The National Credit Union Administration Board has issued for a 90-day comment period a revised RBC proposal (RBC2) (12 CFR 702). It would apply to federally insured credit unions with assets of over $100 million and would require them to maintain RBC based on a new formula of risk-based capital, as defined by NCUA, to total risk-weighted assets, also as defined by NCUA. A well-capitalized credit union would need to maintain a 10% RBC level (down from 10.5% in the first proposal) and an adequately capitalized credit union would need to have 8% RBC, in addition to meeting their net worth requirements. The proposal includes other new regulatory provisions such as a requirement that covered credit unions maintain a capital adequacy plan. The proposal does not change requirements regarding current net worth classifications, such as 7% net worth to be well capitalized.
Comments Requested to CUNA: Let us know what you think before you arrive for CUNA’s GAC, March 8-12, 2015, if possible, so we can present a united front to policymakers.
Comments Requested to NCUA: April 27.
This summary focuses on issues of concern with RBC2. For additional information, NCUA’s proposal and commentary are here; more CUNA resources are available at our RBC2 Action Center to help credit unions and leagues assess the proposal and its impact. Also, feel free to contact Mary Dunn, Robin Cook, and Lance Noggle.
CUNA’s Initial Reaction
- CUNA does not agree that any new RBC rule is needed and will continue to raise that concern.
- In light of the fact that a majority of the NCUA Board supports a new RBC rule, CUNA will continue to work to improve the new proposal, just as we did with the first proposal. However, we are preserving all options as we assess the proposal’s impact and our members’ views regarding the changes.
- The revised proposal includes roughly 25 key improvements from NCUA’s first heavily flawed approach.
- Many fewer credit unions would be negatively impacted by RBC2 than under the first proposal.
- Many changes that CUNA sought are addressed favorably in RBC2. Click here for a chart of those changes.
- Most notably, these changes include:
- Limiting the scope of the proposal by increasing the asset threshold from $50 million to $100 million. (However, credit unions should consider whether the application of the rule should depend solely on asset size and if so, whether the threshold be annually indexed for growth. NCUA is seeking specific comments on whether the process for determining coverage should consider more than just size.)
- Lowering the RBC requirement for well-capitalized credit unions from 10.5% to 10% (but the question still remains as to whether separate RBC requirements for well-capitalized and for adequately capitalized credit unions are permissible under the Federal Credit Union Act).
- Improving the risk weights in most areas (but credit unions need to assess if the changes are enough and NCUA is seeking particular comments on these changes as well). The proposal also reduces the number of concentration thresholds over which higher risk weights apply. The proposal does not reduce the risk weight for mortgage servicing.
- Removing interest rate risk from the proposal (but not from NCUA’s radar screen). NCUA is asking credit unions to provide their specific views on how IRR should be addressed in the context of prompt corrective action.
- Eliminating the confusing provision regarding individual minimum capital (but replacing it with a requirement for covered credit unions to have a capital adequacy plan under which additional capital beyond what the rule requires could be imposed).
- Allowing the entire ALLL account to be included in RBC.
- Permitting goodwill in “supervisory” mergers to be included in RBC, but not other forms of goodwill.
- Delaying compliance until January 1, 2019.
The proposal does not permit the use of supplemental capital for RBC purposes, except for low-income designated credit unions. However, NCUA is seeking comments on how that could be accomplished.