By Ray Birch
WASHINGTON—Risk-based capital comments, while some say won’t have a huge impact on altering the current proposal, may likely affect how NCUA addresses interest rate risk.
Both CUNA and NAFCU believe new rules for IRR are unnecessary, given that NCUA put forward new rules in 2012. CUNA’s Bill Hampel believes that should any rules related to interest rate risk be forthcoming, they will have been influenced by all of the comment on the risk-based capital proposal, a development CUNA’s chief economist and chief policy officer believes will shape a better IRR rule.
It remains unclear how NCUA will deal with IRR. The agency included an IRR component in its initial risk-based capital proposal, but then removed it, saying a separate interest rate risk rule was coming later.
NCUA Updates Position
In March, however, NCUA updated its position and stated that IRR, which was the subject of new rulemaking in 2012, may be dealt with via the supervisory process.
Hampel believes a separate interest rate risk rule may be coming, and that CUs that commented on IRR during the RBC2 comment period may have helped bring forth a proposal that will be in a better place for credit unions had they not provided NCUA with their thoughts.
“Not in just the number of comments (on IRR), but well-thought-out comments,” said Hampel. “Those can have a significant effect on whether or not we even get an IRR rule, and if we do, what it looks like.”
Bill Hampel, CUNA
Hampel said the extended comment period for the revised risk-based capital proposal served another purpose.
“In essence, the second RBC proposal is an implicit (Advance Notice of Proposed Rulemaking) for the IRR rule, which is a good thing for NCUA to have done,” said Hampel, who noted CUNA addressed IRR in its comment letter. The trade association encouraged credit unions to do the same. “I give NCUA credit for this. I don’t give NCUA credit for RBC1 and not talking to credit unions before they formed that first proposal. That was not cool.”
But with the RBC2 comment period, Hampel said NCUA is giving CUs “another bite at the apple” before the end of the IRR process.
Separete IRR Rule Not Needed
Hampel emphasized that CUNA’s position is that a separate IRR rule is not needed.
“We happen to believe that interest rate risk is more than adequately covered in the agency’s rules and regulations,” added Hampel. “For instance, the IRR risk rule that came out in 2012—the ink is still wet on the pages.”
That is a position with which NAFCU also agrees.
“NAFCU and our members strongly believe that NCUA can account for IRR with its existing regulatory and supervision tools,” said NAFCU Senior Vice President and General Counsel Carrie Hunt. “We have urged the agency to address IRR through continued application of industry-accepted methods as part of a competent supervision and examination process, rather than promulgating a separate, ‘one-size-fits-all’ IRR regulatory standard.
Carrie Hunt, NAFCU
Hunt pointed out that the other banking regulators account for IRR through their annual examination process by ensuring that banks maintain sufficient capital for IRR.
“NCUA’s existing supervisory and examination mechanisms provide it the same authority to ensure that credit unions have enough capital to absorb the level of IRR on their balance sheets,” said Hunt. “If NCUA were to promulgate another rulemaking on IRR, the agency would hold credit unions to a significantly different standard than banks.”
RBC Evaluation After IRR
Other analysts agree that once NCUA discloses how it will address interest rate risk, and CUs evaluate the approach, the movement will then be able to make the final evaluation on risk-based capital.
“The total appreciation for RBC will be determined on what approach NCUA takes to interest rate risk,” said Peter Duffy, managing director at Sandler O'Neill, New York, who noted that NCUA has as one of its 2015 performance goals to develop an interest rate risk component for risk-based capital.