Risk-Based Capital rule up for debate this week.
A possible one-year delay of the NCUA's Risk-Based Capital rule is a good start, but it does not ultimately solve the problem, credit union trade groups said Monday.
"The agency really overstepped the Credit Union Act," in setting a risk-based standard to determine whether a credit union is well-capitalized, Monique Michel, CUNA's senior director of advocacy and counsel, said.
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In recent months, as the Jan. 1, 2019 effective date of the controversial rules approaches, House members who oppose the rules have been attempting to attach a two-year delay to several pieces of legislation, but senators have not agreed to the delay.
The rule was adopted in 2015. It requires a "complex" credit union that becomes undercapitalized to take prompt corrective action to restore their net worth.
However, the NCUA board is scheduled to consider a one-year delay of the rule at its meeting Thursday. The proposal, which would be open for public comment, also would change the definition of "complex" credit union from $100 million to $500 million.
"The NCUA being open to a delay for its RBC rule is very positive, but we still plan to request additional changes," said NAFCU President/CEO B. Dan Berger.
Berger said he would like to see the complex credit union threshold be even higher.
"We've long argued that asset size doesn't equate to risk," he said, adding that "We'd also like to see a decrease in the percentage of capital credit unions are required to hold."
"I think increasing the threshold is a good step," Michel said. "Even $500 million is too low."
The one-year delay could lead to the rule being killed altogether. It was adopted when Democrats controlled the NCUA board and J. Mark McWatters was the lone Republican member.
McWatters is now chairman and presumably, when the rules come up for another vote, Republicans will control the board.
McWatters was an outspoken opponent of the rule, contending that the NCUA board does not have the authority to create a two-tier standard.
While credit unions bristle at the notion of a Risk-Based Capital rule, bankers said that such a regulation is essential.
"These rules should not be delayed, both because doing so places the taxpayer-backed insurance fund at risk for losses, and because it places banks – who already have a competitive inequity because of the taxpayer subsidy provided to the credit union industry – in an unequal position in the marketplace," James Ballentine, executive vice president for congressional relations and political affairs at the American Bankers Association wrote in a May memo to members of the House Financial Services Committee.
He added, "except among credit union executives, there is nearly universal agreement NCUA's existing rules are antiquated and need modernization."
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