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Removing Barriers Blog

NCUA Finalizes Risk-Based Capital Rule
Posted October 15, 2015 by CUNA Advocacy

Today the NCUA Board voted 2 to 1 to finalize its second Risk-Based Capital (RBC2) proposal.  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. This extended implementation timeline is something that we pushed hard for and are glad to see.

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."

The NCUA identified the following as the most significant changes made in the final rule:

•Reducing the effective weight for equity investments in 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; and

• Allows a lower risk weight for certain charitable donation accounts.

The NCUA plans a separate proposal for supplemental capital and says it will be made final before the RBC2 implementation in 2019. We are glad to have the supplemental capital rule in place by the effective date of the RBC rule, in order to allow supplemental capital for purposes of RBC compliance. We also appreciate Chair Matz’s statement that NCUA is not currently planning a separate interest rate risk rule.

In our broad advocacy on RBC, we 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 delayed implementation until 2021.  While we are disappointed that NCUA kept the “capital adequacy” requirement, we will be pushing for examiner guidance and training to place some boundaries around "this wild card capital requirement."

While discussing the final rule, Chair Matz said that it is calibrated to affect only a “few dozen” credit union "outliers" that are not carrying sufficient capital to match risks on their balance sheets. In response to a congressional request that NCUA voluntarily conduct a study on the effects of the proposal, she said the agency would do so “shortly after” the board’s consideration of the rule. She also said at the meeting that report should be available in a few weeks. All documents will be posted on the RBC resource center on the NCUA's website, www.ncua.gov. 

Guidance on the new rule is expected by early 2018, and NCUA will not be examining for the final rule until 2019. 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.”