ALEXANDRIA, Va. (7/18/14)--Even after three discussion sessions--each running three hours or longer--credit unions were
CUNA Deputy General Counsel Mary Dunn urges the NCUA during its final Listening Session to reduce the proposed risk-based capital requirement for well-capitalized credit unions, which CUNA says is out of proportion with the level of risk that credit unions present. (CUNA Photo)
not "talked out" about their concerns regarding the National Credit Union Administration's risk-based capital proposal Thursday. And that energy and engagement, says Credit Union National Association Deputy General Counsel Mary Dunn, is what is needed going forward to ensure revisions the NCUA is contemplating will be significant enough to bring the kind of improvements credit unions need in a final regulation.
At the agency's final Listening Session of the year, held here from 1-4 p.m. (ET) Thursday, credit unions of all sizes continued to underscore that the RBC plan as written is seriously flawed and unworkable. NCUA Chair Debbie Matz continued to assure that there will be numerous changes to the proposal before a rule is made final.
She also stated, "The bottom line is, our goal is not to have a consensus. Our goal isn't to have everybody here think it's the best rule they've ever seen. Our goal is safety and soundness."
The NCUA has pledged to add time to the proposed 18-month implementation period and to adjust risk weights, especially in the areas of mortgages, member business loans, investments, credit union service organizations, and corporates credit unions.
Board member Rick Metsger said the proposed rule will not replace examinations or proper supervision; it is a tool the agency will use to try to more accurately assess an institution's capital situation.
"The fact is, under our current requirements, there are two credit unions that are undercapitalized. I don't think there's anybody here that believes out of all the credit unions in the country, that only two are struggling with capital," Metsger said at thre Listening Session. "Obviously the current rule isn't giving us a very good picture of what the capital requirement should be."
CUNA Deputy General Counsel Mary Dunn urged the agency during the session to co reduce the proposed RBC requirement for well-capitalized credit unions, which CUNA says is out of proportion with the level of risk that credit unions present. She commended positive comments from the chairman and others that the agency is considering changes to risk weights, revisiting its treatment of goodwill in a merger, reviewing the treatment of the 1% National Credit Union Share Insurance Fund deposit in the RBC calculation, how interest rate risk is addressed in the proposal and revising provisions regarding minimum additional capital.
NCUA's Larry Fazio says examiners will not make the call on what level of capital is required under a risk-based capital rule. Credit unions at the final 2014 Listening Session Thursday highlighted concerns that there is a "disconnect" between NCUA guidance and examiners' execution of rules. NCUA Chair Debbie Matz is seated to Fazio's left. (CUNA Photo)
For instance, to a credit union's expressed concern regarding how auditors will view the 1% NCUSIF deposit in RBC calculations, NCUA Director of Examinations and Insurance Larry Fazio responded that the agency staff continues to study options to deal with the deposit.
Also during yesterday's session, credit unions expressed many concerns about examiner subjectivity and poor communications with them. During her comments to NCUA at the meeting, Dunn urged the agency to work with the credit union system to address the disconnect between positive positions taken by the NCUA board and what is implemented by examiners.
One credit union official sought an assurance by the agency that examiners will not ask for more capital than required in a new RBC rule, stating he believes examiners currently ask for more capital than necessary. NCUA's Fazio responded that individual examiners will not "make that call."
Another credit union officer--who heads a $3 million-asset financial cooperative--urged the NCUA to act to reduce regulatory burden and said the examiner "disconnect" just exacerbates the problem: Examiners don't always understand what regulations apply to small credit unions and which ones don't--increasing unnecessary regulatory burden.
Other topics that arose during the Listening Session: goodwill calculations under an RBC rule, the need for credit union access to supplemental capital, and perceived problems with a variety of the risk weights proposed by the NCUA's plan.
The NCUA's RBC plan, as proposed in January, would replace existing risk-based net worth requirements with new risk-weighted asset and capital requirements. The rule would apply to federally insured "natural person" credit unions with more than $50 million in assets.
Under the proposed rule, an adequately capitalized credit union would need to maintain a net worth ratio of 6% and an RBC ratio of 8% of equity to risk assets, while a well-capitalized credit union would need 7% and a higher RBC ratio of 10.5%, meaning the RBC ratio for well-capitalized credit unions exceeds that for adequately capitalized credit unions. This violates the Federal Credit Union Act, the Credit Union National Association says.
The agency received a record 2,052 comments by the May 28 comment deadline, and letters of concern from Capitol Hill continue to be sent to the agency.