WASHINGTON–The American Bankers Association said it has “grave concerns” over NCUA’s proposal to delay implementation of its 2015 risk-based capital rules.
The ABA said a “robust risk-based capital regime is critical to the safety and soundness of the credit union industry and the public resources that support it.”
With the current economic cycle poised to shift at any time, ABA called on NCUA to implement the rule before the next downturn.
The NCUA board recently voted 2-1 to delay the risk-based capital rules until Jan. 1, 2022.
“Very simply, NCUA has not explained why another delay could be necessary, or why it believes credit unions are so ill prepared to do what other types of financial institutions have done for nearly a decade,” the ABA said in its nine-page comment letter. “It also has presented an administrative record which is currently deficient, failing to consider a number of basic points that it must address under the Administrative Procedure Act before this proposal can proceed to a final rule. This is the latest step by NCUA to make their regulations, already documented to be substandard, even worse. Because robust capital cushions are essential protections for Federal insurance funds and U.S. taxpayers, ABA urges NCUA to establish a robust RBC regime and put it into effect without additional delay.”
Bankers Offer ‘Roadmap’
The bankers’ group said in its letter that the principles of risk-based capital regimes have been refined over a period of years and that a “roadmap” is already available that offers “valuable insights into financial institution capital policy and offers a roadmap to a robust, risk-sensitive RBC regime.”
“As indicators suggest we may be near the peak of the current economic cycle, the two year delay NCUA is proposing is exceptionally significant over this two year period,” the letter states. “The challenge in establishing an appropriate capital level always is that no one knows when the next downturn may come; prudence suggests the appropriate measure is to hope for the best but plan for the worst. NCUA’s RBC rule should be put in place now before any possibility that the economy may weaken.
“The impact on the credit union industry of economic stress is more than hypothetical, as the financial crisis demonstrated,” the letter continues. “At that time, the Troubled Asset Relief Program (TARP) provided capital support to 67 U.S. credit unions. The U.S. Treasury also provided direct support to the Share Insurance Fund totaling over $21 billion, as well as substantial contingent financial resources.”
Dozens of Questions Posed
The ABA said in its letter that based on the text of the proposal, and NCUA’s prior statements regarding the need for a robust risk based capital system to be applied to credit unions, the
administrative record on the adequacy of the current capital rules that will remain in effect over the next two years is incomplete and procedurally deficient.”
The ABA asked NCUA to answer dozens of questions, including why the agency believes capital is important; what is NCUA’s position as to why Congress required Prompt Corrective Action and other capital requirements to be applied to credit unions; What is the agency’s position as to why Congress required NCUA to have comparability with Federal banking agencies regarding Prompt Corrective Action and other capital requirements, and more.
The full letter can be found here.