CHICAGO (7/11/14)--The room was packed and the concerns were earnest at the National Credit Union Administration's Listening Session in Chicago Thursday. As expected, the primary topic of the day was the NCUA's proposed risk-based capital rule. NCUA board member Michael Fryzel helped open the meeting by reminding the more than 160 people in attendance that the current RBC rule is just a proposal, and that when it comes to changes, "everything is on the table."
"We want a rule that provides safety and soundness without unduly limiting credit union operations," he said.
NCUA Chair Debbie Matz said both the Office of the Inspector General and the Government Accountability Office have pushed the NCUA to get an RBC system in place. "We are going forward with risk-based capital, but we will address the issues that have been identified," she said.
After initial remarks by the regulators, credit union attendees--sitting at round tables--were asked to identify by group what their primary concerns are.
Several credit union representatives requested a re-issue and new comment period for the proposal, since a number of significant changes are likely. In response, Matz said that if after the NCUA reviews the proposed rule, if the rule's intent changes significantly it will require a new comment period. She also said the 18-month implementation period for the new rule will likely be changed. A longer implementation period is one of CUNA's requests if the NCUA goes forward with a final rule.
Another credit union remarked that there would be a greater benefit if examiners were better trained than imposing an "unnecessary" new RBC rule. The NCUA responded by saying that a lot of resources go to examiner training, but the effectiveness is limited because of high rates of turnover. The agency also invited credit unions' ideas on how to improve examiner training.
Several credit unions raised issues with the risk weights, particularly those that would be applied to member business loans, mortgages, and longer term investments. One expressed concern that his credit union's members might be misled into believing his credit union was more risky than a bank with the same balance sheet because the bank's risk-based capital ratio would be higher under Basel rules than under NCUA's proposal.
It was also a credit union concern that the RBC rule was trying to create a "no-risk-allowed system," which would devalue the credit union charter option.
A credit union with a significant business lending activity pointed out that applying higher risk weights to greater concentrations of MBLs ignored the wide diversity that can exist in a business loan portfolio. NCUA Director of Examination and Insurance Larry Fazio said there was no way to make the RBC rule as precise as some credit unions have requested. He added that there will be more risk weight analytics available for credit union review in the final version of the rule.
Fazio also told the credit union crowd that the more robust the RBC system is, the more comfortable will examiners be with net worth ratios not substantially above 7%.
NCUA Chair Debbie Matz stated during the back-and-forth discussion that the agency has no intention to eliminate the separate 10.5% risk-based capital requirement for a credit union to be well capitalized. The Credit Union National Association and other critics of the current RBC proposal have argued that the Federal Credit Union Act prohibits the NCUA from setting a higher capital requirement for well-capitalized credit unions than for those that are deemed adequately capitalized.
Other topics addressed at the session included fines for late Call Report filers and interest rate risk. Matz said the number of late filers is going down, but the NCUA has been too lenient in the past. She added that if there is a valid excuse for late filing, the credit union in question will not be penalized.
Matz also addressed the issue of interest rate risk. She said the NCUA went through the first quarter call reports to identify credit unions with more than $1 billion in assets, and while some had adequate interest rate risk, "there is still some work to do."
She followed that up by saying that the NCUA is focused primarily on credit unions that are large enough to pose risks that are too high.
Recordings of the session will be posted on the CUNA website when available. The NCUA's third and final Listening Session of the year will be July 17 in Alexandria, Va.