Whether it was driven by procedure, policy or politics, NCUA's decision to reissue its controversial risk-based capital rule for comment met with much approbation by credit union executives and stakeholders, even as the industry is still holding its breath to see what the revised proposal looks like.
If NCUA is indeed going to "significantly amend" the proposed rule "in an effort to make RBC a legacy issue that serves the agency and the industry well from a safety and soundness perspective," the agency is wise to strengthen its position — both legally and politically — as much as possible, suggested Dennis Dollar, principal partner in Dollar Associates, a Birgmingham, Ala.-based credit union consultancy.
A former NCUA chairman, credit union CEO and state representative, Dollar is well versed in the policies and politics that go into crafting financial regulations.
"If they are planning to significantly change the proposed RBC as they say they are going to do before making it final, I believe they were right to err on the side of complying with both the spirit and the letter of the Administrative Procedures Act, which requires the opportunity for stakeholders to express their views on regulatory proposals that will impact their day-to-day operations."
According to Dollar "any significant change should trigger" another comment period, and there is precedent for doing so. He noted two previous corporate regulations have been issued for more than one comment period, as was the proposed community action program during the D'Amours administration.
"Several field of membership rule re-writes had multiple comment periods," he recalled. "It is both good policy and good politics. While they could have tried to make a case that the changes did not impact the intent of the rule and only dealt with individual provisions within that intent, doing so would have opened them up to greater congressional scrutiny and given an easier ground for possible legal action against the rule by some who might wish to challenge it down the line."
"A second comment period makes sense if they truly want the rule to last through future administrations, and I believe NCUA leadership recognized that fact and made the best decision for both the agency and credit unions," Dollar added.
After repeatedly indicating there would be no need for a second comment period on the rule that drew a record 2,056 comment letters, NCUA Board Chairman Matz announced the agency would reissue the revised rule for additional comment, rather than putting out a final rule as originally planned.
With a further announcement that the NCUA Board expects it will issue an amended proposal before the end of 2014, reaction was swift and plentiful. Steve Van Beek, an attorney who exclusively represents credit unions at the firm of Howard & Howard, here, told Credit Union Journal NCUA's decision to repropose the risk-based capital rule is "very positive" for the credit union industry.
According to Van Beek, the decision likewise is positive for NCUA, as it demonstrates the regulator was "truly listening,"
"It also is positive for NAFCU, CUNA and credit unions in showing their hard work during the first comment period and the listening sessions paid off," he appraised.
What remains to be seen, Van Beek continued, is whether NCUA's decision was based more on a legal interpretation of the Administrative Procedure Act and political pressure, or if the decision was to ensure the final rule was the best possible rule — for NCUA and credit unions.
"For credit unions, the new comment period allows an additional review of the proposed rule — including a deep dive into some issues that may not have received as much attention during the first comment period," he said. "There were obvious 'headline' issues involved with the first proposed rule and credit unions, rightfully so, focused on those issues in their comments and discussions with NCUA. This second comment period allows credit unions to review NCUA's changes and also analyze the entire rule anew to determine if there are any additional areas of concern that NCUA needs to fix during the second comment period."
Both national credit union trade associations expended heavy ammunition lobbying not only for changes to the proposed rule, but for a second comment period.
"We laud Chairman Matz's leadership and responsiveness to the myriad concerns that credit unions expressed regarding the initial risk-based capital proposal," NAFCU President Dan Berger said in a statement. "We appreciate NCUA's review of the complex issues related to risk-based capital and look forward to working toward a rule that does not harm the industry."
Berger said NAFCU was "encouraged" by NCUA Vice Chairman Rick Metsger's recommendation to separate interest-rate risk from credit risk in the rule. Berger also applauded NCUA Board Member Mark McWatters' commitment to not consider the rules for adoption unless they were re-proposed with a robust comment period of not less than 60 to 90 days and his decision to await the new proposal before passing judgment.
Jim Nussle, the brand new president of CUNA said the trade group "commends and thanks NCUA Board Chairman Debbie Matz for her decision to propose a revised risked-based capital rule for a new comment period. CUNA, the leagues and credit unions fervently advocated for a second comment period given the significance of the proposal and the feedback that it received from both the credit union movement and policymakers. This is terrific news; we look forward to continuing to work with the agency to craft a rule that meets the needs of the credit union system."
Teresa Freeborn, president and CEO of $851 million Xceed Financial FCU in El Segundo, Calif., was in the audience at CUNA's America's Credit Union Conference in San Francisco in early July.
After asking Fazio a question during the panel discussion, Freeborn told CU Journal her takeaway was "the whole thing is rushed."
Reached for comment after the news broke Monday, Freeborn said she was "delighted to learn that the NCUA will be offering a second comment period for its proposed risk-based capital rule."
"It is gratifying that our voice, and those of many other credit unions, was heard during the initial comment period," she said. "While we support risk-based capital for credit unions, the changes being contemplated are significant, so it is important we move carefully to ensure the right rules and a prudent implementation timeframe are put in place. We look forward to continuing the discussion with NCUA, and doing everything possible to minimize the impact of the new rules on our members, and also preserve our very healthy balance sheet."
Julie Renderos, EVP and CFO of $5.8 billion Suncoast CU, Tampa, Fla., said the management team was "pleased that the NCUA has reconsidered its original risk-based capital proposal with the announcement of a reissuance of the new proposed rule and a new comment period."
Paul Parrish, EVP and chief financial officer for $722 million One Nevada Credit Union, Las Vegas, said, "For any new NCUA rule this potentially impactful, it makes a lot of sense to encourage as much input as possible. We applaud the decision to gather additional comments, and we trust that the NCUA will seriously consider the additional credit union and trade input prior to finalizing the rule."
Nav Khanna, EVP for $2.2 billion Travis CU, Vacaville, Calif., said the regulator's announcement is "a step in the right direction."
"It is great to see the agency really pay attention to our comment letter, and to the more than 2,000 comment letters they received nationally. We look forward to reviewing the revised proposal."
Teresa Halleck, president and CEO of $6.5 billion San Diego County Credit Union, San Diego, said her CU is, "Very pleased to see the NCUA board has prudently decided to provide an opportunity for industry feedback on this highly important draft regulation."
Vince Pennisi, chief investment and risk officer for $60 billion Navy FCU, Vienna, Va., said, "Navy Federal supports adding an additional comment period to the original risk-based capital rule, and we are pleased the NCUA has decided to move forward on this revision."
Brett Martinez, president and CEO of $2.3 billion Redwood CU, Santa Rosa, Calif., told CUJ, "I applaud NCUA for listening to credit union feedback during the first comment period and making significant structural changes."
Martinez added that he hopes the changes "will pose less regulatory burden as stated by NCUA. A second comment period will allow us to understand the impact of these changes and have a dialog with NCUA before they are finalized. Dialog and communication are always a good thing."
Diana Dykstra, president and CEO of the California and Nevada CU Leagues, said she was pleased that "the perseverance of credit unions has not gone unnoticed. This is a direct result of many hours devoted to comment letters and meetings with congressional representatives and NCUA board members at home and on Capitol Hill. A total of 187 comment letters, of the 2,000 nationwide, were sent by California and Nevada credit unions to the NCUA. I personally want to thank every credit union professional for their enduring efforts and vision."
Troy Stang, president and CEO of the Northwest CU Association, said NWCUA wanted to "Applaud the agency's leadership in its response to the outpouring of feedback from credit unions and legislators. I trust the agency's leadership will diligently take the feedback from the industry to heart and utilize all the tools at the agency's disposal to present a much more appropriate rule in this second round."
Mark Hawkins, president and CEO of $730 million Altura Credit Union, Riverside, Calif., said he was "delighted the NCUA has decided upon a second comment period for the revised risk-based capital rule."
"It is obvious to everyone that there are very real concerns about the RBC rule &mash; significant concerns," Hawkins said. "I think it is equally obvious the revised rule should be carefully vetted by the movement to be certain the previous concerns have been meaningfully addressed."
Following the economic crisis of the recent past, Hawkins said it is "clear" credit unions were seriously challenged. "It also should be equally clear we have responded to those challenges very capably and very strongly," he declared. "I don't think anyone has argued against reexamining existing regulations. On the other hand, it also does not mean current regulations are necessarily bad and in need of reinforcement. Sometimes the old rules still work."
Hawkins said he and his management team will be "anxious" to review the revised regulation. "And I hope it will reveal a more common-sense response to the needs of America's credit unions and their members."
Jeff York, president and CEO of $747 million CoastHills CU, Lompoc, Calif., characterized NCUA's decision to have a second review period for the risk-based capital rule as "prudent and necessary to ensure credit unions have an opportunity to fully understand this important issue."
"We are very pleased with this change and look forward to making further comments after reviewing the impact on our credit union," said York.
