ALEXANDRIA, Va. (1/16/15)--Though the National Credit Union Administration board approved the agency's revised risk-based capital proposal to be issued for a 90-day comment period, the board members themselves have varied opinions about the plan.
Chair Debbie Matz said the proposal would protect the credit union system into the future, Vice Chair Rick Metsger wondered if the revisions made it too lenient, and board member J. Mark McWatters questioned if the agency even has the authority to enact such a rule.
"Simply put: Addressing the problem of capital inadequacy of high-risk outliers protects the entire credit union system," Matz said. "Let's not forget, while credit unions did not cause the financial crisis, they were deeply affected by it."
She added that the NCUA contacted 11 different law firms to choose one that could analyze whether the agency had the legal authority to put out such a rule. The firm they chose read the 2,056 comment letters, as well as statute, and concluded that the Federal Credit Union Act supports the rule.
See the below video for Matz's thoughts on the rule immediately after the board meeting.
Metsger said that he also believes the agency has produced a rule that balances safety and soundness with requirements placed on certain credit unions.
"The rule may not be perfect, and I would emphasize that it is, as many requested, a proposed rule ... in a rule this long it is likely we can continue to make improvements, but it is a good rule and holds up well," he said. "I invite people to comment on whether we have gone too far and provided too much leniency, too much flexibility and too long a transition period. It is possible the pendulum has swung too far and needs to swing back a little in the final rule."
See the video below for Metsger's thoughts on the proposal.
McWatters said he questioned whether the Federal Credit Union Act grants the NCUA the power to make a two-tiered risk-based net worth rule. He cited legal analysis by the Credit Union National Association and other organizations and legislators.
"Another well-known law firm retained by CUNA has questioned the legal authority of the board to proposed a two-tiered risk-based regulatory system," he said. This firm concluded "NCUA's approach is contrary to the express language of Section 216(d) of the Federal Credit Union Act. Were NCUA so ill-advised to adopt in its final rule the proposed dual-based capital standard approach ... that provision would be highly vulnerable to being overturned as unlawful by a reviewing court."
McWatters added that he does not offer this analysis without some reservation, and that he realizes reasonable minds may differ, but he believes the Federal Credit Union Act does not allow for the rule.
See the below video to hear McWatters express his thoughts on why he voted against the proposal.