Bankers Keep Close Eye on NCUA's Revised Risk-Based Capital Rule

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WASHINGTON — Credit unions aren't the only ones waiting anxiously to see what the NCUA's revised risk-based capital rule will look like.

Though bankers have stayed mostly quiet about the issue so far, they will be closely watching the regulator's latest attempt to release the controversial proposal — an event scheduled to occur at the agency's monthly board meeting Thursday — because they fear it will be broadened to allow CUs to use "supplemental capital" to meet their regulatory requirements.

Supplemental capital, including subordinated debt or non-voting deposits, is currently not allowed under existing capital standards, which primarily focus on CUs' retained earnings.

James Ballentine, the American Bankers Association's vice president of congressional relations said any type of alternative capital proposal would be a non-starter for banks.

"There are a lot of areas for cooperation between both industries," Ballentine said. "We're both worried about data breaches, regulatory reform and the Consumer Financial Protection Bureau, but any thought of [collaboration] are ruled about by bankers' fierce opposition to alternative capital, as well as expanded business lending powers."

Credit unions, on the other hand, are urging the NCUA to take just such a step.

Dan Berger, the president and chief executive of the National Association of Federal Credit Unions, released a letter saying any reforms to capital rules "must include access to supplemental capital for all credit unions."

Christopher Cole, senior vice president and senior regulatory counsel at ICBA, agreed bankers would vigorously oppose such a move.

"It would make credit unions so much like banks, you'd have to ask why they deserved to keep their tax exemption," Cole said.

Unlike ABA, which has taken no position thus far on the NCUA's previous risk-based capital proposal, ICBA sent the regulator a comment letter last year saying its original plan did not go far enough. In particular, ICBA complained the risk weights NCUA had proposed for mortgages and member business loans were not as heavy as those applied to banks.

Even if NCUA leaves supplemental capital out of its revised proposal, banks are unlikely to find much to like, according to Dennis Dollar, an Alabama-based consultant who sat on the NCUA board between 1997 and 2004, serving as chairman the last three years.

Dollar predicted last week that NCUA would likely respond to the criticism of its initial risk-based capital draft by reducing the capital levels affected credit unions are required to hold.

"NCUA seems to be looking seriously at some major modifications to the risk weights in a number of asset categories," Dollar said in an email to Credit Union Journal. "That would be a great step forward for this risk-based capital rule which most, as do I, feel is very appropriate and needed in concept."

The initial plan came under heavy fire from credit unions and lawmakers that support them.

Aimed at credit unions with more than $50 million of assets, it would have required those that engaged in supposedly riskier businesses — such as commercial and real estate lending — to hold more capital.

The NCUA acknowledged its original proposal could have resulted in a decline in the credit classification for hundreds of credit unions. Most would have been reduced to "adequately-capitalized" but at least 10 faced the prospect of falling to "undercapitalized" status. Not surprisingly, the proposal touched off a firestorm with NCUA receiving more than 2,000 comment letters.

Opposition to the scheme reached critical proportions in May, when 320 members of the House of Representatives signed a letter expressing concern about the rule in a letter drafted by Rep. Peter King, R-N.Y., and Gregory Meeks, D-N.Y.

NCUA Chair Debbie Matz asked agency staff to revise the risk-based capital proposal in September.

Interest in the new proposal appears to be just as strong.

Last week the NCUA board dispensed with a long-standing rule barring videotaping of meetings, announcing it would permit a "limited number of video cameras" to record its meeting Thursday. Spokesman John Fairbanks attributed the change to "the high level of interest" in the revised risk based capital rule.

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