New RBC Proposal: What Does it Say, and What’s Next?
January 15, 2015
January 15, 2015
The new proposal includes key changes from the 2014 plan — including a longer implementation period and a doubling of the asset size required to qualify a credit union as “complex” — changes requested by credit unions and credit union advocates during a wave of comments on the first proposal last year.
“This new proposal clearly demonstrates that strong advocacy and good arguments can make an impact,” said John Trull, director of regulatory affairs for the Northwest Credit Union Association. “There are some wins for the credit union movement in the proposal, and some concerns we stand ready to address in collaboration with Northwest credit unions.”
The NCUA revised its proposal after credit unions filed 2,056 comments last year. Nearly a third of Northwest credit unions filed comments or signed onto letters during the comment period, urging the NCUA to make key revisions. The entire Oregon congressional delegation and the majority of Washington’s also responded to the voice of credit unions, writing and signing onto letters expressing similar concerns.
Key changes in the new proposal include:
- 90-Day Public Comment Period: The new proposal includes a 90-day public comment period, which the Association advocated for because this is a substantive rule that has the potential to impact how balance sheets are managed.
- Implementation Period: The implementation period for the new rule is up from 18 months in the initial proposal to nearly four years, setting the effective date to January 1, 2019, which aligns with FDIC rule timing.
- Complex Credit Union Defined: The definition of “complex” credit unions was changed from those with $50 million or more in assets to those with $100 million or more, a doubling of the figure in the initial proposal. This means 78 percent of credit unions would be exempt from this definition.
- Supplemental Capital: The NCUA is asking for comments on whether supplemental capital should be allowed for risk-based purposes. In the next round of comment letters, Trull noted, credit unions should take the opportunity to outline the need for supplemental capital, what it should look like, and the legal arguments to allow the NCUA to include a placeholder in the rule. “This is an important step to putting a conversation on the record related to the need for supplemental capital,” Trull said.
- Wholly Owned CUSOs: The new proposal does not include a separate risk weight for wholly-owned CUSOs, and revises downward the risk-weight for non-wholly owned CUSOs.
- Risk Weights: Risk weights were substantially revised in the new proposal. Importantly, risk weights for mortgages, investments, member business loans, credit union service organizations, and corporate credit unions were reduced.
- Interest Rate Risk: The new proposal removes interest rate risk from the RBC rule. The Association expects an interest rate risk specific rule sometime in 2015. “This will be a substantive rule that will need a strong credit union response,” said Trull.
- Goodwill: In the new proposal, goodwill can be subtracted for mergers completed in advance of the final rule being issued.
- Well-Capitalized Definition: The new rule revises the overall percentage for credit unions to qualify as well-capitalized from 10.5% to 10%.
- Loan Losses: Under the new proposal, credit unions can count 100% of the allowance for loan losses.
Other changes reflected in the new proposal:
- Net Worth Impact: The initial proposed rule would have taken over 200 credit unions from well to adequately or undercapitalized. The new proposal will directly impact 19 credit unions. “This is a significant improvement,” Trull said, “but still a very important point of concern for us going forward.”
- 1% SIF Deposit: The 1% SIF deposit will continue to be excluded from capital calculations for RBC purposes.
- Call Report: Significant call report changes are anticipated in order for the regulator to collect the necessary information.
- Much Longer Proposal: This proposal is much longer than the initial, 250 page proposal, a function, Trull said, of the NCUA’s need to respond to the over 2,000 comments received during the initial comment period.
“We thank the NCUA for making appropriate changes in the new proposal,” said Trull. “And as we dive deeper into the new proposal and what it means to credit unions, we stand ready to work with Northwest credit unions determining what our next steps will be.”
NWCUA members can find more information about the proposed rule changes on the NWCUA RBC Resource Center.
Questions about this story? Contact James Pearson: 206.340.4790, firstname.lastname@example.org.