ALEXANDRIA, Va.–When the NCUA board votes at its meeting this morning on its risk-based capital proposal, many in credit unions are anticipating it will delay the effective implementation date. But will a delay cost credit unions money, both in costs to the NCUSIF and in potential rebates they might not receive?
The NCUA board meets at 10 a.m. ET; CUToday.info will have full coverage.
The effective date for the RBC rule has been pushed back numerous times. Originally proposed in 2014 and passed in 2015, a Jan. 1, 2019 compliance deadline is now Jan. 1, 2020, with the trade groups advocating for additional delay to Jan. 1, 2021. Discussion of the risk-based capital rule is the only item on the agenda, and sources told CUToday.info it’s most likely there at the behest of new NCUA Chairman Rodney Hood, who during his confirmation hearing indicated he was open to delaying the rule. But Hood was also previously on the NCUA board from 2005-09 as the Great Recession hit the country and five corporates were placed into conservatorship and capital levels became critical to the survival (or failure) of countless natural-person CUs.
At the urging of the trade groups, a number of bills have been introduced in several sessions of Congress, including the current Congress, that call for NCUA to “Stop and Study” the rule and to delay its implementation. None of those bills ever moved far in Congress.
What CBO Found
Following one such bill, HR 4464, the Common Sense Credit Union Relief Act of 2017, the Congressional Budget Office (CBO ) released a report in February of 2018 that found delay of NCUA’s risk-based capital requirements would increase net direct spending by NCUA of $50 million from 2018-2027.
“CBO’s baseline projection for the SIF’s gross cost is $1.2 billion over the 2018-2027 period. Using information from the NCUA, CBO estimates that enacting the bill would increase those gross SIF costs by about one-third (or about $400 million) over the 2018-2027 period,” the CBO report states. “CBO expects those costs would increase because failed credit unions would have less capital, and as a result, costs to the SIF to resolve them would increase. However, the NCUA has the authority to collect premiums and fees from insured institutions to offset its costs; those premiums and fees are recorded as offsets to direct spending. Because of the time it would take for the NCUA to set its assessments to recoup those costs, CBO expects that there would be a one-year delay in collecting premiums and fees from credit unions. As a result of that lag, CBO estimates that enacting the bill would lead to a net increase in direct spending of $50 million over the 2018-2027 period.”
According to NCUA, 90% of federally insured credit unions would be exempt from its risk-based capital rule, and covered credit unions would have an additional year to prepare, under a proposed supplemental rule (Part 702) approved by the NCUA during its meeting on Aug. 2, 2018. Under the rule, credit unions will be required to have a ratio of risk-weighted assets to capital of 10%.
‘Measure of Relief’
At the time the most recent proposal was passed by then Chairman (now board member) J. Mark McWatters and then Board Member Rick Metsger in 2018, McWatters said, “The proposed changes to the risk-based capital rule, reached through a collaborative and bi-partisan process, if finalized, would allow the agency to provide federally insured credit unions with a measure of regulatory relief without impairing the safety and soundness of the National Credit Union Share Insurance Fund.”
The other question sources told CUToday.info that is raised by any potential delay in the risk-based capital proposal is, would NCUA then need to adjust upward the normal operating level of the share insurance to accommodate increased future risk? Doing so could potentially eliminate any premium rebates or premium waivers for all federally-insured CUs, the vast majority of which are not affected by the RBC rule.