Final NCUA RBNW Listening Session Was Held in VA
Yesterday at its third listening session held in Alexandria, VA, NCUA made it clear that the agency's risk-based capital proposal will undergo changes in key areas before it is made final. Like the previous two gatherings, yesterday's session had a capacity crowd of 150 people registered. Although open to any topic of credit union interest, the agency's risk-based capital proposal was the chief topic of discussion just as it had been in the previous two sessions in Los Angeles and Chicago.
As NCUA Chair Debbie Matz said in the earlier listening sessions and reiterated again yesterday, credit unions can anticipate changes in the proposed risk weights, especially in the areas of mortgages, member business loans, investments, credit union service organizations, and corporate credit unions. She also noted that the implementation period for the rule will be extended beyond the 18-months currently proposed. Some attendees noted that banks have 5-years to implement their system and because of credit unions' limited ability to raise capital, it should be double for the credit union system.
Early on in the session, attendees asked why the regulation was necessary and why the original timeline was so aggressive. Matz and NCUA Director of the Office of Examination and Insurance Larry Fazio reiterated to attendees that the agency believes the proposal does comply with the law, and that based on the risk-based system implemented by the banking system, statute mandates that the agency update its risk-based regulation. Matz noted that NCUA is "behind the curve" among financial regulators in implanting a modern RBNW system.
Long-term interest rate risk was a major thread of the discussion. One attendee asked why 35% has become a sort of standard for NCUA's concern over interest rate risk (IRR). Fazio walked attendees through a slide showing long-term risk increasing, but did note many credit unions are fully equipped to handle it. The agency needs to see sound policy, plans surrounding IRR. NCUA did state that it already has regs on the books to deal with IRR, but that IRR must be weaved into RBNW. Many attendees questioned again why the liability side of the balance sheet is not considered with RBNW. Matz and Fazio said they understood those concerns and were looking at that issue again, but that it will be difficult for that to be a core part of the proposal. They again reiterated though that they are looking at all angles.
One of the biggest themes of the day was around "communication." Some attendees said that NCUA field staff is not implementing regs consistently in the field. Matz emphasized throughout the session that they are working hard to improve communication throughout the agency. One piece of advice offered by NCUA was for credit unions to understand the chain of command in their Region and to utilize it, all the way from the Regional Director, Supervisory Examiner, and down.
Matz did note that NCUA "saved the system" as credit unions know it today with the overhaul of the corporate credit union system during an exchange with an attendee who was concerned NCUA did not have the system's best interests in mind with the proposed regulation.
At the outset of the session, Matz noted that she and fellow Board Member Rick Metsger support supplemental capital and that in the past she has made that clear to Capitol Hill. Given the more than 300 'Dear Colleague' letters NCUA has received from Congress on the RBNW proposal, Association President Paul Gentile took to the floor to ask if the RBC process has given NCUA an "opportunity" to discuss supplemental capital with Congress and credit unions' limited avenues to raise capital. Chairman Matz said that supplemental capital has not been discussed during the RBNW dialogue with Congress. She said that credit unions ought to have access to supplemental capital and that in order for that to happen Congress will have to act.
"I applaud the agency for holding these listening sessions and continuing to consider feedback from the system. Chairman Matz continues to emphasize that NCUA is taking all feedback very seriously," said Gentile. "This extensive dialogue with the system has to result in meaningful change. Not only is this reg on the line, but the trust the system has in its regulator is on the line. NCUA must act on the timeline, weightings, and many other areas before this reg is ready to be implemented. Credit unions came through the financial crisis better than any other segment of the financial services sector, and this is not the time to burden credit unions with a regulation that will hinder their ability to serve members."