CUNA supports RBC approach with ‘maximum flexibility’

May 10, 2021

CUNA supports one of NCUA’s potential approaches to simplifying risk-based capital (RBC) requirements, but also reiterated its long-held belief that the 2015 RBC rule is “functionally unnecessary” in comments filed with the agency Monday.

NCUA issued an advance notice of proposed rulemaking at its January board meeting.

It contains two approaches to simplify RBC requirements:

  • The first would replace the 2015 RBC Rule with a “risk-based leverage ratio” (RBLR) requirement, which uses relevant risk attribute thresholds to determine which complex credit unions would be required to hold additional capital (buffers).
  • The second would retain the 2015 RBC Rule but provide eligible complex credit unions with the option to instead comply with a “complex credit union leverage ratio” (CCULR) framework to meet all regulatory capital requirements.

CUNA supports the second approach, involving the CCULR.

“While the requirements of the 2015 RBC Rule are complex and compliance may be onerous for some, it is helpful that credit unions know exactly how they will be impacted under the upcoming Rule. Further, though the effective date of the 2015 RBC Rule has been delayed until 2022, credit unions have made numerous changes over the years to prepare for the new requirements,” the letter reads. “With that said, we believe providing complex credit unions with an alternative choice is the preferred approach.

“The CCULR would further the FCU Act’s PCA requirements by requiring that complex credit unions continue to hold capital commensurate with their risks, while minimizing the burden associated with complying with the requirements of the 2015 RBC Rule,” it adds. “We believe the CCULR could benefit complex credit unions that would otherwise be required to comply with the 2015 RBC Rule. We support an approach that provides maximum flexibility for impacted credit unions.”

CUNA does not support the RBLR approach. While it could reduce Call Report requirements and utilize a familiar measurement, it would likely result in higher capital requirements.

“We find the implicit tradeoff under the RBLR approach between a reduction in the complexity and burden of the capital requirements in exchange for holding potentially higher amounts of mandatory capital above the 7% net worth ratio is unwarranted,” the letter reads. “For example, the loans held by an agricultural-focused credit union could easily be considered riskier and thus require additional capital under the RBLR approach. We disagree with such a potential result, given the intent of the rule (to simplify) would come at a real cost (of having to hold additional capital).

CUNA adds that the time constraints an entirely new regulation would place on credit unions would not be feasible, particularly if the agency maintains a January 1, 2022, effective date as suggested in the ANPR.