NCUA Delivers PCA Proposal to Congress with Blessing of CU Community
ALEXANDRIA, Va.-NCUA Chairman JoAnn Johnson's final proposal to reform credit unions' system of Prompt Corrective Action was delivered to Capitol Hill last week amidst cheers from the credit union community. The revision to a proposal floated last month seeking public comment has many of the same elements. However, a few...
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ALEXANDRIA, Va.-NCUA Chairman JoAnn Johnson’s final proposal to reform credit unions’ system of Prompt Corrective Action was delivered to Capitol Hill last week amidst cheers from the credit union community. The revision to a proposal floated last month seeking public comment has many of the same elements. However, a few suggestions from NCUA Board Member Debbie Matz and the credit union trade associations were incorporated in the final version shared with lawmakers for inclusion in the Credit Union Regulatory Improvements Act. Bill sponsors Ed Royce (R-Calif.) and Paul Kanjorski (D-Pa.), as well as Senator Mike Crapo (R-Idaho) who is working on general financial services regulatory relief legislation, received advance copies April 1, while the final version was delivered to the remaining lawmakers Monday, April 4. National Journal’s CongressDaily quoted Congressman Kanjorski in its April 5 edition stating, “We’ve been waiting for this change. Now that we have the capital requirements, we can get that discussion started.” Kanjorski and Royce hope to introduce the legislation in May, the report said. “I am pleased that NCUA has provided Congress with a comprehensive prompt corrective action reform proposal for consideration as regulatory improvements are pursued for the nation’s credit unions,” Johnson said. “This reform proposal is consistent with NCUA’s steadfast support of PCA as sound public policy. We are working closely with Congress and look forward to continuing to provide guidance on this important issue to credit unions.” The revision emphasizes NCUA’s support of the current accounting for credit unions’ 1% NCUSIF deposit; limits net worth category reductions by regional directors to one downgrade and requires consultation with the central office; and requires a rulemaking, which would include a public comment period, for limitations on use of secondary capital for low-income credit unions in net worth calculations. The definitions section would also change `net worth’ to jibe with anticipated changes from the Financial Accounting Standards Board to switch from the pooling method of accounting to the purchase method. If adopted, she said, “it would result in a balanced and credible approach to making credit unions’ PCA system aptly robust, yet not unduly burdensome or constraining.” “I appreciate Board Member Debbie Matz and the NCUA staff for their thorough study and innovative efforts in bringing this proposal to fruition,” the chairman said. “This new PCA reform proposal incorporates changes which I requested in response to concerns I heard from the credit union community,” NCUA Board Member Debbie Matz noted. “These changes are intended to ensure that NCUA’s capital evaluation process will be fair and objective for all credit unions, and will permit low-income credit unions to count secondary capital appropriately in the context of their overall risk profiles.” She continued, “Rather than giving the NCUA Board carte blanche to discount all secondary capital – and potentially impose PCA upon healthy low-income credit unions – the new proposal maintains that any write-down of secondary capital must be according to a specific maturity schedule established by regulation.” Specifically, Matz explained, “For all federally insured credit unions, NCUA regional offices could use delegated authority to reduce their net worth category by only one level, which would be appealable. And for low-income credit unions, specific standards would protect the secondary capital which the current law authorizes them to raise.” She concluded, “I feel it is a good proposal and I commend [Chairman Johnson] for pushing it forward.” Following a qualified statement of support of Johnson’s initial proposal for PCA reform, CUNA President and CEO Dan Mica stated unequivocal support for the revised version. “This proposal, we believe, supports safety and soundness, and offers reasonable assurances of protecting – to the fullest extent permitted under the Federal Credit Union Act – the ability of credit unions to grow and meet the ever-changing financial needs of their members,” he said. NAFCU President and CEO Fred Becker also threw his organization’s support behind Chairman Johnson’s revised proposal. “The formulation of this risk-based proposal is the product of a great deal of work by many within the credit union community,” he wrote in a letter to Johnson. “We certainly would not have arrived at this point without your leadership and that of your predecessor as Chairman of the NCUA Board, Dennis Dollar, or without the important contributions of your Board colleague, Deborah Matz. NAFCU also recognizes the invaluable contributions made by so many members of the NCUA staff.” Key areas of concern for the trade associations included the delegation of authority to downgrade net worth ratings to regional directors, treatment of the 1% NCUSIF deposit, uncertainties surrounding BASEL II in gauging risk-based net worth requirements, and safeguarding the use of secondary capital by low-income credit unions. “We do believe that all of our concerns were addressed,” CUNA Associate General Counsel Mary Dunn stated. Regarding the addressing of the 1% NCUSIF deposit, she said, “Initially, our take was that we would have preferred it not be.” However, NCUA expressed concerns that Treasury may not support the proposal without accounting for it with regard to PCA. Becker agreed, “[S]ince the purpose of PCA is to ensure the safety and soundness of the industry, and the specific purpose of the 1% deposit is the same, we understand NCUA’s desire to ensure that credit union’s have sufficient net worth independent of the asset that is already on deposit at NCUSIF for this purpose.” CUNA Chief Economist Bill Hampel pointed out that it is important to distinguish that the net worth ratio without the 1% included in it was “only for PCA purposes.” For everything else, net worth would be calculated according to generally accepted accounting principles. CUNA Senior Vice President of Governmental Affairs John McKechnie explained that Royce and Kanjorski wanted a “bulletproof” PCA proposal, after they “felt the bankers made some headway” in opposition to the provision last congressional session. This “final piece to the puzzle” is currently being worked into legislative language for CURIA, he added. Regarding Senator Crapo’s interest, CUNA Vice President of Legislative Affairs and Senior Legislative Counsel Gary Kohn said, “In terms of the Senate reg relief bill, they have made no decision yet on what will be in that bill but this is certainly among those things being considered.” The PCA reform proposal is available via the Internet: http://www.ncua.gov/ReportsAndPlans/special/special.html -
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