By Ray Birch
ALEXANDRIA, Va.—Credit unions say more time is needed to study NCUA’s risk-based capital rule and its potential impacts—including possibly limiting the ability to serve the underserved—and in the process the agency should consider raising the asset ceiling for what’s considered a complex CU.
Credit unions are also saying they need the additional time to simply prepare for RBC and to build reserves.
Those are some of the comments credit unions have sent to NCUA regarding the delay of the effective date of its risk-based capital rule.
During its June meeting this year, by a 2-1 vote the NCUA board again delayed the effective date for its risk-based capital rule, pushing back to Jan. 1, 2022 rules that were to go into effect on Jan. 1, 2020. The rule was originally proposed in 2014 and finalized in 2015.
While the board during its June meeting encouraged credit unions to provide their feedback, only seven sent comments to the agency during the comment period, which is now closed. A total of 29 letters were sent to NCUA.
Few Credit Unions Affected
But like the limited number of comment letters, the rule also affects a limited number of CUs. As NCUA staff told the board during its June meeting, based on Call Report data from the end of 2018, if the NCUA’s risk-based capital rule were to go into effect in June, 545 complex credit unions would be subject to its requirements, but it added more than 99% of all complex credit unions would be considered well-capitalized.
Seven Seventeen Credit Union in Warren, Ohio, said in its comment to the agency that since the 2015 RBC Rule was finalized, “We have remained concerned with the regulatory framework and questioned the utility and value of a RBC scheme for financial cooperatives…”
The $1-billion CU is also urging NCUA to reexamine the threshold of a complex credit union.
“In its 2018 Supplemental Rule, NCUA increased the asset threshold of what is considered a complex credit union from $100 million in assets to $500 million in assets. However, we suggest a much higher level (perhaps at the $10-billion level, which has been rationalized as a differentiating threshold in other financial institution regulatory settings).”
Writing from Houston, the $519-million PrimeWay FCU expressed concerns RBC will limit its ability to provide services to all members.
‘Undue Burden’
“I am in full support of the proposed rule to delay the implementation of the RBC rules. In my opinion there needs to be more time to effectively evaluate the effects this will have on CUs which have a vastly different capital structure and access to funds as opposed to banks. Our fear is this undue burden will result in less access to loans and services in our communities,” wrote VP/COO T.W. Jolly.
The $378-million Pearl Hawaii FCU, which serves the entire island of Oahu in Hawaii, wrote the delay will “allow the credit union more time to not only prepare for any changes in reporting and analysis but will also likely/potentially allow the credit union more time to structure our assets in a way that would be beneficial to the credit union.”
Potential for ‘Parity’
In Pleasanton, Calif., $7.1-billion Patelco CU stated the delay will lead to additional benefits for credit unions, not additional risk.
“Considering the significant need for risk management planning and balance sheet planning associated with changes to Prompt Corrective Action and rules around minimum capital levels, Patelco supports delays to the application of risk-based capital rules. We also support the further study included in the proposed rule. In particular, we believe that analogizing to the Community Bank Leverage Ratio rules under EGRRPCA could create parity with community banks existing in the same marketplaces and asset classes as credit unions.”
Opportunity to Boost Reserves
The $2.8-billion GECU in El Paso, Texas, said it is using the extra time to boost reserves.
“This delay will allow covered credit unions, like GECU, further opportunity to comply with the requirements of the RBC rules, adjust current methodologies, and meet the increased capital reserve requirements.”
The $1.3-billion Credit Union of Texas in Dallas wrote that the additional time will allow NCUA to include in RBC “two important aspects of capital (asset securitization and subordinated debt) that are currently not addressed (in the RBC rule).”
‘Holistic Evaluation’
In Virginia Beach, Va., $2.1-billion Chartway FCU concurs with Credit Union of Texas, and adds, “Such a delay will allow the opportunity for a holistic and comprehensive evaluation of capital standards. In doing so, we believe it is important for a re-confirmation of the applicability of key provisions of the rule to ensure the intent is achieved in a manner to best serve members, grow the industry and ensure safety and soundness.”
Sensible and Balanced?
The extra time is needed due to the rule’s “complexities,” states the $1.8-billion CAP COM FCU in Albany, N.Y.
“It is imperative that the NCUA board fully explore the impact on credit unions and determine if all of the requirements are sensible and balanced. Additionally, and at the same time, credit unions are in the process of implementing FASB’s Current Expected Credit Loss Standard (CECL) and lease accounting requirements. Preparing for these complicated requirements simultaneously is certainly a drain on credit union financial and staffing resources.”
29 Letters Received
A total of 29 comments were received, according to NCUA’s website. Comments from both CUNA and NAFCU—along with feedback from a number of state leagues supporting the decision, were sent. A number of bank trade groups responded, attacking NCUA’s decision to delay, including a lengthy letter from the American Bankers Association that states in part, “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.”
‘Forgetting the Past’
NCUA Board Member Todd Harper, a Democrat who cast the dissenting vote during the June meeting, asked at that time why a rule that affects so very few credit unions continues to be delayed.
‘In terms of this RBC effort we are forgetting the past repeatedly, like the characters in Groundhog Day,” said Harper during the June meeting. “After a decade of work, it is time for us to move ahead.”