LAS VEGAS —
"It seems like I've heard from most of the system on the proposed risk-based capital rule. I want to assure you: We hear you loud and clear, and we will make significant changes in the final rule," Matz told a crowd of about 1,200 people today at NAFCU's annual conference here.
As the result of comments received from credit unions and this summer's three "Listening Sessions," Matz said, "we are well on our way to producing a sound risk-based capital framework, one that will better mitigate existing risks to that credit unions hold capital commensurate with the risks in their portfolios. This is something we simply must do."
Based on letters and comments, the agency has identified four areas of concern.
For starters, she said, NCUA recognizes that all risk weights will need to be reviewed, and some must be lowered. The regulator is reviewing the assumptions underlying key risk weights and will make changes as appropriate. The agency has identified five candidates for revised risk weights, including investments, mortgages, MBLs, CUSOs and corporates.
Matz also attempted to disabuse CUs of the notion that all institutions would be required to raise new capital or that the proposed rule would require as much as $7 billion in new capital. Only 200 CUs would need to add a maximum of $700 million in new capital, she said, and that is only if those CUs don't shed excess risk from their portfolios.
"Those who argue that the proposal would require $7 billion are using a questionable assumption," she said. "They assume the 2,200 credit unions subject to the proposed rule would choose to raise additional capital to maintain their current buffer, a totally baseless assumption. In fact — and I want to be very clear about this — using the proposed risk-based formula, the majority of credit unions would already have at least as much of a capital buffer, or an even higher buffer, than they do today."
The NCUA Chairman also said that "contrary to popular belief, examiners will not have the authority to raise any single credit union's capital requirement. Only the NCUA Board could do that." Matz broke from her prepared remarks to repeat that twice for the crowd.
But, Matz continued, even before the board could utilize that authority, examiners will have to go through "a rigorous process" to convince supervisory examiners and regional directors that such action is necessary.
"It might surprise you that this process already exists today in NCUA's current risk-based net worth rule, but it has never been used," she added.
Matz also announced that once the new rule is finalized, its implementation period will be extended beyond the 18 months that was first proposed.
"With all the changes we're contemplating, let me emphasize that the risk-based capital proposal is just that — a proposal. That's why we put it out for comment. All of those comments have been read, heard, and in many cases will be reflected in the final rule. And, yes, there will be a final rule. It will be much improved from the proposed version."
And, she said, the RBC rule will be the "final significant" NCUA rule to come out of the financial crisis — an announcement that drew applause from the ballroom crowd.
