NCUA Board Member J. Mark McWatters said he would vote against a final risk-based capital rule that includes a two-tier net worth standard.
McWatters, who voted against the revised proposed risk-based capital rule, told CU Times the legal opinion rendered by the NCUA was weak.
"If the proposal goes to final and there's a two-tier structure in there, as there is today, than I will not support the rule. I will not support a rule that based upon 30 years of legal experience, including experience reading a lot of statutes and regulations while serving on the legal opinion committees of large national law firms and signing a lot of legal opinions myself, violates the Federal Credit Union Act," McWatters said in an exclusive interview.
"It's absolutely clear that the NCUA as recently as 2007 was emphatic that the NCUA Board could not adopt a two-tier risk-based net worth standard. The NCUA and its general counsel agreed with me, but then there was a change of mind. No one has fully articulated to me why there was change of mind," he added.
McWatters pointed out that CUNA retained the services of the Venable law firm, which rendered a strong opinion similar to his own analysis.
"It's also true that the NCUA retained the services of Paul Hastings and paid the law firm $150,000 to render, in my view as a former member of legal opinion committees of large law firms, a very weak opinion," he said.
McWatters urged the NCUA to include a way for credit unions to raise supplemental capital in the final risk-based capital rule. He concluded that adding supplemental capital to the final rule is within the agency's legal authority.
"Supplemental capital is prohibited from enhancing the leverage ratio other than for low-income credit unions but for risk-based capital purposes – from my reading of the statute and most people's reading of the statute – there's no limitation," he said. "The NCUA board can adopt supplemental capital for risk-based capital purposes and it seems to me that it's imperative. It would be a great benefit to the credit union community to work that into the rule as soon as possible."
Overall, McWatters said he could not support the final rule if it includes a two-tier net worth system, regardless of other possible changes.
"I cannot unless someone convinces me that I made a mistake in my legal analysis," he said. "I have not received anything from anyone that has even addressed the issue, much less swayed me that my analysis, the analysis of the Venable law firm and the pre-2008 analysis of the NCUA general counsel's office is incorrect."
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