Mathematical and chemical equations must balance if they're going to achieve their desired outcomes, and the same holds true for the NCUA's revised risk-based capital rule, which seems designed to stabilize balance sheets at the expense of member benefits, according to Dennis Dollar, a principal partner with Dollar Associates LLC in Birmingham, Ala. and former NCUA chairman.
"The concept of risk-based capital is, within itself, solid regulatory thinking as lower-risk balance sheets should require less capital retention than higher-risk balance sheets, but the details are difficult to achieve with balance," Dollar said. "The NCUA has definitely made improvements in each version of RBC, and they are obviously listening to their stakeholders as they should."
The question many of the 2,167 letter-writers have asked about RBC2, and to which the NCUA has yet to thoughtfully respond, is when the attendance to risk outweighs the opportunity to serve members. The amount of increased capital that RBC2 requires to be pledged to the regulator will for some institutions reduce the funds that can be used to provide products and services, and essentially hamstring the credit union's ability to invest in meaningful growth, Dollar said.
But deeper issues also shade Dollar's concern, as well as the concern of many credit union and trade association executives. Central among those issues is whether the NCUA has the authority to establish a two-tiered regulatory system that oversees credit unions above and below the $100 million asset threshold differently. Agency board member J. Mark McWatters himself questioned the legality of whether the NCUA can make that decision without Congressional approval, and the question itself concerns Dollar.
"There are well credentialed and brilliant attorneys on both sides of this question, so as a layman, I would not try to substitute my opinion for theirs," Dollar said.
What also concerns Dollar are the political machinations at the Congressional level, which could cause lawmakers to look deeper into the NCUA's actions.
On April 23, members of the House Financial Institutions and Consumer Credit Subcommittee took the agency to task for a lack of transparency in its budgeting process, grilling NCUA Director of the Office of Examination and Insurance Larry Fazio about the elimination of the agency's open budget meeting. Concerns over RBC2 could further heat up Congressional inquiries, Dollar said.
"It is possible that the greatest threat to RBC may come from the political opposition through Congress than necessarily from a legal challenge," Dollar said. "Although, the two are intertwined in that Congress could give the potential lawsuits a boost if they hold hearings over whether NCUA has the legal authority to create a two-tier capital system."
Such possibilities lend added urgency to the notion that the NCUA needs to make sure that RBC2, or whatever its final iteration may be, is done right the first time, Dollar added.
"If RBC is going to be a legacy issue for the NCUA that stands the test of time from both a political and legal perspective, they must be willing to continue to adjust it in order to get all of the mechanisms in line with both the safety and soundness aspect of the rule as well as the need for credit unions to grow, invest and remain competitive through strategic use of their capital," Dollar explained.
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