unions' concerns about the proposed rule, including discretionary examiner authority to set capital standards and the rule's impact on some shops' business lending.
But that still does not satisfy NAFCU, which has argued for months that more time is needed to review comments.
"We are continually hearing from our members — who are trying fast and furiously to get their comments in — that they feel frustrated and rushed," said Carrie Hunt, NAFCU SVP of government affairs and general counsel.
The number of comments reaching NCUA picked up dramatically this week, jumping from nearly 500 to 1,000 in about three business days.
"I know NCUA has received a significant number of comments," said Hunt. "But I wonder what the quality of the comments has been, compared to what credit unions could have sent had they had time to include additional data to back up some of their comments."
From a Few Paragraphs to 20 Pages
A brief review by Credit Union Journal of comments submitted to NCUA's website showed a wide range of detail — from letters comprised of only a few short paragraphs to a 20-page letter from Mark Starr, CEO of the $591 million Florida CU in Gainesville.
Starr, who included numerous charts and graphs, examined the impact of the rule on Florida CU and all credit unions, comparing risk weights with the banks' Basel guidelines. The letter suggested a number of alternatives to aspects of NCUA's proposal, particularly the risk weights.
"In summary, NCUA has proposed a regulation that is extremely unfair to the credit union industry. The risk ratings give an unfair advantage to the banking industry, especially with regard to mortgage and commercial lending," commented Starr in his letter.
In her interview with CU Journal, Matz was clear that the regulator is willing to make adjustments — as with any proposed rule — if the content of the comments is convincing.
In reading through comment letters herself, as well as what staff attorneys have picked up, Matz said NCUA is aware credit unions have a great deal of concern the rule — as currently drafted — suggests examiners will be able to arbitrarily set a CU's capital requirement, regardless of what the new capital rule states.
"I know there is concern that examiners will be able to tell credit unions to hold more capital, even though the credit union is not required to do that by the [risk-based] formula," Matz said. "There is a lot of concern discretionary authority will be given to examiners."
But Matz noted it was never the agency's intent to give "arbitrary authority" to examiners.
"Perhaps we did not write [the proposal] as clearly as we should have," she said. "Our intent was that if the examiner feels a credit union should hold more capital above and beyond what is required in the rule, they would have to go to their supervisory examiner, who would have to go to their regional director, who would then have to come to the board. Many steps would have to be worked through and, ultimately, the board makes the final determination."
Matz said NCUA is also aware of concerns regarding how the rule could negatively affect credit unions that rely heavily on member business lending, having no member business lending cap since they were grandfathered in when this cap was established in the late 1990s.
"It was never our intent to put out of business credit unions whose sole purpose is making business loans — such as credit unions that make taxi medallion loans and agricultural loans," said Matz. "If that is an unintended consequence of the proposal, we need to address that."
With changes to the proposal coming, if they are extensive — which both CUNA and NAFCU support — Hunt contends that NCUA will have to open another comment period.
But Matz said another comment period is not likely. "I think based on the comments we are getting and then the Listening Sessions, we will have as much information as we need to go final with the rule. I don't want to say never, but it is not my intent to have another comment period."
Those comments include letters from CUs below $50 million in assets that see the current draft could negatively impact them some day.
Terry Tucker, operations manager at Pine FCU in Pine Bluff, Ark., wrote: "I would like to go on record as saying I am against the new rule because as written, it goes well beyond Basel III recommendations. Why on earth would the NCUA even think of proposing tougher capital standards on well-managed not-for-profit credit unions than are being proposed for banks worldwide?"
Gregg Stockdale, CEO at the $35 million 1st Valley CU in San Bernardino, Calif., wrote: "I do not agree that this proposal is necessary and I do not agree with the scope, tone, methodology, or structure of the proposal. NCUA needs to get out their finest pencil and address this issue of capital. This proposal is the equivalent of a push-broom with two-thirds of the teeth missing."
Matz stressed the agency is looking carefully at all the letters.
"When we put out a proposed rule, that is what it is — a proposed rule," said Matz. "We always want to hear what the comments are, get feedback from stakeholders and discuss every aspect of the rule before making it final. That is how we do business."
Matz has already stated that NCUA may consider delaying the rule's effective date if "sensible reasons" are raised by comment letters. Specifically, she told the Hawaii Credit Union Association May 16 that the 18-month timeframe, following a final risk-based capital rule, is not "etched in stone."
Hunt sees the possibility of an extension as very positive, but appropriate. "Look at the length of time that banks have had to implement Basel III — much longer than 18 months."
In the end, Matz thinks the final rule will remove many of the concerns CUs hold today.
"There is just a lot of angst because [the rule] is new to the system, and when something is new there is a lot of angst and concern," said Matz. "But when we come out with the final rule, a lot of the concern and trepidation will disappear."
Matz said the regulator saw that happen with rules on loan participations and emergency liquidity.
"There was a tremendous outpouring of concern," she reminded. "And we addressed most of the issues that were raised and the final rules I think are considered good rules and rules credit unions are comfortable with. I anticipate that will happen again."
