As part of its rule-making communication efforts, NCUA organized a practitioners council of credit union executives to work with agency staff as it redrafted the risk-based capital rule.
CreditUnions.com published the names of the eight industry representatives NCUA selected to review the RBC rule along with the comments seven of the members — or their credit union — had submitted about the initial proposal (click here to read the article).
Member participation, both economically and in governance, are core cooperative principles. If NCUA implemented the role of the practitioners in this spirit, then the precedent could be an important milestone in how the agency works with credit unions.
What Was The Council’s Contribution?
There has been no public reference to the meetings, discussions, or other activity of this council since NCUA formed it during the summer of 2014, so what role did this council have in the redrafted proposal?
The answer to this question is helpful for two reasons. One, it tells whether the council raised topics or issues beyond those outlined by the more than 2,100 comment letters — including the seven from council members — NCUA already had received. Second, it sheds light on whether NCUA directly addressed the concerns that almost all council volunteers went on record as having.
The publicly documented concerns of the council members go directly to the heart of the proposal. For example:
Every panelist presented a concern over NCUA’s lack of documentation with financial or other data to support the proposal overall as well as in the 150+ risk asset weightings. Each commentator, in fact, presented data contrary to the presumptions implied by NCUA’s draft.
All agreed that the proposal would affect the ability of credit unions to respond to the needs of their members. This issues were as specific as VyStar’s comments on the 250% risk weighting for servicing rights impact on its ability to retain mortgages or as general as CEO Wallace Murray’s experience of NCUA examiners’ “lack of concern about reductions in service that would likely harm consumers at a time when they needed our assistance more than ever.”
Finally, council participants expressed overall objections and said the rule could have the opposite effect of improving safety and soundness. “There is insufficient evidence to support NCUA’s position that the current risk-based frameworks is inadequate … we feel that this attempt to capture the myriad of risks faced by credit unions with a single blunt tool is imprudent and potentially unsafe,” said Kinecta CEO Keith Sultemeier. “American Airlines FCU opposes the wholesale replacement of the risk-based net worth model in use today with a complex and unproven model as proposed,” said AAFCU CEO Angie Owens.
Why This Is Important
How, if at all, did NCUA address these issues in the private council discussions, or did NCUA set the agenda? What was the council’s contribution? Did NCUA document anything, or was all activity solely oral dialogue?
The contribution question is important. Is the NCUA board to understand that agency staff learned something during these conversations there was not addressed in the 2,100 comments? If so, what were these issues and how did this affect the final rule? Or did NCUA staff use this as a check-the-box exercise to tell the board they had talked with credit unions firsthand?
When the revised proposal is public, are the council members free to discuss their expectations and their views of the effectiveness of this exercise?
In December, NCUA Chairman Debbie Matz announced she would form two more councils around other areas of the agency’s supervisory activity. For many years, there has been widespread concern about NCUA’s unilateral actions and the lack of meaningful dialogue with the industry. Apart from the council’s input on the RBC rule, the new proposal will shed light on whether these efforts for private dialogue are resulting in meaningful learnings or are merely another PR exercise.
What Does RBC Mean For You?
Explore the changes to NCUA's proposed risk-based capital rule and the potential impact it will have on the credit union industry during this webinar with Callahan chairman Chip Filson and senior analyst Andrew Bolton.