NCUA Board Proposes Delay in RBC Rule, Increase in Threshold

The NCUA board on Thursday proposed delaying the effective date of its Risk-Based Capital rule for an additional year and proposed increasing the threshold for compliance.

Under the plan, the threshold for compliance would increase from the $100 million in assets in the original rule to $500 million. The proposal will be open for comment for 30 days after it is published in the Federal Register.

If adopted, the rule would go into effect on Jan. 1, 2020, rather than the Jan 1, 2019 date contained in the original rule.

The rule would exempt 90% of credit unions, Larry Fazio, the agency’s director of the Office of Examination and Insurance, told the board. He added, however, that the approximately 10% of the credit unions that would be covered, hold 90% of the system’s assets.

The two members of the NCUA board, Chairman J. Mark McWatters and Rick Metsger, voted for the proposal. That is notable since Metsger supported the rule when it was first adopted in 2015, while McWatters vehemently opposed it.

Metsger expressed dismay that credit unions have pushed for a delay in the rule and indicated that the delay should not result in abandonment of the rule. He said that banks did not have an extended period of time before having to comply with a similar rule.

McWatters acknowledged that he had opposed the rule in its original form and had argued that the agency did not have the authority to adopt a two-tier RBC system.

“That was then, this is now,” McWatters said in explaining why he is now willing to accept an RBC rule. He said that during the past 27 months—the time in which he and Metsger have been the only board members—the board has operated well.

“I don’t take proposals to him that he is not going to find unacceptable,” McWatters said.  He said he and Metsger have a mutual respect that has allowed the board to operate smoothly.

At the time that the RBC proposal was adopted, McWatters and then-board Chairman Debbie Matz clashed over board policies.

McWatters said he and Metsger will write a letter to members of Congress outlining the proposal.

Some members of the House Financial Services Committee have been pushing for a two-year delay.

Credit union trade groups said they are still dismayed by the RBC proposal.

“Credit unions have expressed their well-founded concerns regarding NCUA’s risk-based capital rule, and CUNA will continue our work to ensure these concerns are heard.” Said CUNA President/CEO Jim Nussle.

NAFCU has done extensive work in analyzing the appropriate capital levels for credit unions and will make recommendations to the board reflecting that research, association President/CEO B. Dan Berger said.

NASCUS President/CEO Lucy Ito also said she was pleased with the delay, but still had concerns about the proposal.

“NASCUS commends NCUA for delaying the rule on risk-based capital for one year, and for raising the rule’s applicability threshold, but also urges the agency to work with state regulators during that year to develop a supplemental capital framework for insured credit unions,” she said.

In other action, agency CFO Rendell Jones told the board that he estimates that the agency’s operating budget for 2018 will be about $8.5 million below the $298.1 million the board had approved.

Jones said that staffing levels are lower than projected, in part because of the agency’s reorganization. He added, however, that the agency is hiring additional staff now.

McWatters said he will be pushing for hiring additional employees in areas where he believes the agency is understaffed. He said the agency needs more people who are experts in two fields—cybersecurity and fintech.

The agency board then approved the reprogramming of $675,000 to pay for a new cybersecurity system and relocations of staff to new offices.

The board also agreed to maintain its interest rate ceiling for loans made by federal credit unions at 18%. Agency officials have said that money market rates have increased over a six-month period and that lowering the rate ceiling would threaten the safety and soundness of individual credit unions.

The board was required to approve the 18% ceiling, or it would revert to 15%.

McWatters said he wants the agency to explore the possibility of using variable interest rates.

The board also approved a final rule ensuring that its suspension and debarment process is in line with federal acquisition regulations. The agency is not required to follow that process, but the new rule will ensure due process for contractors, according to the NCUA.

The board also agreed to publish a proposed rule covering loans and lines of credit to members. The proposed rule would centralize all of the various maturity limits into one regulatory package. The proposal also seeks comment on whether the agency should provide longer maturity limit for 1-4 family real estate loans.