Capitol Hill: The Next Battleground

The recent action by the NCUA Board to issue a revised risk-based capital rule for a 90-day comment period has created a new and unique opportunity for the two national credit union trade associations to shift the battleground from Alexandria, Va., to the nation's capital.

Aside from the legal issue of whether or not the NCUA has the authority to issue a two-tiered RBC rule, there remains in the minds of many key changes that should be made in order for the rule to be palatable.

Improvements in RBC 2 have been noted but concerns still linger regarding the definition of complex credit union, risk weights, capital to be raised, number of credit unions impacted and actual cost to the industry to implement the rule.

The trades and credit unions will, of course, draft comment letters pointing out areas of concern and recommending changes that should be made. There already have been numerous webcasts with the NCUA and trade staff exchanging their interpretations and opinions on the value or non-value of the rule.

There are some who believe that any additional concessions made by the NCUA will not be significant enough to satisfy the concerns of those impacted by RBC 2; which is why it is widely speculated that the battleground for further changes is now located in Washington.

It is the belief of many that a strong possibility exists that the House Financial Services Committee and the Senate Banking Committee are considering adding the NCUA to their schedule of hearings.

The issue that has come to the forefront is the lack of legal authority. Everyone recognizes that a legal challenge would take years and cost the industry millions of dollars. Fighting the federal government is not always a losing battle but even if you win, the financial cost has weakened you going forward. Moving the fight to Capitol Hill changes the strategy for the national groups on this and other agency issues upon which they will focus.

Regulatory overreach will be the banner that is carried up to the Hill. Congress will be asked to take a hard look at what the NCUA has done with regulations already in place as well what they are proposing to do with RBC 2. The argument will be that the regulator has exceeded their authority in the rule-making process and have used regulation rather than supervision and guidance.

Although it is not unprecedented for Congress to call the head of an agency to appear before them to answer questions of concern, it would be unique for the NCUA, which is rarely called, to testify on its own. Whenever there has been an appearance it has usually been as part of a group of financial regulators and industry representatives.

Should such hearings take place, it would be a clear indication that Congress sees value in the concerns raised by those who believe the NCUA has overstepped its mandated authority and engaged in regulatory overreach. It would be perceived as a victory for the trades having raised the stature and importance of the industry to a level that has peaked Congressional interest.

Would hearings before Congress be good or bad for the industry and the NCUA? Hard to say since the last time the NCUA reached such a focal point was during the 2008-2009 fiscal crises. And, then it was to ask Congress for the help needed to save credit unions from financial disaster.

Would Congressional hearings conclude there has been overreach? And if they reached such a conclusion, what would the consequences be?

Whatever the outcome, perhaps the testimony will disclose the truth rather than the rhetoric spin of a news release.

Damn the torpedoes, full speed ahead.

Michael E. Fryzel is an attorney and consultant to the financial services industry in Chicago. The former NCUA chairman can be reached at meflaw@aol.com.