ALEXANDRIA, Va. (10/27/14)--A second comment period for the National Credit Union Administration's risk-based capital rule will offer new insights into the proposal's framework and implementation, said NCUA Chair Debbie Matz. Matz, responding to an Oct. 15 letter from Rep. Tom Marino (R-Pa.), outlined several areas that will be changed when the revised proposal is issued.
"The revised proposed rule will include changes requested by stakeholders during the initial comment period, such as a longer implementation period and revised risk weights for mortgages, investments, member business loans, credit union service organizations and corporate credit unions, among other changes," she wrote.
Matz also added that stakeholders will be invited to provide thoughts on alternative approaches for addressing interest rate risk, a concern that Marino highlighted in his letter.
"Ultimately, a clear and well-established risk-based capital rule is vital to the future success of the credit union system," Matz wrote. "The insights obtained during a new comment period will allow NCUA to further improve the proposed framework before implementation. These modifications will better ensure the rule's final effectiveness and workability."
Board member Rick Metsger said interest-rate risk must be addressed in the proposal but separately from credit risk.
"Weighting credit risk and interest-rate risk with a single numerical value created conflicts that ultimately made it difficult to accurately weigh the risk of either," he said. "I am pleased we appear to be moving in the direction of separating interest-rate risk and credit risk, and that structural change alone is sufficient for me to believe an additional comment period would be appropriate."
The Credit Union National Association has taken a different approach to interest-rate risk, instead suggesting that it should not be part of the proposal, but along with concentration risk, it should be addressed in the regulatory, examination and supervision process.
"Risk-based capital models are specifically suited to address credit risk, not other financial risk exposures," reads CUNA's comment letter on the proposal. "By focusing exclusively on concentrations of longer-term assets, the proposal fails to account for how the maturity structure of liabilities can mitigate interest-rate risk ... it ignores the existence of NCUA rules that already address interest-rate risk, and it provides no data to support the proposed risk-weightings and concentration escalators presumably used to measure interest-rate risk."