The NCUA Board is expected to pass its highly controversial risk-based capital rule Thursday, even though doing so may well trigger a dust-up with Congress with ramifications for the agency’s efforts to gain oversight of third-party vendors service credit unions.
The regulator has invested enormous time and effort in crafting a risk-based capital scheme and the board is scheduled to vote Thursday on a final rule -- even though Congress is weighing a bill asking NCUA to give the issue some additional deliberation. The “Credit Union Risk-Based Capital Study Act of 2015,” passed the House Financial Service Committee by a bipartisan, 50-9 vote on Sept. 30.
Observers are likening NCUA’s decision to go forward with risk-based capital in the face of lawmakers’ concerns a high-stakes gamble.
“Any time you ignore the will of a fairly broad section of the House Financial Service Committee, you do so at your own peril,” Geoff Bacino, a former NCUA board member, said in an interview Wednesday.
Bacino may be putting things mildly.
In an Oct. 13 letter to Chairman Debbie Matz, the chairman of the Financial Service Committee, Rep. Jeb Hensarling (R-Texas), reiterated Congress’ request for a delay and hinted that a vote Thursday might imperil other items on NCUA’s legislative wish list.
“It’s deeply troubling you would utterly disregard the express will of this committee and rush to adopt a misguided rule that risks undermining the safety and soundness of credit unions,” Hensarling wrote. “I also find it troubling, though not surprising, that at the same time you have chosen to disregard the clear wishes of Congress, you are also seeking vast new regulatory authority for NCUA, as evidenced by your Oct. 2 letter requesting that the agency be granted direct oversight of all third-party vendors doing business with credit unions. Under the circumstances, NCUA has not demonstrated it can be trusted to exercise such broad new authority responsibly.”
And lawmakers are not the only ones questioning the vote.
Dan Berger, president and chief executive of the National Association of Federal Credit Unions, one of the industry’s most influential trade groups, said in a statement that he was “disappointed to see NCUA moving forward with its second risk-based capital proposal, despite the concerns raised by credit unions and Congress as to the rulemaking’s approach, impact, and cost.”
So far, there is little indication Matz is willing to put off a vote. According to Hensarling, she responded to an earlier letter from individual members of the Financial Service Committee with a pledge to give the risk-based capital issue further study -- but only after a final rule is adopted.
In broad terms, the risk-based capital plan would create two tiers to measure capital. A well-capitalized tier requiring 10% and an adequately capitalized tier requiring 8%. The ultimate goal is to prod institutions that engage in more risky business lines to hold extra capital.
As things stand now, the only capital standard credit unions are required to meet is a 7% net worth ratio. The risk-based capital rule has proved to be deeply unpopular with individual credit unions and thousands have written comment letters critical of the proposal.
