ALEXANDRIA, Va. — Perhaps the third time really is the charm for NCUA Chairman Debbie Matz, who found the audience at the agency's final "listening session" more apprehensive than hostile toward the regulator's risk-based capital proposal.
Following a highly contentious session in Chicago earlier this month, Matz stood her ground when asked yet again to shelve the capital proposal that generated a record-breaking number of comment letters.
Matz reminded the audience that credit unions survived the financial crisis because NCUA provided $26 billion of liquidity to the industry — $6 billion through a line of credit with the U.S. Treasury and $20 billion through the Central Liquidity facility.
"If we had not provided that, the credit union system as we know it today would not exist," she said. "We are doing this because of the lessons learned from the crisis. We want to make sure the system gets through the crisis next time."
Throughout the listening session process, as well as in the more than 2,000 comment letters filed with the agency, credit union executives have urged NCUA to make numerous, significant changes to the proposed rule, calling for everything from scrapping the entire proposal and starting over to offering credit unions a chance to comment on the amended rule before it is finalized. But Matz stressed that while NCUA will be taking all of the comments into consideration when it crafts the final rule, it is not the regulator's job to forge a consensus within the CU community.
"The bottom line is we are not trying to get consensus. We will never get a consensus on it," she said. However, NCUA officials and credit union officials selected by the trade groups are reviewing and working on the RBC rule. They are working to "make this the best rule possible."
The final listening session touched on a wide range of issues, including the treatment of goodwill and even a Financial Accounting Standards Board proposal that is on the drawing board.
One participant warned that eliminating goodwill would make CUs wary of acquiring troubled institutions in the future. At a minimum, he urged NCUA to grandfather goodwill that CUs already hold.
NCUA Director of Examinations and Supervision Larry Fazio noted the Basel III capital rule does not recognize goodwill but added that the agency is considering "some grandfather provision," he said.
Without goodwill, "it will cost us more money" to resolve failed institutions, Fazio said, adding that in future, the franchise value of troubled institutions will be "priced into the deal."
Another participant noted that FASB is working is on a proposal that would force banks and CUs to increase their loan loss allowances. "Are we going to face a perfect storm where we are going to be asked to hold more capital for risk-based capital purposes, and at the same time we might be required to hold more" loan loss reserves, he asked.
Fazio noted the NCUA is aware of the FASB proposal. "If FASB approves that, we would have to revisit that issue," he said, and the banking regulators will have to adjust their RBC rule, too.
One member of the audience urged NCUA to be sure they don't make the capital requirements for CUs higher than the banks, putting credit unions at a distinct disadvantage to banks when consumers try to determine which institutions are better capitalized and therefore the safer bet. Fazio agreed this is a legitimate concern the agency will be considering as it crafts the final rule.
While both CUNA and NAFCU praised the agency's willingness to listen and the clear signs that a number of credit unions' concerns about the proposal will be addressed, they also both noted there is still a lot of anxiety about what the final rule will look like when it comes out.
"In the final of three listening sessions credit unions brought up important issues including specifics with the proposed risk-based capital rule, interest rate risk, examinations and others," said Mike Coleman, NAFCU director of regulatory affairs, who thanked NCUA for giving credit unions the opportunity to speak out on the rule . "NAFCU will continue to advocate for specific changes to the risk-based capital proposed rule including lowering risk-weights, extension of the implementation period, and a second comment period to get this rule right."
CUNA Deputy General Counsel Mary Dunn also saw positive signs that the agency really is listening to credit unions' concerns. ""It was encouraging that, in today's session, NCUA indicated it is looking at key points in the RBC proposal, including treatment under the proposal of such components as goodwill, the 1% NCUSIF deposit, risk weighting, interest-rate risk and the time for implementing a final rule," she said. "In fact: These are all issues that CUNA has been urging the agency to revisit. On the other hand, CUNA will continue to urge NCUA to reduce the 'well-capitalized' RBC component — which remains a major point of concern for us."
