WASHINGTON — End-of-year lists are all about the show-stoppers, and nothing stopped the show like NCUA's proposed rule on risk-based capital.
Introduced in January 2014, RBC became a lightning rod for criticism, and not just from "the usual suspects." Sure, CUNA and NAFCU both issued multiple objections to the rule, rallying the legendary grassroots to write a record-breaking 2,056 comment letters to NCUA. But the would-be reg also drew unprecedented attention from Congress, with more than 325 lawmakers signing a letter opposing a variety of aspects of the proposal.
In June, at CUNA's America's Credit Union Conference in San Francisco, the trade group eliminated a planned session on the impact of the economy for a panel discussion on the RBC proposal. Larry Fazio, NCUA's director of the Office of Examination and Insurance, drew the short straw and faced the wrath of the assembled credit union delegates.
NCUA also hosted a series of "listening sessions" in various locations across the country where the tone of dialogue was sometimes not only tense but downright combative.
Rallying Cry For Second Comment Period
Two points of emphasis emerged from the federal regulator over the course of the summer: 1. NCUA understood the proposed rule needed a lot of work and credit unions could expect significant changes in the final rule, and, 2. Sorry, but there will not be a second comment period after the revised rule comes out.
The latter point became a rallying cry for CUs and the trades. NCUA Chairman Debbie Matz repeatedly stated the agency would be required by the Administrative Procedures Act to reissue the rule for comment only if the intent of the rule was significantly changed. As one CU executive said at NCUA's Chicago listening session, "It would be nice if the agency simply did the right thing because it's the right thing to do, and not because it's required to."
After a summer of arguments, NCUA Vice Chairman Rick Metsger said he "saw the value" of credit unions having additional opportunity to comment prior to the rule's implementation by extending the implementation timeline. Then, in September, new NCUA Board Member Mark McWatters said publicly he believed a second comment period was needed on the proposed RBC rule — and vowed he would not vote for any proposal that does not include a new chance for CUs to respond.
Not long after that, citing "significant amendments" to the original proposed rule, NCUA announced it would, indeed, allow credit unions to have a new comment period after the revisions are released on Jan. 15, 2015.
At the time Dennis Dollar, a former NCUA chairman, credit union CEO and state representative, hailed the regulator's move as a good one, for whatever reason, noting "any significant change should trigger" another comment period, noting there is precedent for doing so.
"If they are planning to significantly change the proposed RBC as they say they are going to do before making it final, I believe they were right to err on the side of complying with both the spirit and the letter of the Administrative Procedures Act, which requires the opportunity for stakeholders to express their views on regulatory proposals that will impact their day-to-day operations," Dollar told CU Journal in September.
After the tumultuous fight, was getting a second comment period a victory for credit unions?
Carrie Hunt, SVP of government affairs and general counsel for NAFCU, said from her group's perspective, a "victory" would be a rule "that represents true risk in the system and does not negatively affect credit unions."
"We need a rule that is much different from what NCUA proposed," she said. "In the sense the regulator is issuing a new rule for us to comment on, that is a positive, but ultimately the 'victory' will be a better rule."
Bill Hampel, who served as interim president and CEO of CUNA for most of the year, said, "It is a really good first step. I am not ready to call it a 'victory' yet."
"I think the agency, when it got ready to present this rule a year ago, did not understand how far-reaching the implications were for credit unions," Hampel assessed. "It took a great deal of convincing — 2,000 comment letters plus the constant drumbeat of reaction, including all that was said at the listening sessions — to get the agency to realize it needed to make changes."
The big question now: what will the final rule look like?
Hunt said NAFCU supports "comprehensive reform," including the ability to raise supplemental capital. She argued statutes need to give credit unions flexibility in the amount of capital they have to hold, "rather than NCUA layering on additional capital rules for complex' credit unions."
As for the specifics of what NAFCU is looking for, Hunt said the group "has been very vocal" in stating its No. 1 issue was the risk weights in the initial RBC rule.
"We do not need credit unions, which are more risk-averse than banks, having more stringent risk weights," she asserted. "Another is the ability of the examiner or the NCUA board to make changes to the capital level at an individual credit union. Even if a credit union is compliant with the rule, the examiner or NCUA can tell it to hold additional capital."
CUNA General Council Mary Dunn said it "certainly is a positive" that CUs will have another chance to comment on the revised rule.
"Any time there is a new regulatory proposal like this, unless it is withdrawn, I don't think you can call it a 'victory.' But the new process NCUA is undertaking is much more positive," Dunn said, adding that CUNA hopes the changes will reflect "major concerns that we and others have raised, and they have already indicated so."
One of the changes that credit unions were happy about was the decision to handle interest rate risk separately, but even that raises issues of its own, Dunn said, noting that there already is an interest-rate risk regulation adopted in 2012 that credit unions have to comply with now.
"We are concerned about the development of a new regulation at a time when credit unions are just so overwhelmed by regulations, including the seemingly endless stream of regulations from the CFPB," she said.
Vacations Cancelled
CUNA's Hampel said the trade group "will be poring over the details" when the new RBC rule comes out.
"We have cancelled all vacations around that time," he said. "The second half of January we will be very busy, because we have to let credit unions know what we think as soon as possible, as well as giving reactions to NCUA."
Hampel said the trade will be watching for all changes, but in particular NCUA has signaled it will change risk weightings. "Also, that it no longer will attempt to address interest-rate risk at the same time. The devil will be in the details — we will be focusing on how much more reasonable the risk weightings will be."
