NCUA Board Chairman Debbie Matz announced Monday she will propose a revised risk-based capital rule, due to the significant structural changes currently being considered. The revised rule would trigger a new comment period.
“I have always said that another comment period would only be appropriate if we decide to make significant structural changes that would exceed the parameters of the Administrative Procedure Act,” Matz said in a statement. “Even though the changes we are developing would pose less of a regulatory burden than the original proposal, some changes would affect the rule's structure. Based on discussions with NCUA's General Counsel, I now believe it is prudent under the APA to ask for additional comments.”
Matz also said the revised proposal will include a longer implementation period as well as different risk weights for mortgages, investments, member business loans, CUSOs and corporate credit unions, as well as other changes.
NCUA Board Member Rick Metsger said the board is moving toward separating interest rate risk and credit risk in the proposal, which would warrant what is essentially a second comment period.
“As I have often said, I believe interest rate risk is important and must be addressed in the risk-based capital rule, but it should be addressed separately from credit risk. Weighting credit risk and interest rate risk with a single numerical value created conflicts that ultimately made it difficult to accurately weigh the risk of either,” Metsger said on Monday.
“I am pleased we appear to be moving in the direction of separating interest rate risk and credit risk and that structural change alone is sufficient for me to believe an additional comment period would be appropriate,” he added.
According to Matz, the NCUA Board might present the amended risk-based capital proposal before the end of the year. Metsger said the revised proposal has not been drafted yet.
“I believe that when people do review it, they will conclude that we have both listened to—and heard—the comments that were submitted during the initial comment period. Those who weighed in thoughtfully on the original proposal will see the agency has been responsive to fact-based analysis,” Metsger said.
Immediately following the announcement, the NCUA said Board Member Mark McWatters would not make a statement on the decision, but the new board member released a statement late Monday.
“I am pleased that the chairman has agreed to a new comment period for the proposed risk-based capital rules. As I stated last week, I will not consider the rules for adoption unless they are re-proposed with a robust comment period of not less than 60 to 90 days. I articulated this position out of respect for Congress and those members of the credit union community who have enthusiastically voiced their opposition to the proposed rules,” he said.
“That said, the previously proposed risk-based capital rules are deeply flawed and merit substantial revision. The devil is in the details, and I await the details before I can pass judgment on the next draft of the proposed rules,” he added.
Former NCUA Board Member Michael E. Fryzel, now an attorney in Chicago, applauded the revised rule.
“The decision by Chairman Matz to call for a second comment period on the proposed risk-based capital rule was proper and correct. I applaud her for making that decision and announcing it now so everyone's focus can be directed to the rule itself and getting it right for the regulator and the regulated,” he wrote in an emailed statement.
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