Comments due Sept. 7 on one-year delay of risk-based capital for credit unions

A one-year delay of a risk-based capital rule that would be revised to apply to roughly 10% of all federally insured credit unions is out for comment until Sept. 7, according to a notice in Wednesday’s Federal Register.

The proposed rule, issued Aug. 2 during an open meeting of the National Credit Union Administration (NCUA) Board, does two things: It delays until Jan. 1, 2020, the effective date of the 2015 final rule, which revised the agency’s regulations regarding prompt corrective action (PCA); and it reduces the number of federally insured credit unions that would be affected by it by raising the rule’s asset-size threshold for “complex” credit unions from $100 million to $500 million.

NCUA says revising the rule’s definition of “complex” exempts an additional 1,026 credit unions from the rule without subjecting the National Credit Union Share Insurance Fund (NCUSIF) to undue risk. (The NCUSIF is the federal fund that insures credit union member shares.) This change means that about 90%, or all but 531, of federally insured credit unions are exempt from the rule, the agency says.

During the Aug. 2 meeting, agency staff said they hope to have a final rule for the board to consider before year’s end.

The agency adopted its current PCA requirements in 2015. That regulation, according to NCUA, restructured its regulations and made various revisions, including changes in the agency’s current risk-based net worth requirement. The 2015 rule replaced the risk-based net worth ratio with a new risk-based capital ratio for federally insured credit unions, which the agency 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).

During the Aug. 2 meeting, NCUA Director of Examination and Insurance Larry Fazio said the one-year delay is a “good balance,” providing additional time for credit unions and the agency to adjust to the proposed changes without unduly extending the effective date of risk-based capital. “With this delay, credit unions subject to risk-based capital will have a total of more than four years to have prepared,” Fazio said.

Regarding the “complex” redefinition, the agency said the proposal eliminates two indicators from the previous definition: Internet banking; and investments with maturities greater than five years, where the investments are greater than 1% of total assets. It further revises four of the indicators in the definition, by: substituting “commercial loans” for “member business loans”; replacing “participation loans” with “participation loans sold”; excluding first-lien mortgages from interest-only loans; and narrowing “real estate loans” to “sold mortgages.”

The proposal also factors in the extent to which a credit union is involved in complex activity (the “complexity ratio”), NCUA said.

Staff told the board that the revised indicators show that all credit unions with more than $500 million in assets engage in at least one complex activity, and that 92% of those credit unions engage in four or more complex activities. Additionally, staff noted that the larger credit unions hold more complex assets and liabilities as a share of their total assets; and 85% of all complex assets and liabilities ($423 billion of the total $497 billion) of all credit unions.

The credit unions being dropped from the “complex” definition (those between $100 million and $500 million in assets) represent approximately 16% of the total assets of credit unions “bound” by risk-based capital under the original rule adopted in 2015, and 21% of incremental capital required, NCUA pointed out.

Board Chairman J. Mark McWatters said he and Board Member Rick Metsger plan to pen a joint letter to Congress outlining the proposal and the agency’s rationale in issuing it.

Proposed Rule: Risk-Based Capital – Supplemental Rule (Federal Register notice)

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