NCUA gets paltry response on new risk-based capital proposal

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After setting records with the number of comment letters it received for its original risk-based capital proposal in 2014, the National Credit Union Administration got just 37 letters following last month’s call for comment on a proposal to modify the rule and delay implementation.

More than 2,000 comment letters poured in from credit unions and lawmakers after NCUA issued its original RBC proposal in January 2014 and the response was largely negative, prompting the agency to ultimately open up a second comment period and eventually reissue the rule with an implementation date of January 2019.

With that date just three months away, the movement has been pushing hard for a delay, with NCUA and Congress proposing one- and two-year delays, respectively. NCUA’s proposed delay was part of a supplemental rule introduced last month that, along with pushing back implementation, would significantly reduce the number of institutions impacted.

One potential factor in the limited response this time around is the shortened window for filing comments and a significantly less controversial proposal. Along with pushing implementation to January 2020, the current proposal ups the asset threshold for rea cognition as a complex credit union to $500 million from $100 million (it was set at $50 million in the January 2014 draft). That element was greeted by broad support.

While many credit union advocates continue to object to the rule as a whole, none of those who submitted comment letters expressed any opposition to either measure. Indeed, most indicated they would have appreciated an even bigger break with the current rule, a longer implementation delay, a much higher threshold and a clause permitting credit unions to raise supplemental capital.

Focus on $10 billion
According to NCUA, the $500 million-asset threshold would exempt about 90 percent of the industry from the risk-based capital rule. Even so, a number of commentators, including Dave Adams, CEO of Michigan Credit Union League, advocated for setting the complex credit union demarcation line at $10 billion.

“This threshold would align with the eligibility for supervision under the NCUA’s Office of National Examinations and Supervision, as well as the [Consumer Financial Protection Bureau’s] threshold for supervision,” wrote Adams.

Writing for the Credit Union National Association, Monique Michel, senior director of advocacy and counsel at the trade group, also backed a $10 billion threshold, arguing proliferation of different asset thresholds across federal agencies “contributes to duplicative and inconsistent oversight.”

Cooperative Credit Union President and CEO Paul Gentile used his letter to warn that a risk-based capital rule “has the potential to constrain” credit unions’ ability to lend and suggested scrapping it altogether. Absent a move in that direction, Gentile, too, backed the $10 billion threshold.

The planned $500 million level, though an improvement over the current rule, would likely need adjusting in the near future, Gentile noted. “Setting a [higher] threshold now and taking the long view…is a more appropriate approach by the industry’s prudential regulator,” he wrote.

Like Gentile, National Association of Federally-Insured Credit Unions President and CEO B. Dan Berger, suggested abandoning the risk-based capital rule, especially in light of the enactment of S. 2155.

“Although NAFCU recognizes that the NCUA Board is not currently contemplating changes beyond what it has proposed, NAFCU strongly urges the NCUA to consider its entire rulemaking anew,” Berger wrote.

NAFCU’s comment letter also says “further changes to the capital rule are warranted beyond what the NCUA has proposed in its current rulemaking. Relative to the current rulemaking, NAFCU supports the one-year delay at a minimum, but strongly believes that a two-year delay would better afford credit unions the time they need to make any adjustments and preparations to come into compliance.”

Supplemental capital?
Beyond what is included in the supplemental rule, a number of correspondents called for some treatment of supplemental capital, which was conspicuously absent from the Aug. 2 proposal.

Right now, the only means credit unions that lack the low-income designation have to raise capital is through retained earnings. When it approved risk-based capital in 2015, the board pledged to adopt a supplemental capital rule that would go into effect at the same time as the new capital standards.

Since then, the board has conducted an alternative capital briefing session. In January 2017, it issued an Advance Notice of Proposed Rulemaking. Still, no capital rule has been emerged, prompting several commentators to write that it was high time the agency put something on the table.

“Providing credit unions with access to supplemental capital advances [NCUA’s] stated goals of supporting job creation and economic growth because it will help credit unions meet their members’ demands for affordable financial services,” commented John Stewart, Chief Risk Officer at $18.6 billion-asset Boeing Employees Credit Union in Tukwila, Wash. “In contrast, implementing the 2015 Final Rule without giving credit unions access to supplemental capital would impose a significant regulatory burden.”

“We strongly urge the NCUA finalize a supplemental capital rule before the effective date of the RBC rule and provide credit unions with the necessary tools to manage RBC requirements,” wrote Diana Dykstra, president and CEO of the California and Nevada Credit Union Leagues.

More time to prepare?
NCUA board member Rick Metsger was in San Antonio for the Cornerstone Credit Union League’s annual leadership conference last week, speaking just one day before the deadline for comments. Despite NCUA’s proposed delay in implementation, he pushed back on the idea that CUs need more time, suggesting credit unions have already had more time to prepare for this rule than nearly any other rule in the agency’s history.

Ryan Donovan, CUNA’s chief advocacy officer, pushed back on that idea during remarks later in the conference. He noted that while a risk-based capital rule is required by law, CUNA opposed NCUA’s original proposal, “so it should come as no surprise that we oppose the rule.”

CUNA has continually used the phrase “a solution in search of a problem” to describe the rule, and Donovan noted that even though NCUA’s move to change the asset threshold mitigates the adverse impact on more than 100 credit unions, “what it didn’t do was mitigate the costs to credit unions of coming into compliance.”

The trade group’s push for a delay, he added, is partly to give credit unions more time to prepare “but also to give NCUA more time to reconsider the proposal, and that’s what we hope they will do.”

Aaron Passman contributed to this report.

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Risk-based capital rule Risk-based capital Capital requirements Financial regulations Capital Compliance Dan Berger Rick Metsger NCUA CUNA NAFCU
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