Comment periods finally open on proposed credit union rules for ‘simplified’ risk-based capital, ‘S’ element in exam rating system

After a delay of nearly two months since approved, two proposals from the federal credit union regulator – on simplifying rules for risk-based capital and on adding an “S” to the exam rating system – have been finally opened for 60-day comment periods, following publication Tuesday in the Federal Register.

Comments on both proposals are due for both May 10.

On Jan. 14, the National Credit Union Administration (NCUA) Board approved the two proposals to be issued for comment. The proposal on simplifying risk-based capital – an advance notice of proposed rulemaking (ANPR) adopted on a 2-1 vote with (then) Board Member Todd Harper dissenting – outlines two approaches to simplifying risk-based capital requirements. Under the first, the agency contemplates 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.

The second approach would retain the risk-based capital rule (approved in 2015 and revised numerous times, with two delays in effective dates, and now set  to take effect Jan. 1, 2022) but would enable 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” (CBLR) framework implemented under the 2018 economic growth and regulatory relief law.

The proposal on adding an “S” – for “market sensitivity” – to the agency’s CAMEL examination rating system is aimed at ensuring the agency’s exams of credit unions includes a specific look at market-risk sensitivity. In conjunction with this would be a modification in the review of credit union liquidity and asset/liability management for the “L” in CAMEL (which stands for capital, asset quality, management, earnings, liquidity).

In January, the NCUA said the proposal would bring the agency’s rating system up to date with a change that banking regulators incorporated decades ago. It would also satisfy a recommendation the agency’s inspector general has been advancing for about the past five years. It was approved for comment unanimously by the agency board.

Reg lookup: Simplification of risk-based capital requirements

Reg lookup: CAMELS rating system