What Are Credit Unions Saying About RBC2?

More than 1,000 credit union advocates from across the industry have made their voices heard. This selection of comments about NCUA’s revised risk-based capital proposal highlights drawbacks of the rule and underscores the importance of feedback.
Michael Emancipator

A little less than one month ago, the number of comments submitted to NCUA regarding its revised risk-based capital proposal totaled only a few hundred. For NCUA’s first-round proposal, the comments topped 2,000.

Callahan & Associates chairman Chip Filson has voiced concern that the NCUA would consider any number of comments shy of the first round as implicit support of the revised rule. Other industry leaders have agreed with Filson.

To focus attention on the proposal and spur more letters, Filson wrote an article encouraging credit union leaders, members, volunteers, and advocates to cast their vote on RBC2 by submitting a comment letter. Read Vote On RBC By Commenting Now.

Chris Howard, vice president of research at Callahan & Associates, offered commentary through his RBC2 series with the goal of inspiring readers to comment on the rule.

Learn More About RBC

Read a roundup of RBC2 commentary from Callahan & Associates.

Click Here

In addition to Callahan & Associates, dozens of others across the industry have taken up the cause, encouraging members, staff, and other stakeholders to make their voices heard.

That message has taken hold.

As of Friday, April 24, NCUA has posted 1,651 RBC2 comments. That’s less than 400 shy of the round-one reaction. With a little push, I know we can surpass 2,000. I’ve submitted my comment. You can read it here. Chris Howard has submitted his, too. You can read that here. Want to see what Chip Filson wrote? Read it here.

Although I haven’t read every comment posted on the NCUA site, every comment I’ve read so far has opposed the rule. What’s more, this round of comments did not receive submissions from organizations that typically favor heavier credit union regulation, such as the Independent Community Bankers of America or American Banker’s Association.

The deadline for comments is today, April 27. As we reach the final hours, I want to stress how quick, easy, but most of all, imperative, it is to comment on the risk-based capital proposal. If you’ve been meaning to comment, but haven’t gotten around to it, now is the time. This is your last chance.

You can CLICK HERE and comment right now. To help inspire you, I’ve included some excerpts from some of my favorite comments so far.

Cutler Dawson, CEO, Navy FCU, recommending NCUA delay the publication of a final RBC rule to coincide with the publication of secondary capital rule.

NCUA should delay the final release of the risk-based capital rule until it has developed a secondary capital rule. To be clear, we are not asking NCUA to delay the final implementation date of the risk-based capital rule (e.g., 2019), but rather, a delay in the publication of the final rule so that it can coincide with the publication of a final secondary capital rule. It does not benefit the industry to release a risk-based capital rule that effectively requires a higher capital for credit unions than banks with the promise to provide relief in a subsequent rule. We urge NCUA to address the secondary capital issue as part of the modernization of the risk-based capital framework. More specifically, we recommend NCUA allow credit unions to raise Tier 2 capital to satisfy their 10% Total RBC threshold in a manner that is consistent with the banking industry. Only then will NCUA’s 10% requirement be truly comparable to that of the Other Banking Agencies.

Doug Fecher, CEO, Wright-Patt Credit Union, asking the NCUA to implement RBC2 as a model rather than a rigid rule.

We believe NCUA could be a leader among financial institution regulators and achieve all the goals of RBC II in a far more flexible and pragmatic way by making the proposal a modelling tool rather than a rigid rule, similar to interest rate risk monitoring tools. Credit union risk could be calculated as a model by examiners using risk weights appropriate for each credit union’s environment, and discuss with boards and management their views of risk for various asset classes. NCUA would have flexibility to use different risk weights in different regions, for example, to better consider geographic differences in risk assets. As conditions change, NCUA could adjust RBC weighting to evaluate the impacts particular to individual credit unions. A model is far more flexible than a rigid rule, and allows opportunities to pragmatically manage risk rather than distort decision making through rule-based estimates of risk which may or may not be accurate.

Jim Nussle, CEO, CUNA, explaining credit unions are not banks and shouldn’t be treated as such.

Because credit unions take on less risk, they tend to be less affected by the business cycle, and therefore can serve as an important counter cyclical economic force in local markets, softening the blow of economic downturns in local economies. Indeed, in the face of the recent financial crisis credit unions unlike their counterparts in the for-profit banking sector served as both a counter-cyclical force and a safe haven, with much stronger loan and deposit growth than banking institutions. If credit unions are regulated and supervised more and more like banks, they will act more and more like banks. That would be a tragic loss for the consumers of financial services in America’s working and middle class.

Jack Antonini, CEO, NACUSO, questioning NCUA’s anecdotal references to CUSO losses.

As we have stated in the past, CUSOs have been used effectively by credit unions for decades to reduce costs and generate income. Yet, NCUA continues to present anecdotal and unsubstantiated references to what it considers substantial CUSO losses over the last decade as justification for over burdensome CUSO regulations and now an overzealous risk weight to CUSO investments. No detailed statistics have been provided to justify these losses as substantial, and NACUSO would challenge any such claim as we are not able to substantiate any losses of a significant nature through credit union investment in CUSOs over the past ten years and in fact find that such CUSO investment losses have been largely immaterial.

Rick Mullen, SVP, Coastal FCU, explaining how a 250% weighting factor to mortgage servicing rights under RBC2 is a perfect example of the NCUA contradicting its own guidance.

So with this new RBC proposal, the NCUA is effectively saying that it wants credit unions to sell the most significant member relationships that it has [mortgages] in order to manage interest rate risk, but that it is going to penalize severely any credit union that tries to provide services to those members after the sale. If a credit union wants to avoid that severe penalty, under this RBC proposal, it must sell its member relationship simultaneously with the sale of its loan, and turn that member relationship over to Wells Fargo or JPMChase or Ocwen and let them take care of that member’s needs for the next thirty years instead of the credit union. In other words, we want you to create MSRs, but we plan to penalize you if you try to retain them on your balance sheet.’

April 27, 2015

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