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NCUA's Revised RBC Proposed Rule Incorporates Significant Changes
Friday, January 16, 2015 6:35 AM

The National Credit Union Administration Board convened its first open meeting of 2015 at the agency's headquarters yesterday. The Board approved four items, including a revised proposed risk-based capital (RBC) rule.

Under the revised RBC proposal, the risk-based capital requirements would apply to credit unions with assets over $100 million, or approximately 22 percent of federally insured credit unions.  According to NCUA, the revised proposal would require 27 outlying credit unions taking certain risks to hold additional capital commensurate with those risks, and 19 of these affected credit unions would be downgraded under the revised proposal. 

The Board approved the proposal by a 2 to 1 vote, with Chairman Debbie Matz and Vice Chair Rick Metsger voting in favor, while board member Mark McWatters opposed.

McWatters issued a statement of dissent, which stressed his belief that the NCUA board did not have the legal authority to establish a two-tiered, risk-based net worth (RBNW) system. He also said he could not support even a single-tier RBNW standard without including secondary capital in the calculation of the RBNW ratio as permitted by law. McWatters opposed defining "complex" credit unions solely by their asset size, and he expressed concerns for the cost of compliance on credit unions, especially small credit unions.

NCUA Board Chairman Debbie Matz said, "Both the Government Accountability Office and our Inspector General found that the existing NCUA rule on risk-based net worth failed to prevent credit union losses as a result of the recent financial crisis—losses that had to be paid by all surviving credit unions. Addressing the threat of high-risk outliers holding inadequate capital will better protect the entire system." 

Chairman Matz said the agency carefully reviewed all of the 2,056 comment letters it received and made the changes based on those comments before issuing the revised proposed rule.

Changes made in the revised proposed rule include:

  • Exempting credit unions with up to $100 million in total assets, up from $50 million in the original proposal.
  • Lowering the risk-based capital ratio level for a "well-capitalized" credit union to 10 percent from the previously proposed 10.5 percent in the original proposal.
  • Lowering risk weights for many asset classes, including investments, real estate loans, member business loans, corporate credit unions, and credit union service organizations.
  • Removing interest-rate risk from the risk weights.
  • Removing the individual minimum capital requirement.
  • Extending the effective date to Jan. 1, 2019 (from the 18-month implementation period originally proposed).

The agency estimates that using the newly proposed formula, the average complex credit union would have a risk-based capital ratio of more than 19 percent. 

"We commend NCUA for giving serious consideration to the concerns raised by the credit union industry in over 2,000 comment letters," said Suzanne Yashewski, Cornerstone Credit Union League’s SVP Regulatory Compliance Counsel. "Although most of the changes are positive, we still question whether this rule is needed at all, and we continue to be concerned about details including the cost of compliance. We encourage credit unions to be on deck with another round of comment letters once we have had time to analyze the proposal and share more detailed information with our member credit unions." 

Comments on the revised proposed rule, available online here, must be received within 90 days of publication in the Federal Register. The agency has also created a risk-based capital resource page with more detailed information, including a downloadable estimator tool for credit unions to determine the potential impact the proposed rule would have on them.