NCUA will work as long as it takes to finalize practical regulations that govern asset risk at credit unions, Larry Fazio, NCUA director of the Office of Examination and Insurance, told a full house of credit union professionals Tuesday.
The large crowd had come to listen to a panel discussion about the state of NCUA's controversial risk-based capital (RBC) proposal during a special General Session.
Answering a question about when the agency might finalize an RBC plan, posed during a Q&A with attendees, Fazio said, "There's a lot of work left to still be done." He added that the agency will spend "as long as it takes to get it right, and I don't know (how long) that will be because we're still in the re-engineering process."
Credit unions have been clear about their concerns over NCUA's RBC proposal, which would rewrite Prompt Corrective Action rules and replace the current system of risk-based net worth requirements with risk-weighted asset and capital requirements
A key problem, as CUNA's leaders have noted, is that the rule as proposed would force credit unions to build an incrementally larger buffer into their bottom lines to remain well-capitalized, a harsh penalty considering how responsible credit unions have been in their lending practices.
CUNA Interim Chief Economist Mike Schenk illustrated how, from the outset of the recession, only 25 credit unions failed as a result of taking on too much risk, while 450 banks of a similar size went under during that same stretch.
"On one level we had a real difficult time with why exactly this thing (proposal) was needed in the first place," Schenk said. "(Not only is this) a solution looking for a problem, but in our view it's a bad solution looking for a problem."
After its initial release, CUNA tested the proposal by running existing credit unions through the system, an exercise that produced several important and disturbing results, Schenk said.
Most notably, the rule led to very significant increases in capital requirements for thousands of credit unions throughout the United States, a dedication of resources which likely would impair their abilities to serve members.
"We have a problem with that," Schenk said.
Fazio acknowledged that the credit union system weathered the economic downturn well, but said NCUA was tracking some credit unions who struggled with their assets, especially in those states hit hardest by the recession.
"I do think we have an opportunity to modernize our capital standards to bring them up to date, that's necessary," Fazio said, adding, "I think the trick, of course, is calculating it properly going forward--and certainly we want to get it right.
"A proposed rule is a place to start; it's not the end."
Reiterating comments made recently by NCUA Chairman Debbie Matz, Fazio said all aspects of the proposal are still on the table for reconsideration.
"That doesn't mean we're going to make all the changes, but we're certainly going to take a fresh look at everything and continue to do research," Fazio said.
The subject of dividends has come up in a number of questions to CUNA’s compliance staff recently, making this a good time to address questions with the NCUA’s Truth in Savings Regulation (12 CFR 707).
The CFPB is expected to release its proposal on debt collection in conjunction with a July 28 field hearing in Sacramento, Calif. CUNA has met with the bureau a number of times to address the forthcoming rulemaking.