WASHINGTON (1/27/15)--Well over 600 credit unions tuned into the Credit Union National Association's webinar on the National Credit Union Administration's revised risk-based capital proposal (RBC2) Tuesday, as CUNA President/CEO Jim Nussle highlighted the advocacy strength of the organization's three-tiered system.
|CUNA officials and NCUA's Larry Fazio prepare to discuss the agency's revised risk-based capital proposal duirng a CUNA webinar Monday. From left: CUNA's Chief Policy Officer Bill Hampel, Chief Operating Officer Rich Meade, President/CEO Jim Nussle, Fazio and CUNA Deputy General Counsel Mary Dunn. (CUNA Photo)
That system, comprised of CUNA, the state credit union leagues and credit unions, helped spark positive changes in the NCUA's initial risk-based capital proposal, and are present in RBC2, Nussle said.
"Our work has paid off by greatly reducing the impact and reach of NCUA's risk-based capital proposal," Nussle said. "Over the last 10 days, we here at CUNA have had a chance to look very carefully at the RBC2 rule, and while we still believe it may be a solution in search of a problem, there's been some substantial improvements over where we were a year ago, and we're pleased about that."
The proposal is expected to be published in the
today, which marks the start of the 90-day comment period.
NCUA Director of Examination and Insurance Larry Fazio gave a presentation during the webinar and broke down some of the reasoning behind the agency's changes to the proposal.
Fazio said the risk weights were better calibrated in the RBC2 proposal to recognize that credit unions perform better in a financial crisis. The weights were also fine-tuned to better identify only outlier credit unions when it comes to risk.
Based on CUNA's analysis of the proposal using September 2014 data, 14 credit unions would be downgraded in their risk-based capital standard in the RBC2 proposal, a "significant improvement," Nussle noted, over the 163 that would have been downgraded under the first plan. The original proposal would have have increased by $6.4 billion the amount of capital credit unions would need to hold in order to remain well-capitalized. With RBC2, that amount would fall to $632 million.
"CUNA continues to question the need for a new risk-based capital proposal," said Mary Dunn, CUNA's deputy general counsel, during the webinar, but added, "Having said that, we are very pleased about the number of changes included in the revised proposal."
A few of the many notable changes include:
- Removal of interest-rate risk, the entire allowance for loan and lease losses being included in the risk-based capital ratio numerator;
- Concentration tiers for first liens, junior liens and commercial loans reduced from three to one;
- Separate risk weights for share secured, secured and unsecured consumer loans; and
- No separate risk weight for credit union service organization loans or investments.
Although the NCUA did not add a provision on supplemental capital to RBC2 as advocated by CUNA, the agency board has asked stakeholders to comment on whether supplemental capital should be permitted in the context of this rule.
CUNA's Chief Advocacy Officer Ryan Donovan has stated CUNA's strong support for the ability of credit unions to use supplemental capital, both for this proposal and for the purposes of meeting prompt corrective action requirements. "This will be one of the issues we raise in our comment letter," he noted after the webinar.
CUNA flagged its ongoing concerns regarding the RBC2 plan. They include: whether or not the two-tiered risk-based capital system is permitted under the Federal Credit Union Act; the question of whether the NCUA should consider more factors than asset size when determining a credit union to be "complex;" and the need for complex credit unions to continually assess their overall capital adequacy on an ongoing basis.
Credit union stakeholders are encouraged to submit questions about the proposal to CUNA, and the organization will be posting an updated frequently-asked-questions document with answers as they become available.
For those who missed the webinar, or had trouble calling in, a recording will be available later this afternoon. Follow the Twitter-based @NewsNowLiveWire to get an alert as soon as the webinar is available.