NCUA Board to Seek Comment on RBC Delay Until 2022

A divided NCUA board agreed Thursday to seek public comment on a plan to further delay its controversial Risk-Based Capital Rule for another two years—until Jan. 1, 2022.

The board last year delayed the effective date of the rule from Jan. 1, 2019 to Jan. 1, 2020.

“This delay will allow the agency to take a surgical approach to implementing this rule in a coordinated manner rather than incrementally,” NCUA Chairman Rodney Hood said, as the board adopted the proposed rule on a 2-1 vote, with Democrat Todd Harper dissenting.

Harper said that the RBC rule should be adopted now. Harper worked for former NCUA Chairwoman Debbie Matz when the original RBC rule was adopted in 2015. It is that rule that would be delayed under the plan that the board approved.

“All financial institutions should…hold capital commensurate with the risk on their balance sheet,” Harper said, as he intensely questioned NCUA staff on the proposal.

Harper said risk-based capital would help avoid a crisis, adding that the current rules did not help minimize credit union losses during the Great Recession.

“We are forgetting the past repeatedly, just like the characters in ‘Groundhog Day,’” he added.

Hood said that the RBC rule eventually could be adopted with a proposed rule dealing with asset securitization. He said he intends to have a proposed rule on securitization by the end of the year and that the RBC rule should not go into effect earlier.

He said delaying the rule would not have a significant impact on the Share Insurance Fund.

“We enjoy a healthy and vibrant credit union system,” he said.

Board member J. Mark McWatters noted that when the RBC rule was adopted in 2015, he voted against the proposal because he believed that the NCUA board did not have such powers under federal law.

He said the RBC rule would not be a panacea. “I wish capital was the solution to everything, but it’s not,” he said.

And he urged agency staff to review the issue of whether the board actually has the power to issue the rule.

The new RBC plan will be open for public comment for 30 days after it is published in the Federal Register.

“This proposed delay would allow the NCUA Board additional time to holistically and comprehensively evaluate capital standards for federally insured credit unions,” the agency said, in its proposal.

If adopted, the delay would give credit unions and the NCUA more time to comply with the rule, the proposal said. During the delay, the current Prompt Corrective Action requirements would remain in effect.

The agency also said that the additional time would give the board to examine whether asset securitization and subordinated debt should be addressed.

In addition, last year’s regulatory overhaul bill included a new community bank leverage ratio analog should be integrated into the NCUA’s capital standards. In February, the other banking agencies issued a proposed rule that would provide community banks with the option to comply with a simplified measure of capital adequacy.

Hood said the NCUA should explore whether a similar rule should be adopted for credit unions.

But Harper said that the Government Accountability Office and the NCUA’s Inspector General have said that the RBC rule is needed.

Under questioning from Harper, Larry Fazio, the agency’s director of the Office of Examination and Insurance said the current capital rule is “not as good as it could be.” He added, however, it is sufficiently strong for the credit union system.

But Harper said that bank regulators implemented their RBC rule five years ago and that NCUA could be prepared to issue its rule immediately. He pointed out that Fazio had said a year ago that the agency could implement the RBC rule in six months.

“We’re ready, set, go, why hit pause?” he asked.