Listening Session Reveals Risk Weight Changes
LOS ANGELES — NCUA Chairman Debbie Matz said the NCUA will likely reduce the risk weights on five specific asset classes in its final risk-based capital rule.
Mortgages, member business loans, investments, CUSOs and corporates will get a second look and their risk weights will be “presumably lowered,” Matz said Thursday at the Westin Bonaventure Hotel in downtown Los Angeles.
Approximately 150 credit union executives attended the event, along with a large contingency of NCUA employees that included all supervisory examiners in Region V.
The NCUA will review every risk weight, Matz said, not just five specifically mentioned. However the five are “most obvious for change,” she added.
During the question and answer session, many credit union executives expressed concern about how the proposed RBC rule also requires compliance with compliance risk and interest rate risk components, and not just credit risk.
Matz stressed that everything is on the table to consider changing in the final rule, including concentration risk and interest rate risk. However, she added that the Federal Credit Union Act differs from the banking act in that the NCUA is tasked statutorily to consider all material risks to the industry, while banking regulators are only required to address credit risk.
Larry Fazio, director of the Office of Examination and insurance, added that if the NCUA doesn’t address interest rate risk or concentration risk limits in the risk-based capital rule, it would have to do it in the exam process.
“The bottom line is that it’s not a simple solution,” Fazio said.
Executives also indicated concern with the proposed rule’s definition of a complex credit union, which is based upon asset size.
Fazio said when the NCUA researched the rule, credit unions with more than $50 million in assets by and large offered a full array of products and services.
“We could have done something more complex in the sense of a formula, but 99 times out of 100, everybody over $50M would have triggered that, so (using asset size) seemed like a good way to simplify things,” Fazio said.
However, Matz said the NCUA is considering raising the asset threshold that defines small credit unions, which are exempted from the risk-based capital rule. That limit was increased to $50 million from $10 million in 2013.
Matz also said she hopes to present a final risk-based capital rule sometime this fall.
And despite how many executives requested the NCUA permit a second comment period on the rule, Matz said the NCUA is not considering that at this time.
“Our position has always been that if there are significant changes to the rule there should be a second comment period, and the risk weights (Matz) mentioned are significant enough,” said Mike Coleman, NAFCU director of regulatory affairs.
However, Matz also said the agency created an advisory group of credit unions to review the risk-based capital rule. That group met for the first time last week, Matz said.
The NCUA chairman also took exception with a comment that Congress opposes the rule, based upon a letter signed by 324 representatives and others from lawmakers.
“The congressional letters support risk based capital and applaud the direction we’re taking,” she said. “I want to be clear about that: Most members of Congress think risk-based capital is an important regulatory tool. They just want to make sure it’s done in a way that enables credit unions to continuing doing the fine business they do.”
Mary Dunn, CUNA vice president and assistant general counsel, said in general, many people agree that risk-based capital could be productive. And, Dunn said Matz was correct that Congress supports the rule in terms of its direction.
“However, it’s also true the letters raised serious concerns about the rule,” she said.
Coleman said the NCUA can’t downplay the seriousness of responding to congressional letters.
“They’re looking for meaningful feedback,” he said. “Whether or not they are satisfied with the response, we’ll have to wait and see.”