CUNA's RBC blog will focus on the potential issues, what leaders throughout the credit union system are saying about them, and will provide a forum for CUNA members to discuss RBC issues with each other and with CUNA staff.
Posted May 14, 2014 by CUNA Regulatory Advocacy

NCUA Board Member Michael Fryzel has responded to CUNA’s request to extend the RBC comment deadline beyond May 28.  Mr. Fryzel explicitly stated that he supported extending the comment deadline and would have voted to provide more comment time if the issue was put up for vote at an NCUA board meeting.  That is not at all likely and the comment deadline remains May 28, but it was good to hear his support. 

The key point in his letter, though, was that he stated he “is confident that significant changes” will be made to the final RBC rule. That is certainly what we are working hard every day to achieve.

Board Member Fryzel added, "I am a firm believer in taking the time to get a rule right. During the corporate crisis, quick decisions were necessary.  We did not have the luxury of time. Fortunately, we are not in a crisis mode and should take this opportunity to proceed with all appropriate care and precision. The NCUA Board can afford to take the time to get it right."

We totally agree!! We urge the rest of the NCUA Board, as well as incoming NCUA Board Member-designate Mark McWatters to adopt this go slow and get it right approach.  

This leads to a question that we have received from several members asking how long it will it take for NCUA to issue a final rule.  Theoretically, NCUA could issue a final rule at the June open board meeting, which is the first board meeting after the comment deadline, although that is not likely either and would raise serious questions about whether the agency followed legal procedures in evaluating comments sufficiently. 

A review of all of NCUA’s final rules since 2013 indicates that the time between proposed and final rule issued by NCUA varies widely between 3 months and over two years.  We think the time interval after comment closing is probably a better way to figure the minimum time to issue a final rule because rule drafting is technically not supposed to start until the comment period actually closes.  Looking at the agency’s derivatives and stress testing final rules, NCUA took 4 months and 5 months, respectively, to issue final rules after the comment period closed.  It took the banking regulators a number of years to develop a proposal and almost one a year from the time the proposal was issued until their final Basel III rules were adopted. Even more time was provided for banks to come into compliance.    

Because of the complexity of the proposal and the number of comments that NCUA is receiving –  we think that the agency should take considerable time to craft a final rule that “gets it right” and addresses all material issues raised by commenters.

Posted May 09, 2014 by CUNA Regulatory Advocacy
CUNA’s efforts to achieve a better risk based capital rule got a huge boost this week from current and former members of Congress.  

Former Senator Alfonse D’Amato (R-N.Y.), who chaired the Senate Banking Committee during the HR 1151 battle and led the development of the prompt corrective action sections of the Federal Credit Union Act, wrote to NCUA Wednesday outlining how the agency would exceed its legal authority if it adopted  the RBC proposal.  

As you know, under the proposed rule, an adequately capitalized credit union would need to maintain a net worth ratio of 6% (as required by statute) and a RBC ratio of 8% of equity to risk assets, while a well-capitalized credit union would need 7% (as required by statute) and a higher RBC ratio of 10.5%.  In other words, the RBC ratio for well-capitalized credit unions exceeds that for adequately capitalized credit unions.  This violates the Federal Credit Union Act.  The Act directs NCUA to set any risk-based component for the well-capitalized threshold no higher than the component for the adequately capitalized level.  
Senator D’Amato  makes a strong case that Congress never wanted NCUA to set up a two-tier risk-based standard–one for adequately capitalized and one for well-capitalized credit unions.   D'Amato noted that while credit union PCA was modeled after the bank regime, there are “some very important differences,” most notably that the basic net worth standards for a credit union to be adequately or well capitalized are higher than those set for banks.  “Because of this higher pure net worth requirement for credit unions,” D’Amato emphasized that Congress quite deliberately “called for a different risk-based component in credit union PCA.  Rather than the dual risk-based capital system in place for banks ... [Congress] instructed the NCUA to construct only a risk-based net worth floor, to take account of situations where the 6% requirement to be adequately capitalized was not sufficient.” 

D’Amato concluded: “If we had intended there should also be a separate risk-based requirement to be well capitalized (in addition to the 7% net worth ratio), we would have said so.”

We think D’Amato’s letter will be extremely helpful in persuading NCUA they are wrong in their legal analysis as to their statutory authority to implement this rule as written.  

As a reminder, the comment deadline is May 28.  We urge you to visit our RBC Action Center, which contains a number of resources about the proposed rule and makes it very easy to send a letter to NCUA.  We are also encouraging copies be sent to members of Congress.  We would also be glad to work with your staff to assist in the development of meaningful letters.  Please do not hesitate to get us involved if you feel that would be useful.

Posted May 02, 2014 by CUNA Regulatory Advocacy
NCUA’s comment deadline to submit RBC comments to the agency is rapidly approaching.  We have formally asked twice for an extension of the comment  period – which we think is a reasonable request given the magnitude of the proposal -- but have been denied twice.  The deadline for comments to the agency remains May 28.  

Why no extension for one of NCUA’s most important most complex and important rules in a generation?  NCUA says they’ve already been generous: the comment period is 90 days, instead of the usual 60.  

But the agency could provide more time for comments.  NCUA has taken over a year to draft the RBC proposed rule.  Credit unions are asked to fully digest a 198-page proposed rule, consider how it affects their operations, highlight problem areas as they apply to their balance sheets and suggest viable alternatives in a just a few weeks, all while running their credit unions.   

For a proposal this significant, this complicated, and when no one argues time is of the essence, we think a few more weeks is not unreasonable, just as banks got when the federal banking regulators considered Basel.

We at CUNA are tasked with commenting on all aspects of the proposal but your credit does not have to; your letter can be simple.  Whether you use our letter writing tool or submit directly to NCUA at regcomments@ncua.gov, there is no comment more powerful than one that reflects your own concerns.  You can take a single issue, explain why it harms or helps credit unions, and give NCUA an alternative (including doing nothing).  Your credit union can also submit more than one comment letter if you think of something else before the May 28 deadline.   Please don’t forget to send a copy to your Members of Congress, CUNA, and your league.

The proposal is too important to ignore, and the clock is ticking.  Credit unions: it’s time to start writing.

Posted April 25, 2014 by CUNA Regulatory Advocacy
Last week while discussing RBC calculators we mentioned that your capital conclusions will be worthless if an NCUA examiner decides that your credit union needs additional capital.  NCUA calls this proposed requirement individual minimum capital requirements (IMCR).  NCUA’s RBC proposal states that “NCUA may establish increased individual minimum capital requirements upon its determination that the credit union’s capital is or may become inadequate in view of the credit union’s circumstances.”

NCUA’s proposal also states IMCR is required because the “appropriate minimum capital levels for an individual credit union cannot be determined solely through the application of a rigid mathematical formula or wholly objective criteria.  The decision is necessarily based, in part, on subjective judgment grounded in agency expertise.”  Does that mean that  NCUA does not trust itself to quantify your credit union’s risk using math, so staff reserve the right to require even more capital to cover what they may have missed in the examination process?  

NCUA allows a credit union to appeal IMCR to the Agency’s board.  However, the mechanics of this process are far from clear in the proposal.   In any event, if supervisory appeals are any indication, an appeal is a steep road to climb for a credit union.  According to NCUA’s Inspector General, 100% of supervisory appeals to the Supervisory Review Committee are denied, and NCUA doesn’t report on how often they side with a credit union in an appeal.  

Math is math.  Credit unions deserve the certainty of knowing that if they meet the requirements set out in the rule NCUA will agreethey have enough capital.  NCUA should eliminate IMCR from this proposal in final form.
Posted April 23, 2014 by CUNA Regulatory Advocacy
Most readers now know that NCUA’s RBC proposed rule applies to “complex” credit unions, which NCUA defines as any federally insured credit union with more than $50 million in assets.  Why did NCUA choose to define “complex” based on asset size?  From our perspective, this is overly simplistic.  It is business decisions, operations, activities and portfolios that make a credit union’s operations complex, not simply its assets.  The definition of “complex” should rely on factors that are actually related to risk.   

According to NCUA stats, as of January 2013, 94 percent of total federally insured assets are held with credit unions of $50 million or more in assets.  In other words, most credit unions will be considered “complex” and thus covered by the new proposal.  

Such a simplistic approach should mean it will be easier for the agency and credit unions to determine if they are in or out of the rule. But that is not necessarily the case as credit unions with assets of say, $40 million, will need to start thinking about how the rule would impact their operations once they cross over the “complex” credit union threshold. 

Moreover, a definition that is too easy distorts the purpose of having risk based capital.  Under the Federal Credit Union Act, NCUA’s risk based capital system must be based on credit unions’  “portfolios of assets and liabilities” and should provide additional protection when the credit union’s net worth at the adequately capitalized level is not sufficient for the risks presented.   As the Act provides, risk based capital is only needed when the  complexity of a credit union’s operations present risks that justify more capital over and above the adequately capitalized level.  

Bottom line, NCUA’s definition of complex as indicated by the Act is far too simple – and should be more complex!  

Posted April 16, 2014 by CUNA Regulatory Advocacy
Which risk-based calculator is your credit union using to model the impact of the RBC rule?  As we have discussed previously, NCUA has made available to the public a risk-based capital calculator, but did you know that CUNA also has a risk-based capital simulator available to members, too?  Which one should your credit union use?  Both!  

We suggest that you start by using NCUA’s calculator to see how the agency thinks your credit union will fare under the RBC regime imposed by the proposal.  Stop immediately and write a comment letter if NCUA’s calculator indicates that your credit union needs more capital.  The next step is to use CUNA’s calculator.  If CUNA’s calculator indicates that your credit union needs addition capital under the RBC proposal, then again, stop immediately and write a comment letter.   

If your credit union’s capital is okay under both calculators, you should still consider the future.  CUNA’s risk-based capital simulator allows for a credit union to model changes in its balance sheet and provides for the use of what-if scenarios, including how things like mortgage and member business lending may change over time.  

Also keep in mind that NCUA’s rule allows an examiner to impose extra capital on a credit union whenever he or she thinks extra capital is necessary.   This can be done even if a credit union is well capitalized and meets all RBC requirements.  No calculator can model examiner whimsy.  
Posted April 11, 2014 by CUNA Regulatory Advocacy

Editor's Note: The below post was written by Lou Gill, Secretary and Director of Chartway Federal Credit Union:

I have just completed my first letter to the NCUA.   In the past I have always let our CEO take the lead on comment letters addressing proposed regulations.  But, this Prompt Corrective Action Risk-Based Capital (RBC) proposed regulation is different.

NCUA is trying to change the way credit unions do business at a cost to our members, and needs to hear from the members they serve.   As a volunteer elected credit union official representing over 180,000 members, I have a responsibility to comment on this RBC proposed regulation because, if approved as written, it will change the future credit unions--and not for the good.

I agree, as most do, the credit union industry needs a smart and thoughtful Risk Based Capital oversight.  However, this proposed regulation is simply not it.   After reviewing NCUA’s calculator I started looking at the 198 page proposed regulation and listening to my CEO, CUNA and others in the credit union movement.  What I discovered was extremely troubling.  This proposed regulation will impede my credit union’s ability to be competitive in the marketplace in providing sound and safe member financial services.  Member/consumer lending, mortgage lending and the use of our collaborative CUSO will all be impacted.  Our credit union may be forced to reduce dividends on member shares and CDs.  Traditional ALM/ALCO strategies will be replaced with the new proposed regulatory balance sheet requirements, adversely affecting all of our products. 

Please work with your CEO and use CUNA’s website to provide NCUA your concerns and suggestions before May 28, 2014.  Your letters should be copied to your Congressional Representatives.  We need to let them know we are concerned NCUA’s proposed regulation will lead to higher cost and lower income on investments for our members, and place the future of all credit unions in question.  I am optimistic that NCUA will thoroughly review all the comment letters and embrace the suggested changes.  But, the time to act is now.

Posted April 07, 2014 by CUNA Regulatory Advocacy

CUNA wants to leave no stone unturned in our pursuit of a vastly improved risk based capital proposal.  That is why last week CUNA Deputy General Counsel Mary Dunn filed a comment letter with the Office of Management and Budget (OMB) detailing concerns regarding NCUA’s estimates of the burdens the proposal would create.    CUNA will be filing its detailed comments to NCUA on all aspects of the proposal in the coming weeks.

Accurate paperwork burden estimates are required under the Paperwork Reduction Act in order for agencies like NCUA to issue a new rule or amendment that will result in data collection such as the RBC proposal.   The public is invited to comment on those estimates, which CUNA has done.  A key element of CUNA’s letter to  OMB  was NCUA’s definition of a “complex” credit union.   CUNA seriously questioned the definition which is set at over $50 million in assets, regardless of the credit union’s portfolio. NCUA estimates that such credit unions will be subject to greater annual burden to meet the requirements of the rule but a definition with more precision in defining a complex credit union would spare a number of credit unions from additional reporting and paperwork burdens, to say nothing of additional capital requirements.    

We also questioned whether NCUA has properly evaluated the paperwork burden of the proposal given the inadequacy of the analysis it shared with the public.  One critical factor that the agency did not include in its analysis is that the proposal would require credit unions to review their policies and possibly make significant changes, such as selling assets or restricting growth, in order to minimize the impact of the proposal.   Even for credit unions with $50 million or less in assets, the proposal will mean that they have to plan for compliance well before they reach the rule’s coverage threshold.

As the letter indicated, estimates of the burdens credit unions will face as a result of the RBC rule need complete.   This includes the heavy burden of additional capital requirements as well as other related compliance issues that will be created by the rule. 

Posted April 03, 2014 by CUNA Regulatory Advocacy

Thursday, a NCUA media release reminded credit unions and other stakeholders that they have until May 28 to submit comment letters to the agency on its risk based capital (RBC) proposal.  We commend the agency for reminding credit unions, leagues, and others of this important deadline. We are also glad the agency is taking the calculator down after May 28.  The calculator, which indicates a credit union’s net worth and RBC ratios as well as prompt corrective action classification under the proposal, should not be accessible to the public, as it is now.  However, despite our concerns that some credit unions will be inadequately capitalized under the proposal, the calculator was not blocked and any member of the  public can go onto NCUA’s website and use the calculator to determine any federally insured credit union’s capital adequacy.

Another concern is that the agency’s press release indicated that there will be an  “extended” time period for credit unions to come into compliance with the final rule once it is adopted by the NCUA Board.

The release says that “NCUA plans an extended phase-in period for the final risk-based capital rule to allow credit unions enough time to adjust their risk profiles or capital levels, or both, to ensure compliance with the new regulation.”  This is really not news and NCUA’s supplementary information accompanying the proposal states that “proposed amendments would go into effect approximately 18 months after the publication of a final rule in the Federal Register.”  In other words, NCUA believe 18 months is an extended time period for compliance to be achieved.

But, we don’t think 18 months is nearly enough time for credit unions to prepare for the rule and we don’t think you do, either.  

In fact, you will want to consider this:  the Federal banking agencies have given their institutions up to 9 years to comply  fully with Basel III, the bank version of RBC.  If the NCUA RBC is supposed to be comparable to Basel III, how can 18 months be sufficient time for credit unions?

Separate from the needs of credit unions, we think NCUA will also have to have more than 18-months to comply with the RBC rule. It is fair to note that NCUA gave itself until December 31, 2015 to implement its own CUSO rule and reporting system.  The CUSO rule was approved by the NCUA Board on November 21, 2013, which means that NCUA gave its staff 25 months to get the agency’s computer system operational while credit unions would only have 18 months to comply with provisions of a rule that will severely impact the operations of credit unions all across the country.

So many concerns, so little time!

Posted April 03, 2014 by CUNA Regulatory Advocacy

With 56 days left to comment credit unions and credit union members have been busy telling NCUA what they think of the RBC proposed rule.  Based on the initial comments that NCUA has posted to their website, it looks like there will be little support for the RBC rule as proposed.  Many credit unions have told the story of the rule from their perspective, focusing on how the rule will limit lending or growth of the credit union movement.  Some organizations like NACUSOhave focused on risk weightings, such as for CUSO investments.  Although the reasons may vary, the message is the same: NCUA needs to withdraw or substantially modify this proposal. 

The best way to ensure that NCUA knows what you think about this rule is to write a comment letter.  Fortunately CUNA has made this very easy.  CUNA has created an automated toolto help our members comment to NCUA.  We hope that to see many more comment letters that detail all of the issues credit unions have with the RBC proposed rule. 

CUNA also encourages members to provide us with information so that we can draft a comment letter that captures the important issues.  You can email us at RBCblog@cuna.coop or leave comments on our blog with information for our comment letter.   

Posted April 02, 2014 by CUNA Regulatory Advocacy

NCUA’s proposed Risk-Based Capital rule would be the most detrimental, wide-reaching regulatory change affecting credit unions in years.  If adopted,  credit unions with assets greater than $50 million would need to increase the amount of capital held in order to be well capitalized, and could face burdensome risk weightings that would serve as a disincentive for member business and mortgage loans, and long-term investments.  CUNA’s calculations project that up to $7.3 billion in additional capital would need to be held.  These changes are being proposed after the existing capital rules allowed credit unions to survive the greatest economic disaster since the great depression.  We think this proposal is a regulation in search of a problem, plain and simple.

CUNA’s RBC blog will focus on the potential issues, what leaders throughout the credit union system are saying about them, and will provide a forum for CUNA members to discuss the issues with each other and with CUNA staff.  This will be a place for you to learn about the rule and how it might change the way your credit union will operate in the future.  We will take specific parts of the rule and discuss them in detail, using language that makes sense to credit unions, not just lawyers.  We will also summarize what people are saying about the proposed rule.  We’ll include views from leagues, other trade associations, individual credit unions, and the press.  We hope to make this a place that collects news and developments for you.  It will be updated regularly, so check back often.

We hope you will find the blog useful.  If you ever have any comments, please feel free to contact us at rbcblog@cuna.coop.