NCUA approves risk-based capital rule

October 15, 2015

ALEXANDRIA, Va. (10/15/15, 12:35 p.m. ET)--The National Credit Union Administration (NCUA) voted 2 to 1 in favor of the agency’s risk-based capital proposal (RBC2), making it final more than 20 months after it was first proposed. Board member J. Mark McWatters expressed a number of concerns with the rule prior to voting against it.

As proposed, this final rule is effective on Jan. 1, 2019. CUNA and the leagues sought an extended implementation timeframe.

Upon the NCUA's final vote, CUNA President/CEO Jim Nussle said, "Make no mistake--CUNA firmly believes the NCUA’s risk-based capital rule is a solution in search of a problem. Since the initial proposal 20 months ago, CUNA and the leagues worked together to execute one of the most coordinated and successful advocacy campaigns in the past 15 years to ensure we significantly impacted the final rule to get the best possible results for credit unions.

"Without our advocacy efforts, there is absolutely no question that the final rule would have been much worse for credit unions."

Compared to the major changes that NCUA made between the first and second proposal, there were relatively few changes from the second proposal to the final rule.

The most significant were:

• Reducing the effective weight for equity investments in credit union service organizations (CUSOs), perpetual contributed capital at corporate credit unions, and certain other higher risk equity investments to 100% if the total equity exposure is less than 10% of the sum of the credit union's capital elements of the RBC ratio numerator. The NCUA estimates 95% of credit unions with such investments will receive a lower risk weight;

• Reducing the risk weight to zero percent for share-secured loans where the shares securing the loan are on deposit at the credit union; 

• Allowing a lower risk weight for certain charitable donation accounts; and

• Extending the grandfathering period for certain supervisory goodwill to 2029.

The NCUA plans a separate proposal for supplemental capital and says it will be made final before the RBC2 implementation in 2019. CUNA commends the agency's intention to have the supplemental capital rule in place by the effective date of the RBC rule to allow supplemental capital for purposes of RBC compliance. CUNA also appreciates that NCUA Chair Debbie Matz reiterated that the NCUA is not currently planning a separate interest rate risk rule.

CUNA sought removal of the capital adequacy provisions, reduction in a number of the risk weights, further explanation of the conditions under which goodwill could be included in the risk-based capital ratio and delaying implementation until 2021. CUNA expressed disappointment that the agency retained the “capital adequacy” requirement, and will be pushing for examiner guidance and training to place some boundaries around "this wild card capital requirement."

Matz, during discussion of the new rule, said that the final is calibrated to affect only a “few dozen” credit union "outliers" not carrying sufficient capital to match risks on their balance sheets. All documents will be posted on the RBC resource center on the NCUA's website,

Guidance will be put out on the rule in early 2018; the agency will not be examining for the final rule until 2019. 

Matz, in response to legislators that requested the NCUA voluntarily conduct a study on the effects of the proposal, said the agency would do so “shortly after” the board’s consideration of the rule. She said at the meeting that report should be available in a few weeks. 

Nussle remarked today, "This final rule remains deeply unpopular and CUNA is disappointed the NCUA didn’t release a study on its rulemaking approach, and its impact and costs of the rule, to lawmakers, stakeholders and credit unions before finalizing. We encourage the agency to disclose this information.”