MCUL Comments on NCUA’s Risk Based Capital 2
MCUL & Affiliates submitted its comment letter to the NCUA addressing the regulator’s Risk Based Capital 2 proposal on April 27. In its comment letter, MCUL commended NCUA on the significant changes made based on comments received regarding the original proposal.
MCUL also took the opportunity to address critical components of the proposal, specifically:
- The need for access to supplemental capital
- The new requirement that every credit union develop a Capital Adequacy Management Plan
- The high risk weightings for CUSO Investment and Mortgage Servicing Assets
MCUL discussed at length the need for access to supplemental capital as credit unions are unique as the only depository institutions in the country without the ability to issue some form of capital instrument to augment retained earnings in order to build capital.
NCUA embedded within the RBC2 proposal a requirement for “complex” credit unions to develop a Capital Adequacy Management Plan. MCUL discussed the NCUA’s proposed requirement for credit unions to develop a comprehensive written strategy regarding desired levels of capital, as well as strategies to maintain such levels. The concern is the NCUA’s ability to then utilize such goals and benchmarks in examinations, providing examiner subjectivity on a different level. This new requirement would ultimately permit an individual examiner to disapprove a single credit union’s plan, thus requiring higher levels of capital for an individual credit union. While the NCUA removed from this proposal the Individual Minimum Capital Requirements they have replaced it with the Capital Adequacy Management Plan thus never removing the examiner subjectivity.
The risk weightings of 250 percent for Mortgage Servicing Assets and 150 percent for CUSO Investments remain a key concern. The MCUL stated that the regulator has failed to recognize the benefit such investments and assets provide to credit unions and their membership.
In closing, MCUL discussed Chair Debbie Matz’s comments at the 2015 CUNA GAC indicating 2015 will be the “year of regulatory relief,” and subjecting credit unions to yet another rule is unnecessary and results in undue burden, especially provided that sound guidance and regulation already exists and is being utilized effectively and efficiently. NCUA’s focus should be squarely on the exceedingly small number of institutions that may be considered severe outliers. The NCUA can easily identify such severe outliers during the examination process and undoubtedly has done so already. Due to the unique issues in such an institution, MCUL believes NCUA should concentrate resources to them separately during the examination process.
The MCUL’s letter in its entirety can be found here.