WASHINGTON (7/21/14)--Meeting a July 18 deadline set by Rep. Patrick McHenry (R-N.C.), the National Credit Union Administration Friday sent the chair of the House Financial Services subcommittee on oversight and investigations the clarifications he requested on the agency's risk-based capital (RBC) proposal.
In his request for more detail and an explanation of the agency's reasoning when drafting the RBC plan, McHenry wrote that as "a matter of fairness and transparency," the public deserves the opportunity to understand the logic behind this "far-reaching" proposal.
The NCUA's proposal would require credit unions to hold capital at 8% of risk-based assets in order to be considered adequately capitalized and 10.5% to be considered well-capitalized. This is in addition to the 6% and 7% leverage ratio requirements to be adequately and well-capitalized. The NCUA would also reserve the right to require credit unions on a case-by-case basis to hold additional capital. The proposal would apply to federally insured "natural person" credit unions with more than $50 million in assets.
The agency response, signed by Chair Debbie Matz, includes a Summary Table of Changes in Risk Weights that flows over six pages. It names almost 40 asset categories and states the current risk weights inferred under the NCUA's net worth rules, those of the Federal Deposit Insurance Corp.'s rule for banks, and the risk weights under the NCUA's proposal. At the end of each asset line is the agency's rationale for risk weighting under the proposal.
The NCUA chair's letter--six pages even without the risk-weight charts--said the rationale behind the RBC plan overall is to require that credit unions with a higher appetite risk hold enough capital to match that risk. That requirement, Matz wrote, is intended to protect the National Credit Union Share Insurance Fund and the whole credit union system from losses.
Other areas covered in Matz's letter include the agency's view of the cost to credit unions in terms of maintaining a capital buffer, a cost-benefit analysis of the proposal, and an explanation of the extent to which NCUA examiners would be empowered to assess and make capital recommendations to credit unions that might deviate from the new RBC standards.
The NCUA, through a series of three Listening Sessions and other public statements, has made it clear its RBC proposal will be revised before a final rule is approved. One point of change--highlighted as a concern by McHenry in his letter and by many others--is that an implementation period will be longer than the currently proposed 18 months.
The Credit Union National Association, also a proponent of that change, has thanked the NCUA for its willingness to address problems within the current proposal. However, CUNA has also expressed concerns that the changes the agency is contemplating be significant enough to bring the kind of improvements credit unions need in a final regulation.