McWatters Won't Vote For Risk-Based Rule Without Second Comment Period

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WASHINGTON — New NCUA Board Member Mark McWatters believes a second comment period is needed on the regulator's proposed risk-based capital rule and will not vote for any RBC proposal that does not include one.

McWatters told CUNA Interim President/CEO Bill Hampel and other senior trade group officials last week that he is in favor of a second comment period before the rule is finalized. That news, confirmed Friday by Credit Union Journal, was first reported by CUNA"s "News Now."

Hampel — along with CUNA General Counsel Eric Richard and Deputy General Counsel Mary Dunn — met with McWatters' after the NCUA Board meeting Thursday. Hampel told Credit Union Journal that after going over the issues CUNA has previously raised with the regulator, the topic of a second RBC comment period was raised.

"He said he agreed and said he would in fact not vote for the proposal if it were not reissued for comment," Hampel said. "I think his view was driven by the amount of feedback that the proposal has received in the form of comment letters."

McWatters reportedly told the CUNA executives that due to the more than 300 members of Congress and more than 2,000 credit union stakeholders who have commented, "out of respect for them, it would be a good thing to reissue it for comment," said Hampel.

Hampel — who normally serves as CUNA's chief economist and whose interim time as president and CEO will soon come to an end when incoming leader Jim Nussle takes the reins — said he and the association were pleased with McWatters' reaction.

"He's taking a fresh look at this, and he's obviously a very intelligent person, so I think it's a good thing. The more people in authority who take a look at this and consider it can't but help," said Hampel.

Re-open Comment Vs. Delay Implementation

McWatters' willingness to re-open the rule for comment comes a little more than a week after Rick Metsger, vice chairman of the NCUA Board, told NAFCU's Congressional Caucus here that he was "committed to" a longer implementation period on the rule, doubling the implementation time from 18 months to two years and giving CUs the chance to comment again as part of NCUA's three-year rolling regulatory review before the rule finally goes into effect.

"That's something I think would be an additional benefit," Metsger told the NAFCU audience.

An NCUA spokesperson, speaking on behalf of Metsger's office, told Credit Union Journal that Metsger does not believe a second comment period is necessary as long as the changes to the rule are consistent with the scope and structure of the original proposal. Metsger believes that a longer implementation period will be more beneficial to CUs than a second comment period because it will give CUs and NCUA additional time to adjust to new capital requirements and Call Report changes; will provide a smoother transition for CUs to adjust their balance sheets or raise capital; and because of the agency's practice of reviewing one-third of its rules each year, CUs will have another opportunity to comment on the file RBC rule before it goes into effect.

CUNA's Hampel cautioned that, "I'm not sure that there's a connection between the implementation period and the comment period. We think those are both important, but they're separate events. The longer the implementation period the better, because it might take some credit unions a significant amount of time to adjust, because we don't have access to supplemental capital. But I'm not sure I'd tie that onto a second comment period."

Metsger also said at last weeks' NAFCU confab that he now believes that fewer than 100 institutions will be impacted by the RBC rule, rather than the 200 that were initially forecasted.

Positive Response

McWatters reportedly also met with NAFCU yesterday and expressed his support for a second comment period. That position was met with a positive response from the credit union community.

"We share his viewpoint that a second comment period is necessary given congressional and industry concern," NAFCU's SVP of Government Affairs and General Counsel Carrie Hunt said in a statement.

In a follow-up conversation, Hunt told CU Journal that there are still multiple unresolved issues within the proposal, and "NAFCU strongly supports a second comment period so all of these issues can be resolved with credit union input. It's certainly our hope that we end up in a fair and positive place for the credit union industry."

Dennis Dollar, principal at Dollar Associates in Birmingham, Ala., and a former NCUA Chairman, told Credit Union Journal in an e-mail that the agency does seem to be "truly listening" to its stakeholders when it comes to RBC, including "hinting at some positive improvements," such as lowering various risk weights.

"These changes, if included along with removing the examiner discretion provision and extending the effective date to 36 months, would greatly change the dynamic of how this proposal is received by the credit unions," Dollar wrote. "The decibel level of opposition would lower considerably with significant changes to the RBC rule as outlined above, some of which have been hinted at by NCUA leadership. If NCUA truly makes the level of significant change to the RBC proposal that are being hinted at by agency leaders and spokesmen, they would be politically well served and their legal position strengthened to go out for a second comment period."

Dollar added that the second comment period could also help NCUA repair some of the damage to its relationship that has been sustained during the flap over the RBC proposal.

"A second comment period, if the changes were as far reaching and well-reasoned as some of those being discussed as possible by NCUA leadership, would produce many more positive comments, reduce the number of negative comments, and make the agency look much more responsive and responsible — thus, the final rule would be in a better position to survive likely congressional hearings and possible legal challenges in the future," he wrote.

‘Devil in the Details'

As things currently stand, McWatters is in the minority on a second comment period, since the NCUA Board would need a majority vote to reissue the rule for a second comment period, and Metsger and NCUA Chairman Debbie Matz are against reissuing the rule for comment.

The agency is currently reviewing the more than 2,000 comments it received on the RBC proposal, but there is not yet a timeline on when the revised rule could be released.

Based on that volume of comments, CUNA's Hampel said he believes it would be good practice for credit unions to be able to comment on the changes and for the regulator to allow CUs the opportunity to do so.

"NCUA has indicated they're going to make several changes before they come back with it," he said. "It would just be, we think, good practice for credit unions to be able to analyze and think through all of those changes, and therefore comment again on what the current system is, as opposed to never having been able to comment on what the proposal is because it has changed so much from the original."

Hampel said that the changes NCUA has signaled it will make — such as changes to risk weights, a longer implementation timeline and being more explicit about who has the authority to issue individual minimum capital requirements — are movements in the right direction. But, he said, "we still have a significant concern about them imposing a risk-based requirement that pertains to being well capitalized over and above what pertains to being adequately capitalized. We're still making that case to the agency."

NAFCU's Carrie Hunt shared a similar outlook. She said that because the rule has received so much scrutiny, she was optimistic that things would end up in a positive place, but until NCUA issues another proposal, "the devil is in the details."

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