Five Takes on Risk-Based Capital Before NCUA's Last 'Listening Session'

WASHINGTON — Credit unions and NCUA have kicked the tires on the risk-based capital proposal during the first two "Listening Sessions" that have seen healthy — and sometimes heated — exchanges between the regulator and CUs.

As the final session approaches (scheduled for 1 p.m. Eastern Thursday in Alexandria, Va.), here are five perspectives on where credit unions and its regulator stand regarding the capital proposal and what still needs to happen before a final rule is written.

1. Can't Miss the Concern

CUNA Deputy General Counsel Mary Dunn said that during the first two meetings that it is virtually impossible to miss how concerned credit unions are about the risk-based capital proposal.
Noting a lot more work still needs to be done with the rule, Dunn reminded, "We are continuing to hear this steady drumbeat from NCUA that they will make positive changes."

Credit unions have been clear in the meetings, as they have during the rule's comment period, that they are focused on changes to the risk weights and that if significant adjustments to the rule are made, a second comment period is needed.

In the Chicago listening session, NCUA Chairman Debbie Matz stated that the agency is re-evaluating the risk weights and that the implementation time period will be extended. However, she was clear that a second comment period almost certainly is not going to happen.

Dunn pointed out that in the Windy City session Matz was also firm that the board will not consider lowering the well-capitalized risk-based capital component from 10.5% down to 8%.

"This is one of the major issues CUNA raised in our comment letter," noted Dunn. "Even if the agency is not willing, or it feels it can't lower the well-capitalized risk-based capital component to 8%, we still want to pursue lowering it from 10.5%."

2. What's The Rush?

Considering the lengthy time banks were given to implement their new capital standards and go back and forth with the FDIC on their rule, CUs — with their collectively strong capital position — have questioned why there can't be a second comment period.
Carrie Hunt agrees.

"This needs to be a careful and deliberative process that is done right," said NAFCU's SVP of government affairs and general counsel. "So in the sense that we asked for additional time to comment and NCUA did not give it to us, and to the extent we asked for a second comment period and NCUA is leaning toward not going in that direction, I certainly don't understand what the rush is. I don't think the agency has demonstrated there is a demonstrable need to have this rule finalized in what is in my opinion is a very short timeframe."

3. Letters Show Need for New Comment Period

Greg Olmsted, CEO of the $83 million North Alabama Educators CU in Huntsville, Ala., also doesn't see a need to rush the rule.
"The sheer volume of the comment letters would almost require a longer period just to digest and evaluate the ideas shared with the NCUA board," Olmsted said. "If our comments are truly being considered it seems only fair to spend the necessary time to utilize the information given."

Due to the proposal changes NCUA has stated are coming, and since the rule change is one of the most significant in recent memory, Olmstead sees a second round of comments as "reasonable."

"There is no crisis at stake with credit unions failing, so it should not be a necessity to move quickly with such a drastic change," he said. "It is more important to get this new RBC rule right the first time."

4. NCUA 'Gets It'

Todd D. Fanning, SVP and CFO at the $2.1 billion University of Iowa Community CU, in Iowa City, said he liked, for the most part, what he heard from NCUA in Chicago.
"Chairman Matz indicated they ‘get it' and will be taking a long look at the weightings attached to the various asset classes and will be making changes — most likely lowering them."

However, Fanning said NCUA stating they will change the tier structure on mortgages or MBL, did not please the CFO and a number of other executives in attendance.

"I was happy with the idea that they will attempt to make some of the asset classes, such as MBL, more granular so that weightings will be more specific to certain types of lending," said Fanning. "This will most certainly lead to greater detail on the call report, which will be more cumbersome, but I understand, as that is how they collect data.

"I was especially happy with the thought NCUA has about introducing a 'risk mitigation credit' for those institutions that have shown historically low delinquency and sustained profitability," continued Fanning. "Though [NCUA Director of the Office of Examination and Insurance] Larry Fazio indicated it is a challenge to quantify, they realize it is important."

Hearing clearly Matz saying a second comment period is highly unlikely, Fanning hopes the agency will reconsider and allow another short comment period.

5. Changes Good For ‘Antiquated' Capital System

In Washington, Evan Clark — applauding NCUA for making changes to an "antiquated" capital system — says his CU will be fine with whatever the agency decides regarding a second comment period.
"A second comment period would be fine," said the CEO of the $330 million Department of Commerce FCU. "But whatever the regulators do we'll just plug the changes required into our business model and keep moving forward."

For Clark, there are "much more compelling issues" to be dealt with than a second comment period.

"The movement's capital is very strong and what really is needed in the movement is a strong ALCO process at every credit union," he said. "What is more of a challenge to me are the continually shrinking interest rate margins and the difficulties this poses in making a positive bottom line."