Input on pending regulatory issues is at the heart of the credit union movement’s powerful grassroots advocacy. And for the second time, CUNA seeks credit union input on the NCUA Board’s revised riskbased capital proposal, now referred to as “RBC2.”
Credit unions, leagues, and CUNA generated 2,056 comment letters about the agency’s first RBC proposal last spring. Legislative supporters in the House and Senate also shared our concerns. The agency pulled the proposal last fall, pledging to issue a revision, which it did in mid-January. Credit unions should submit comments to NCUA and CUNA by April 27, 2015.
RBC2 addresses many of the flaws the credit union system flagged. For example, RBC2 would now apply to “complex credit unions” defined as federally insured credit unions with assets of more than $100 million. The original proposal applied to credit unions with more than $50 million. Fewer credit unions—1,455, down from 2,237—would need to comply if this approach is approved.
The new proposal requires covered credit unions to maintain net worth and calculate RBC based on this formula:
Capital components minus capital deductions divided by risk-weighted assets (all as determined by NCUA).
RBC2 includes at least 25 improvements from NCUA’s first approach, and fewer covered credit unions would be negatively affected than under the initial proposal.
A key change is that a well-capitalized complex credit union would maintain a 10% RBC level (down from 10.5% in the first proposal) and a 7% net worth ratio (which isn’t changed from the current requirements).
RBC also would:
• Improve the risk weights in most areas. (Credit unions still must assess if the changes are enough, and NCUA is seeking particular comments on these changes). The proposal also reduces risk weights for higher concentrations of mortgages and business loans. It doesn’t reduce the risk weight for mortgage servicing.
• Eliminate the confusing provision regarding individual minimum capital but add a requirement for covered credit unions to have a capital adequacy plan under which NCUA could impose additional capital beyond what the rule requires.
• Include the entire ALLL (allowance for loan and lease losses) account in RBC.
• Treat one- to four-family nonowner-occupied first or junior liens as residential rather than member business loans, and thus subject to a lower risk weight.
• Lengthen the time period to 90 days before NCUA considers a loan past due.
• Permit a credit union that holds the first mortgage and junior lien on the same property to treat the borrowings as a single loan subject to first lien risk weights.
• Delay compliance until Jan. 1, 2019.