Congressional Letter Could Be Pandora's Box
More than 300 members of the House of Representatives recently signed a letter to NCUA Board Chairman Debbie Matz, urging major changes to the proposed risk-based capital rule.
The letter was spearheaded by Rep. Peter King (R-N.Y.) and Rep. Gregory Meeks (D-N.Y.), both members of the House Financial Services Committee.
It urged the NCUA to carefully consider the rule's economic impact, justify why some risk weights differ from those required of banks, and provide a longer implementation time than the proposed 18 months.
I’ll admit, when I first heard about this letter, I was skeptical.
Bellyaching to Congress doesn't flatter anyone. Instead, it seems like the NCUA and the trades are acting like two arguing children, and Congress is the parent.
Aren't the kids mature enough to work it out on their own?
All three board members have said the final rule will include adjustments to the risk-weights. The fact that this message is unified across the board is very significant.
Board Member Michael Fryzel, whose days on the board are numbered, has no qualms expressing his opposition to Matz's decisions. Fryzel recently shared a copy of a letter he wrote in support of the trades’ request to lengthen the rule's comment period.
In that letter, this statement caught my eye: “I am confident that, when the NCUA finalizes the risk-based capital rule, it will include significant changes from what has been proposed, and will incorporate the suggestions of your trade associations and credit unions across the country.”
If that weren't the case, Fryzel would be raising hell right now.
So why involve Congress? Is the letter merely a publicity stunt?
If the final rule includes changes requested by the trades, they can declare not only a regulatory victory, but increased legislative swagger, too. With all the talk about credit union lobbyists losing their mojo on Capitol Hill, the letter saves some face.
For officials facing midterm elections this year – and in particular, Rep. King, who has 2016 presidential ambitions – the letter symbolizes opposition to regulatory burden.
And make no mistake, it also paves the way for credit union campaign contributions without compromising the money flow from bank lobbyists.
So is that all the letter is about? Maybe in part. This is, after all, Washington.
But after speaking with both sides, I think it's more than that.
Take the request to extend the comment period, for example. Matz said the request is, in her opinion, a stall tactic. And to an extent, I agree.
I first reported the agency was writing a risk-based capital rule back in February 2013. At that point, the trades should have started looking at Basel III and crunched numbers to see how similar requirements would affect credit unions. Additionally, the formal comment period, which ends this month, has been much longer than usual.
So why do credit unions need more time?
Because it's not enough for credit unions to comment that certain risk weights would be difficult to capitalize. The NCUA is requiring quantitative proof of such; and, additionally, the NCUA wants credit unions to suggest alternative numbers, with additional number crunching.
That takes time, something that is a premium inside credit unions.
Contrast that burden of proof with the proposed risk weights, which the trades claim were pulled out of thin air.
At first, I had a hard time believing that. I mean, really. Think of all the data the NCUA has at its disposal when it comes to quantifying threats to the share insurance fund. Why in the world would they arbitrarily risk-weight asset classes?
As shocking as it seems, my trade contacts insist NCUA staffers have literally said as much. The proposed risk weights could indeed be arbitrary.
That's not very reassuring. Neither were my inquiries to credit union executives the NCUA has previously tapped when writing rules. Other than some meetings at GAC, none of them reported providing any input for the proposal.
Which brings us full circle to the letter. Apparently, it has come to this. That's bad news for credit unions, because whenever Congress gets involved, unintended consequences are part of the deal.
Talk about risky.
Heather Anderson is executive editor of CU Times. She can be reached at firstname.lastname@example.org.