WASHINGTON—The significant changes to the second risk-based capital proposal over the first resulted from NCUA listening—and not listening—to credit unions, analysts say.
The changes, such as major adjustments to risk weights and raising the threshold for rule exemption to CUs with $100 million in assets and less, may not have been needed in round two had the agency partnered with credit unions and the trades before issuing the initial rule, asserted Carrie Hunt, NAFCU SVP/general counsel.
“I think a number of factors contributed to the second proposal being so different from the first,” said Hunt. “Not the least of which was that NCUA, I believe, did not anticipate the level of controversy the first proposal would generate.”
More Time Needed With CUs
Hunt suggested that if NCUA spent more time talking with CUs and the trade associations prior to developing the first proposal, many of the adjustments that appeared in round two would have been in place round one.
“NAFCU asked NCUA to establish a working group as soon as the agency announced they were even thinking about risk-based capital. And they chose not to do that,” said Hunt. “I think had they gone to credit unions first and had some more deliberation, things would have ended up much different at the start.”
CUNA SVP of Legislative Affairs Ryan Donovan concurs, but added that he believes NCUA did listen carefully to the more than 2,000 “thoughtful” comments from stakeholders within credit unions, Congress and elsewhere.
“That is how the system is supposed to work. As a result of those comments NCUA made changes to the proposal and addressed many of the concerns that were raised by those comment letters,” said Donovan. “Did NCUA go as far as we’d like on the second proposal? No. We still have some issues and will continue to listen to our members.”
Distinctly Different
Peter Duffy, Sandler O'Neill
Whatever the reasons, Peter Duffy, managing director at Sandler O'Neill, New York, sees the two proposals as “distinctly different.”
“At Sandler O’Neil we discussed in countless meetings with credit unions over the past year, including modeling sessions, that the initial rule, as proposed, bore no resemblance to the final bank rule,” said Duffy. “In fact, the rule worked against its stated purpose to help credit unions build and hold higher levels of quality Tier 1 capital. Our observation was that the proposal would deteriorate immediately, or eventually, the competitiveness of every credit union as they pursue business against banks.”
Duffy termed the latest proposal a “vast improvement.”
“It’s substantially similar to the final bank capital rule, and where it is different, it is kinder to credit unions than banks—except for the absence of supplemental capital and in balance sheets with mortgage concentration greater than 35% of assets.”
NCUA Board Member Mark McWatters, suggested that NCUA’s due diligence in round one could have been better.
“The board should design the risk-based capital rules in a way where they address the actual risk presented to the credit union community—the actual risk, not a pretend risk, not an FDIC want-to-be type of risk. But risk to the credit union community,” said McWatters, who also shared his disapproval of the second proposal in the lone, dissenting vote among the board.