LAS VEGAS — NCUA Chairman Debbie Matz reiterated last week that the agency plans to make "significant changes" to its proposed risk-based capital rule, but some industry stakeholders were still skeptical of how the final rule will look, particularly if it isn't reissued for a second comment period.
"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 at NAFCU's annual conference.
As the result of an unprecedented number of comments filed, 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."
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.
However, credit union leaders at the conference were not reassured by Matz's speech.
Bradley Beal, president and CEO of One Nevada CU here in Las Vegas, said he had three reactions: First, credit unions will have to "wait and see" what types of fixes and/or changes NCUA makes to the proposed rule. Second, he echoed what many CU leaders have been asking for all along — a new proposed rule and an accompanying second comment period.
"Third, I want to know something I have not heard anyone from NCUA address, and that is how does all this trickle down to the member level? How does it affect auto loans? How does it affect mortgages? There are all kinds of potential impacts," Beal said.
One of the things Matz brought up was that the $7 billion cost of the proposed rule, as estimated by NAFCU and CUNA, was based on incorrect assumptions related to CUs feeling the need to have a buffer to prevent them from falling below the 7% net worth ratio. Matz has said the figure is much more likely to be closer to $700 million, not $7 billion. But NAFCU CEO Dan Berger told the audience the trade group "stands by" the $7 billion figure.
Still, there is some optimism that NCUA will be making some key, positive changes to the rule, most notably changes to the risk weights. Steve Van Beek, an attorney with Howard & Howard, Royal Oak, Mich., said he also heard Matz speak at the listening session in Chicago and noticed "some movement" compared to that session and her speech at NAFCU.
"NCUA is aware that credit unions are unhappy with risk weightings," he said. "The $7 billion figure will be argued, but it is clear credit unions will keep a buffer. The biggest concern is it feels as if NCUA did not do its homework up front. They did not talk to credit unions, and they did not talk to the trade groups."
But what hasn't changed is the likelihood that NCUA will reissue the revised rule for a second comment period, rather than simply moving to a final rule — something CUs still hope the regulator will consider.
"NAFCU continues to be concerned with how the rule will affect credit unions' ability to lend," said NAFCU SVP of Government Affairs Carrie Hunt. "There needs to be a second comment period, and we need a final rule that does not harm the industry."
Other Concerns
Risk-based capital wasn't the only thing on credit unions' minds. Van Beek said he was pleased to hear that NCUA is reviewing advertising requirements for online and social media. "Everyone is concerned about the risk-based capital rule, but this is important, also. Any type of guidance from NCUA that gives credit unions flexibility with posts and tweets really helps," he said. "The current restrictions are an everyday headache."
Van Beek also was encouraged by Matz's declaration that, at next week's NCUA board meeting, the regulator would eliminate the 5% fixed asset cap. "That is a step in the right direction and will help," he assessed.
Hunt also cited Matz' discussion of fixed asset relief as a "positive development," and something the trade group has been "pushing for for a long time."
Chairman Matz spoke at length about interest-rate risk and the regulator's concern that CUs are not taking it seriously. Hunt said NCUA needs to address interest-rate risk "with a scalpel, where there is cause," rather than "creating a regulation that restricts other credit unions that do not have an issue with interest-rate risk."
