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Michigan Credit Union League

Version 2.0 of NCUA's RBC Proposal is Improvement, but Still More Work to Do

An initial reading of the NCUA's Risk Based Capital proposal shows that it is a dramatic step forward compared to the first proposal, but still could use some improvements before it becomes a final rule, according to MCUL & Affiliates CEO David Adams.

The NCUA issued the long-awaited revisions to its Risk Based Capital proposal on Jan. 15 for public comment. While CUNA and MCUL & Affiliates are still reviewing the 450-page proposal, it appears that the NCUA board got the message from the 2,000-plus comment letters that changes were needed across the board to make this proposal workable for the credit union industry.

Some of the major issues addressed were:

  • Definition of "well capitalized" reduced from 10.5 percent to 10 percent
  • Risk weights for MBLs, CUSOs, long-term investments and servicing rights reduced
  • Interest rate risk elements were stripped out, to be handled in a separate rule
  • Threshold for rule applying to a credit union raised from $50 million to $100 million
  • Removed the provision dealing with an individual minimum capital requirement
  • Compliance period moved from 18 months to January 1, 2019
  • Certain goodwill on the books would be allowed until 2025

“While MCUL and CUNA are still studying the revised RBC regulation more closely, our early reaction is that NCUA listened in part to the significant concerns expressed by the MCUL and CUNA and credit union leaders from across the country,” Adams said. “This revised regulation is much, much better than the original proposed regulation. It adversely affects far fewer credit unions.”

But Adams added that the new proposal still misses an opportunity to help credit unions do more to grow the economy.

“The NCUA still fundamentally misses the opportunity to implement a regulation that empowers more appropriate lending risk by credit unions and the associated long-term stimulus that is needed for our economy,” he said.

“However, this proposed regulation appears to make many important revisions to a proposed regulation that badly needed a complete overhaul. I'm not sure that we will ever be able to say that MCUL supports this approach to implementing risk-based capital, but for now, we can claim some success in our lobbying for a less draconian piece of regulation.”

CUNA, MCUL and several Michigan credit unions weighed in with comment letters to the NCUA regarding the first proposal. Hundreds of members of Congress also signed a letter asking the regulator to make sweeping revisions to the proposal.

Community Choice CU President/CEO Rob Bava said the new proposal is a significant improvement compared to the first one.

“The revisions take into account four areas Community Choice felt strongly about and addressed in our comment letter,” Bava said.

Specifically, he said the new proposal is improved in the following areas:

  1. The proposed cap on the Allowance Account of 1.25 percent was removed, which allows us to receive full credit for funds set aside for loan losses.
  2. The risk weighting for Member Business Loans was reduced to 100 percent similar to Basel weights for small banks.
  3. The risk weighting for CUSO investments was reduced from 250 percent to 150 percent.
  4. And examiner subjectivity as been better addressed in the revised proposal.

But he added that further improvements are still possible.

“We still feel the CUSO risk weight is too high and will likely discourage investments in CUSOs,” Bava said.

Lake Trust CU CEO David Snodgrass said the credit union is taking a close look at the new proposal.

“We’re diving in and taking another look at this version of the proposal,” Snodgrass said. “Of course, we’re all extremely interested in the impacts it’ll present for our credit unions. This thoughtful review and consideration is, again, an important opportunity to be a voice for our members. We’ll continue to be engaged in the conversation and respond in ways that better our industry for those people who depend on our organizations for the livelihood of their families and their businesses.”

MCUL and CUNA will continue to closely analyze this new proposal and we welcome your thoughts and observations on how you think this new and improved version will impact your credit union and the industry as a whole. To share your comments, contact Sarah Stevenson, Regulatory and Legislative Affairs Specialist for the league, at

CUNA's RBC Action Center has a PDF of the proposal, summaries and other resources.

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2015-01-19 00:00:00