NCUA Approves Risk-Based Capital Rule

The National Credit Union Administration (NCUA) voted 2 to 1 in favor of the agency’s risk-based capital proposal (RBC2), making it final more than 20 months after it was first proposed. Board member J. Mark McWatters expressed a number of concerns with the rule prior to voting against it.

As proposed, this final rule is effective on Jan. 1, 2019. NWCUA, CUNA and other state leagues sought an extended implementation timeframe, which the NCUA adopted (reporting from CUNA).

“Northwest credit unions led the way, making successful policy arguments for including secondary capital in the numerator,” said John Trull, AVP of Regulatory Advocacy for the Association. “This was a big win as it significantly improves the capital ratio for a couple of Northwest credit unions immediately, and will help many others in the future. It also gives the nearly 40% of low income designated credit unions in the Northwest access to capital other than retained earnings.

“These are the kinds of changes we can make when we work together for the common good,” Trull added.

According to the NCUA there was overwhelming support for allowing credit unions to count secondary capital accounts in the risk-based capital ratio numerator, and the Board received no comments opposing its inclusion.

In addition, the NCUA Board indicated plans to address additional forms of supplemental capital for all credit unions in a separate proposed rule, with the intent to finalize a new supplemental capital rule before the effective date of this risk-based capital final rule.  The Association and CUNA also appreciate NCUA Chair Debbie Matz’s reassurance that the NCUA is not currently planning a separate rule on interest rate risk.

“NCUA did a good job incorporating industry feedback into the revised rule,” said Kevin Cole, Chief Financial Officer for Maps Credit Union. “Although RBC remains a solution in search of a problem, as structured the revised rule impacts very few credit unions. Whether this remains the case going forward will largely be determined by how NCUA regulates under the rule. If the examination process reveals an excessive burden resulting from how the NCUA uses the rule, the credit union movement will need to find a legislative solution. What the industry needs to avoid is the urge to retain even more of our members’ funds at the expense of growth, innovation, and excellence in service.”

Upon the NCUA’s final vote, CUNA President/CEO Jim Nussle said, “Make no mistake—CUNA firmly believes the NCUA’s risk-based capital rule is a solution in search of a problem. Since the initial proposal 20 months ago, CUNA and the leagues worked together to execute one of the most coordinated and successful advocacy campaigns in the past 15 years to ensure we significantly impacted the final rule to get the best possible results for credit unions.”

“The strength of the CUNA-league system is evident in the final rule,” said Jenifer Wagner, SVP of Advocacy for the Association. “Our combined advocacy efforts led to a final rule that was drastically improved, and we owe thanks to our members who wrote letters, advocated on the hill, and to the two Northwest individuals who participated in the NCUA-convened RBC work group. Change like this is only possible with our members’ engagement.”

Compared to the 23 major changes that NCUA made between the first and second proposal, there were relatively few changes from the second proposal to the final rule.

The most significant were:                               

  • Reducing the effective weight for equity investments in credit union service organizations (CUSOs), perpetual contributed capital at corporate credit unions, and certain other higher risk equity investments to 100% if the total equity exposure is less than 10% of the sum of the credit union’s capital elements of the RBC ratio numerator. The NCUA estimates 95% of credit unions with such investments will receive a lower risk weight;
  • Reducing the risk weight to zero percent for share-secured loans where the shares securing the loan are on deposit at the credit union; 
  • Allowing a lower risk weight for certain charitable donation accounts; and
  • Extending the grandfathering period for certain supervisory goodwill to 2029.

CUNA sought removal of the capital adequacy provisions, reduction in a number of the risk weights, further explanation of the conditions under which goodwill could be included in the risk-based capital ratio and delaying implementation until 2021. CUNA expressed disappointment that the agency retained the “capital adequacy” requirement, and will be pushing for examiner guidance and training to place some boundaries around “this wild card capital requirement.”

Matz, during discussion of the new rule, said that the final is calibrated to affect only a “few dozen” credit union “outliers” not carrying sufficient capital to match risks on their balance sheets. All documents will be posted on the RBC resource center on the NCUA’s website,

Guidance will be put out on the rule in early 2018; the agency will not be examining for the final rule until 2019. 

Matz, in response to legislators that requested the NCUA voluntarily conduct a study on the effects of the proposal, said the agency would do so “shortly after” the board’s consideration of the rule. She said at the meeting that report should be available in a few weeks. 

Nussle remarked today, “This final rule remains deeply unpopular and CUNA is disappointed the NCUA didn’t release a study on its rulemaking approach, and its impact and costs of the rule, to lawmakers, stakeholders and credit unions before finalizing. We encourage the agency to disclose this information.”

Questions about this story? Contact James Pearson: 206.340.4790,

Posted in Advocacy News, CUNA, NCUA.