(March 26, 2021) The state system supports raising the asset threshold to $500 million for defining a credit union as “complex” under risk-based net worth (RBNW) requirements, citing the benefit the move would accrue for both credit unions and their members.
In a comment letter filed this week with NCUA, NASCUS wrote that it concurred with NCUA over raising the threshold from $50 million to $500 million, stating that the action would not result in a material increase in risk the National Credit Union Share Insurance Fund (NCUSIF). Beyond that, NASCUS wrote, the benefit of the regulatory relief provided by the threshold change for both credit unions and their members “outweighs any nominal increase in risk.”
“NCUA provides a compelling case in the Supplemental Material for raising the asset threshold,” NASCUS wrote. “We note the fact that the proposed change would provide relief to 1,737 federally insured credit unions (FICUs) while maintaining coverage of over 81% of assets held by FICUs.”
In January, the NCUA Board proposed (on a vote of 2-1, with now-Chairman Todd Harper dissenting) to propose the rule raising the asset threshold. The board noted then the difficulties posed by the ongoing COVID-19 pandemic, and said the proposal is aimed at providing a measure of regulatory relief to further encourage credit unions to ensure access to credit and other services.
NASCUS acknowledged in its comment letter that while an overwhelming majority of credit union assets would still be covered under the RBNW provisions, more modestly sized credit unions would be able to refocus on responding to the financial impact of the pandemic and serving their membership.
Additionally, NASCUS wrote, it makes sense to cohere the current threshold now to the threshold taking effect Jan. 1 under the 2015 Risk-Based Capital Rule (2015 RBC Final Rule).
“The question before us is what regulatory and supervisory sense is there for maintaining a $50 million threshold for the remaining nine months of 2021 given the limited risk mitigation utility maintaining a low threshold provides? We see little benefit to maintaining the existing threshold as an interim benchmark,” NASCUS stated.
(Feb. 26, 2021) Summaries on NCUA proposals for simplifying risk-based capital (RBC) requirements and on the complex credit union threshold under risk-based net worth (RBNW) for relief during theCOVID-19 pandemic have been published by NASCUS.
Both summaries are available to members only.
Last month, the board issued an advance notice of proposed rulemaking (on a vote of 2-1, with now-Chairman Todd Harper dissenting) to invite comment on two approaches to simplify risk-based capital (RBC) requirements. Under the proposal, the agency envisions:
(1) replacing the risk-based capital rule with a risk-based leverage ratio requirement, which would use relevant risk attribute thresholds to determine which complex credit unions would be required to hold additional capital; and
(2) retaining the risk-based capital rule (approved in 2015 and revised numerous times, with two delays in effective dates) but enabling eligible complex FICUs to opt-in to a “complex credit union leverage ratio” (CCULR) framework to meet all regulatory capital requirements.
The CCULR approach would be modeled on the “community bank leverage ratio” framework implemented under the 2018 economic growth and regulatory relief law. A 60-day comment period was assigned to the proposal (As of Thursday, it had not yet been published in the Federal Register; that publication date launches the comment period).
Also in January, NCUA proposed (on a vote of 2-1, with Harper again dissenting) to raise the asset threshold for defining a credit union as “complex” for purposes of being subject to any RBNW requirement in its regulations. According to the agency, the proposal would amend the regulations to provide that any RBNW requirement will be applicable only to a federally insured credit union (FICU) with assets that exceed $500 million and an RBNW requirement that exceeds 6%.
“The COVID-19 pandemic has created a vital need for financial institutions, including credit unions, to provide access to responsible credit and other member services to support consumers,” NCUA said in its proposal. “Implementing this regulatory change in advance of Jan. 1, 2022, the effective date of the 2015 final risk-based capital (RBC) rule issued by the NCUA, would provide necessary capital relief to a significant number of credit unions without substantially decreasing the safety and soundness of credit unions or the National Credit Union Share Insurance Fund (NCUSIF).”
Comments are due by March 25.
LINKS:
NASCUS Summary: ANPR, Simplification of the RBC Requirements (Parts 702 & 703) (members only)
Proposed rule: Risk-Based Net Worth – COVID-19 Regulatory Relief
(Jan. 8, 2021) Nine items – including a proposal on risk-based net worth (complex threshold), an advance notice of proposed rulemaking on simplification of risk based capital requirements and four other final or proposed rules – are all on the NCUA Board’s agenda for Thursday’s open meeting, which gets underway at 10 a.m. ET.
The other action items on the board’s open meeting agenda include: a proposed rule (part 712), on credit union service organizations (CUSOs); a final rule (and a board briefing) on statutory adjustment of civil money penalties (CMPs, part 747); a final rule (part 704), corporate credit unions; and a notice of proposed rulemaking (parts 700, 701, 703, 704 and 713), CAMELS rating system.
The meeting could also possibly be the last chaired by Rodney Hood, a Republican appointee. President-elect Joe Biden, once he is inaugurated Jan. 20, is expected to name Todd Harper, a Democrat appointee, chairman shortly after taking office.
Rulemaking for risk-based net worth and capital requirements has been on the board’s action item list since at least 2014. That year, the board first issued its risk-based capital proposal for “complex” credit unions – then defined as those with more than $100 million in assets – with implementation slated 18 months after the rule would have been finalized. A revised proposed rule was issued in 2015 and finalized that October with an effective date of Jan. 1, 2019.
That final rule was intended to replace the then- (and still now) effective risk-based net worth ratio with a new risk-based capital ratio for federally insured credit unions, which NCUA called comparable to the regulatory risk-based capital measures used by the federal banking agencies: the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of Currency (OCC).
But in 2018, the board revised its definition of “complex” credit unions to include only those with more than $500 million in assets. It also delayed the rule’s implementation further, to Jan. 1, 2020.
In December 2019, the board delayed the implementation date again, to 2022 (and on a split vote, with Board Member Todd Harper voting no). At that 2019 meeting, NCUA Board Chairman Rodney Hood said delaying the effective date to 2022 woiuld give the agency time to consider new methods for strengthening credit union capital requirements, indicating that then was a good time to do so as credit unions enjoy strong capital positions.
Also at that meeting, then-NCUA Board Member J. Mark McWatters said the agency was considering “a suite of capital rules,” which would include a proposal for credit unions similar to the community bank leverage ratio (CBLR), adopted by the federal banking agencies in 2019. That rule, he indicated, would exempt credit unions with less than $10 billion in assets from complying with the risk-based capital requirements, if those credit unions meet certain requirements.
Other items on the NCUA Board’s Jan. 14 open meeting agenda include:
- Consideration of the agency’s 2021 annual performance plan;
- Board briefing on the agency’s “Advancing Communities through Credit, Education, Stability and Support” (ACCESS) initiative;
- Board briefing on December’s Consolidated Appropriations Act, 2021 (the COVID-19 relief bill).
Following the board’s public meeting will be its closed (non-public) meeting, featuring six items – which include two supervisory actions, two personnel actions, a delegation of authority and a board briefing.