CHICAGO-- NCUA may be listening, but many credit union executives here Thursday weren't convinced that their regulator is hearing them.
During the agency's second listening session on its contentious risk-based capital rule, NCUA Chairman Debbie Matz expressed a certain amount of frustration herself over repeatedly hearing the same comments and concerns.
Some examples: the need for NCUA to reconsider the risk weights in the proposed rule on risk-based capital (Matz said the agency absolutely will be re-evaluating them); the need to extend the implementation time period (she said the agency definitely will extend it); the need to reopen a comment period on the proposed rule (that's almost certainly not going to happen, according to Matz).
Indeed, Matz opened the meeting by telling attendees NCUA has heard CU concerns about the risk weights and how the rule could affect agricultural lending and other business lending and stressed that the agency will be reviewing the weights very carefully.
But that didn't stop a number of credit union executives at the meeting from raising these same points again and again. And while those executives who spoke at the meeting seemed to accept that NCUA will take a careful look at the risk weights, the concern about having a chance to comment on the rule again after it has been revised was a concern that wouldn't go away, with a number of credit unions imploring NCUA to allow for a second comment period.
And while Matz did say that "everything is on the table," it would seem at least one thing probably is not: a second comment period.
"We will do a top-to-bottom review, and if under the Administrative Procedure Act we determine that we've made significant changes to the intent of the rule, we will offer a second comment," she said.
But she quickly added that while she expects there will be many changes to the rule, she doesn't believe that there will be a significant change to the intent of it, and in that case, the law does not require NCUA to reissue it for comment.
"Maybe this should be determined by what's right for credit unions, and not the law," said one credit union executive, to a round of applause from the audience.
Among other points that came up during the session:
- The "mythical" $7 billion figure that credit unions would have to raise as a result of the rule if it is passed as is. Matz said CUNA's estimated cost of the rule isn't even close to factual, saying NCUA's own estimate is $700 million, in part because CUs will not be required to pad their capital above the 10.5% "well-capitalized" threshold to create a buffer. A number of CU executives were happy to hear that no buffer was required, but quickly pointed out that they weren't so sure NCUA's own examiners have heard that news, noting that anytime their capital has dropped, that is documented in their exams.
- Contrary to popular belief, individual examiners will not have the authority to raise a credit union's capital requirement. Should an examiner believe that an institution's capital requirement should be raised, that decision will be pushed up the ranks all the way to the NCUA Board.
- Call reports will be overhauled as part of the process to include more granular data that will allow a credit union to demonstrate that even though it may appear to have significant concentration risk in one area that they have taken measures to mitigate it.
For example, Earl Shelner of Education Community CU noted that his small credit union has $415 million in loans on the books, 185 of which are mortgages and $30 million in mortgage backed securities—stats that raised a few eyebrows on the dais where NCUA Board members and other top agency executives were sitting.
But Shelner went on to note that 35% of those mortgages are in 10-year, fixed-rate loans and 15% are in 12-year, fixed-rate loans. It's a fact that makes his CU's seemingly uber-risky activity look a lot less risky - but it's also a fact that isn't reflected in the call report.
Both Matz and NCUA Director of Examination and Insurance Larry Fazio said the agency will be looking at collecting more granular data, but they also want to balance that with the concern that collecting more data can become burdensome.
- The agency will be evaluating the potential deduction of goodwill, including possibly grandfathering in credit unions that already have goodwill on the books prior to the rule's implementation so that they are not penalized for agreeing to take on a troubled credit union in a merger.
Several topics unrelated to risk-based capital also came up during the session, including:
- When Mike Dillon of South Division CU raised concerns about the level of expertise of NCUA's examiners and specialists, Matz said that the training of its examination staff is a real struggle, particularly as about 40% of its examiners have fewer than five years on the job. She urged credit unions to offer any constructive suggestions for how the agency can improve its training program.
- Differentiating the relative risk of small, less complex member business loans compared to much larger, potentially riskier commercial loans is something NCUA will be taking up when it revisits the MBL rule, Matz said.
NCUA will be revisiting its definition of a small credit union versus a complex credit union.
