Listening Session Reveals New RBC Details
LOS ANGELES — NCUA Chairman Debbie Matz and other officials representing the agency during a June 26 Listening Session got an earful from credit union CEOs on risk-based capital and interest rate risk. But the CEOs who made the trip were also on the receiving end of new information from the NCUA, hearing about likely changes to the final RBC rule, when to expect it and various exam insights.
Approximately 150 credit union executives attended the three-hour event at downtown LA's Westin Bonaventure Hotel, along with a large contingency of NCUA employees that included Region V Director Elizabeth Whitehead and all the region's supervisory examiners.
During her opening address, Matz revealed the NCUA will likely reduce the risk weights on five specific asset classes in its final RBC rule. Mortgages, member business loans, investments, CUSOs and corporates will get a second look and their risk weights will be “presumably lowered,” Matz said.
The NCUA will review every risk weight, Matz said, not just five specifically mentioned; however, she noted those five are the most obvious for change.
Matz also said the proposed rule's 18-month implementation period will probably be extended in the final rule, not only to give credit unions more time for compliance, but to get examiners up to par as well.
During the question and answer session, many credit union executives expressed concern about how the proposed RBC rule includes concentration risk and interest rate risk components, addressing more than just credit risk.
Matz stressed that everything is on the table to consider for change in the final rule, including concentration risk and interest rate risk provisions. 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 RBC 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 $50 million 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 RBC rule. That limit was increased to $50 million from $10 million in 2013.
Matz also said she hopes to present the final rule, which she estimated would be some 400 pages long, this fall.
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 RBC rule. That group met for the first time last week, she said.
Joe Schroeder, president/CEO of the $677 million Ventura County Credit Union, asked what role the U.S. Treasury played in helping the NCUA draft the RBC proposal.
Treasury played no role, Matz said. “The (Obama) administration is very adamant about keeping arms’ length distance from independent regulators. Sometimes it's frustrating because sometimes it would be nice to get expertise,” she said. “They were not involved, and to my knowledge they won't be, until we complete it, and then we will brief them as we always do.”
Fazio added that Treasury does have some history with the rule, researching the credit union industry in the late 1990s in regard to prompt corrective action. “Treasury has had a long-standing interest in capital, but didn't weigh in on this rule,” he said. “There were some conversations on the proposed rule from an informational standpoint, but (Treasury officials) haven't engaged on the substance of the rule.”
However, Matz also said the rule came after the NCUA was pressured by its own inspector general and the Government Accounting Office. The GAO, Matz reminded the audience, reports its recommendations and follow-up to Congress.
“We have felt some pressure because at some point, the GAO will come back and ask, ‘What did you do?’” she said.
Executives attending the event were encouraged to expand their questions beyond risk-based capital.
Ron McDaniel, president/CEO of the $1.2 billion California Credit Union, said he was concerned with the high level of NCUA examiner turnover he's experienced. “We had two great examiners and they just left to go to other agencies,” he said.
Matz acknowledged the turnover, calling it troubling because the NCUA spends a lot of money to hire and train examiners.
“After five years, we do have a pretty stable workforce, but in that five years we’ve hired hundreds of examiners, and after a few levels of training … they decide it's enough for them or they get another offer,” she said.
Region V Director Elizabeth Whitehead blamed the turnover in part on mergers. Fewer credit unions mean more examiners must travel more frequently to manage territories that support full workloads.