ARLINGTON, Va.—NAFCU has told NCUA its revised risk-based capital proposal will stifle growth, innovation, and diversification within credit unions.
And as the trade association has continually stressed, it supports that NCUA withdraw the proposal in its entirety.
Aside from withdrawing the rule, in its comment letter NAFCU recommends major modifications before any rule is finalized.
NAFCU President and CEO Dan Berger, who signed the letter, emphasized that the trade association supports legislative reform to “bring about a truly appropriate risk-based system for credit unions
“As the agency is aware, the Regulatory Relief for Credit Unions Act of 2013 included NCUA-supported language that would have brought about such reform,” Berger wrote. “We call on the agency to work with Congress to enact such language before moving forward with an RBC regulatory regime.”
Berger made clear that NAFCU supports an RBC system for credit unions that would reflect lower capital requirements for lower-risk credit unions and higher capital requirements for higher-risk credit unions.
“However, we continue to believe that Congress needs to make statutory changes to the Federal Credit Union Act in order to achieve a fair system,” wrote Berger. “Such a system should move away from the static net-worth ratio to a system where NCUA joins the other banking regulators in having greater flexibility in establishing capital standards for institutions. We also believe that capital reform must include access to supplemental capital for all credit unions.”
Berger emphasized that NCUA’s rulemaking fails to achieve an appropriate risk-based system for credit unions, and that the agency’s estimates on the negative impact to credit unions is incorrect.
“Further, NCUA has failed to consider the true impact this rulemaking would have on the entire credit union industry. Although NCUA estimates that only 19 credit unions would be downgraded if the proposal were in place today, NAFCU and our members believe that this proposal will impose astronomical costs and burdens on all credit unions. NAFCU believes that NCUA cannot look at the impact of the proposal in a vacuum and merely consider how many credit unions would be downgraded or forced to hold more capital. Instead, we believe the true impact of the proposal can only be measured by examining how it will impact the long term growth and strategic planning of all credit unions.
Among many concerns NAFCU has with the proposed rule, the trade group highlighted the prominent issues:
- NCUA’s drastic understatement of credit unions negatively impacted by the rulemaking.
- NCUA’s legal authority to prescribe separate RBC thresholds for “well capitalized” and “adequately capitalized” credit unions.
- NCUA’s legal authority to require individual credit unions to hold capital above those required by statute or rulemaking.
- NCUA’s use of a $100-million asset threshold as a proxy for “complex,” rather than considering a credit union’s portfolios of assets and liabilities.
- NCUA’s proposed RBC ratio for “well capitalized” set at 10 percent.
- NCUA’s treatment of risk-weighted assets, such as investments in CUSOs, mortgage servicing assets, and corporate paid-in capital.
- Components not included in the numerator portion of the RBC ratio, such as goodwill.
- The need for NCUA to promulgate a rule allowing all credit unions access to secondary capital for risk-based purposes.
- The need for a legislative solution to achieve a fair and balanced RBC system.
- NCUA’s existing supervisory and examination mechanisms provide the agency the appropriate ability to control interest rate risk at individual credit unions.
CUNA earlier called on NCUA to also withdraw the RBC proposal, and made its own recommendations. Coverage can be found here.