NCUA Board to Consider One-Year Delay of RBC Rule
The proposal, which will be voted on Aug. 2, would retain the agency’s definition of “prompt corrective action” during the one-year delay.
The delay comes, as House Republicans attempt to enact a two-year delay of the rule.
Under the NCUA plan, the rule would go into effect on Jan. 1, 2020, rather than Jan. 1, 2019.
The NCUA declined to provide details of the RBC proposal when it released its meeting agenda Wednesday, but details of the proposal are described in a letter from NCUA Chairman J. Mark McWatters to Reps. Bill Posey (R-Fla.) and Denny Heck (D-Wa.), who have long sought a delay in the rule.
The proposal to be voted on Aug. 2 would retain the agency’s definition of “prompt corrective action” during the one-year delay. And the definition of “complex” credit union would be increased from the $100 million specified in the rule to $500 million.
The rule, as adopted in 2015, requires “complex” credit unions that become undercapitalized to take prompt corrective action to restore their net worth.
In recent weeks, House opponents of the RBC rule have succeeded in passing the bills that would delay the rule for two years. The House passed legislation updating the Committee on Foreign Investment in the United States and included a two-year delay in the RBC rule. However, the investment legislation was folded into the annual defense authorization bill and the RBC provision was dropped.
The House version of the annual Financial Services appropriations measure calls for the two-year delay, but the Senate version does not.
And the bipartisan capital formation legislation that passed the House also includes the two-year delay. It is uncertain whether the Senate will consider that legislation.
The NCUA’s proposed one-year delay could change the dynamic surrounding the rule. When it was approved in 2015, Democrats controlled the board. Democratic members Debbie Matz and Rick Metsger voted for the rule, while the lone Republican, J. Mark McWatters voted against it.
McWatters now serves as board chairman.
Metsger has argued that a strong RBC rule is needed.
However, President Trump has nominated Republican Rodney Hood to replace Metsger on the board, so Republicans presumably will control the board as the rule is scheduled to come into effect.
The RBC rule has been controversial since it was first adopted, and the agency attempted to explain the rationale behind the rule in a report to Congress.
In the report, the NCUA said the minimum risk-based capital requirement for credit unions would be more reflective of risk.
The agency said that the Government Accountability Office and the NCUA’s inspector general had found that the risk-based net worth rule failed to prevent credit union losses coming from the financial crisis.
“The final risk-based capital rule achieves a reasonable balance between requiring credit unions posing an elevated risk of failure to hold more capital while not over burdening lower-risk credit unions,” the agency said, in the report. The rule was intended to “reduce the likelihood that a relatively small number of high-risk outliers exhausting their capital and causing systemic losses—which, by law, all federally insured credit unions would be required to pay through the Share Insurance Fund,” according to the report.