Compliance Blog

Written by Angela Meyster, Senior Regulatory Affairs Counsel

A sigh of relief was heard throughout the credit union industry last Monday when NCUA announced that it will propose a revised Risk-Based Capital Rule for a new comment period.  NCUA Board Chairman Matz stated that this second comment period was appropriate as a result of the “significant structural changes being considered” and that she was always considering another comment period in the event that the intended changes to the proposal exceeded the parameters of the Administrative Procedures Act.

Details of what the second proposal will entail are scarce, but NCUA has indicated that the amended proposal will include, among other changes, (1) a longer implementation period and (2) revised risk weights for: mortgages, investments, member business loans, credit union service organizations, and corporate credit unions,.  Additionally, NCUA will seek comment on an “alternative approach for addressing interest rate risk using the supervisory process.”

Only time will tell how significant these proposed structural changes really are, but it does not look like credit unions will have to wait too long—Chairman Matz has noted that she anticipates that the NCUA Board could reissue a revised proposal by the end of 2014!

Now, Chairman Matz is not the only NCUA Board member that has been vocal on this rule. NCUA Board Vice Chairman Rick Metsger praised Chairman Matz’s willingness to consider structural changes in the risk-based capital proposed rule.  Beyond the additional time to comment, Vice Chairman Metsger is in favor of a proposal that would separate interest rate risk and credit risk. He stated:

“As I have often said, I believe interest rate risk is important and must be addressed in the risk-based capital rule, but it should be addressed separately from credit risk. Weighting credit risk and interest rate risk with a single numerical value created conflicts that ultimately made it difficult to accurately weigh the risk of either.

I am pleased we appear to be moving in the direction of separating interest rate risk and credit risk and that structural change alone is sufficient for me to believe an additional comment period would be appropriate.

While an amended proposed rule has not been drafted, I believe that when people do review it, they will conclude that we have both listened to—and heard—the comments that were submitted during the initial comment period. Those who weighed in thoughtfully on the original proposal will see the agency has been responsive to fact-based analysis.”

New NCUA Board Member Mark McWatters has been adamant since joining the NCUA Board that he would not vote for the risk-based capital rule without a second comment period.  Following Chairman Matz’s statement, Board member McWatters stated:

 â€œI will not consider the rules for adoption unless they are re-proposed with a robust comment period of not less than 60 to 90 days. I articulated this position out of respect for Congress and those members of the credit union community who have  enthusiastically voiced their opposition to the proposed rules.

That said, the previously proposed risk-based capital rules are deeply flawed and merit substantial revision.  The devil is in the details, and I await the details before I can pass judgment on the next draft of the proposed rules.” 

The devil is indeed in the details

I cannot tell you how short-lived the sense of peace from this announcement will be and whether the industry’s original concerns will be reflected in the new proposal. That said, this recent action should be taken as a win for the credit union industry.  Credit unions, large and small and with very diverse fields of membership, banded together and effected change from the regulator and this news is a good indication that the regulator is actually listening to credit union concerns.  NAFCU has consistently advocated for a second comment period and we are pleased NCUA has paid heed to the comments and feedback of credit unions across the country and is planning to make significant changes to the structure of the rule. 

Looking for a refresher on the issue to prepare for the suspense during next three NCUA Board meetings? Visit NAFCU’s Capital Reform page. On it you will find a summary of what has happened to date with regards to the proposed rule, past compliance blogs outlining the issues, a recording of the NCUA’s listening sessions that occurred this past summer, NAFCU’s official comment letter to NCUA and position statement on the rule, recent media outreach, and much more.

On behalf of all of NAFCU, I would like to thank all of you for the work your credit union has done on this important issue.  As for the Regulatory Affairs team, we will continue to do whatever it takes to end up with a fair rule, and we will continue to update you on any and all developments.