CU Trades Say RBC Delay Makes Sense

An additional delay in the NCUA’s Risk Based Capital rule makes sense, and the agency should use the time to decide whether the rule is even necessary, credit union trade groups told the agency this week.

“We support the proposed delay and believe it will benefit both the NCUA and credit unions, allowing them additional time to prepare for the rule’s implementation,” Luke Martone, CUNA’s senior director of advocacy and counsel said. “CUNA maintains, however, that the RBC rule, as applied, is functionally unnecessary.”

“The vast majority of credit unions…already maintain capital levels above what is necessary to be considered well-capitalized,” Carrie Hunt, NAFCU’s executive vice president of government affairs and general counsel said.

When it was adopted in 2015, the NCUA board viewed its Risk-Based Capital Rule as a much-needed step to avoid drains on the Share Insurance Fund caused by “outlier” credit unions making bad decisions.

The two-member NCUA board last year delayed the effective date of the rule from 2019 to 2020.

This year, with a three-member board approved an additional two-year delay—to 2022.

As proposed last year, the rule requires a “complex” credit union that becomes undercapitalized to take prompt corrective action to restore its net worth.

Originally, a complex credit union was defined as one with $100 million in assets. When the NCUA board delayed the rule for an additional year, that threshold was increased to $500 million.

Comments on the additional two-year delay were due Friday.

T.W. Jolly, executive vice president of Primeway Federal Credit Union in Houston, Texas strongly endorsed the delay.

“There needs to be more time to effectively evaluate the effects this will have on [credit unions] which have a vastly different capital structure and access to funds as opposed to banks,” he wrote. “Our fear is this undue burden will result in less access to loans and service in our communities.”

Banking regulators are evaluating community bank capital requirements and the NCUA should do the same, William Mellin, president/CEO of the New York Credit Union League, said.

The RBC rule would pose a significant burden on credit unions, Martone said.

“RBC places significant unnecessary burdens on credit unions and needlessly coerces credit union asset allocations—all at a significant cost to credit union members,” he told the agency.

He said the delay would allow credit unions more time to work on implementation of the Current Expected Credit Loss standard.

And the trade groups said the delay would allow the agency to work on rules governing supplemental capital and subordinated debt.

Hunt also said that the definition of “complex” credit union is flawed.

“The size of an institution does not determine its complexity,” she said, adding that a complex credit union should be defined as one that is engaged in high-risk business.