Recent Activity
Risk-Based Capital Rule
In August 2018, the NCUA proposed amendments to the 2015 risk-based capital (RBC) rule, including changes to the definition of a complex credit union and a delay of the effective date by one year, to January 1, 2020. The proposal amended the definition of a “complex” credit union for risk-based capital purposes by increasing the threshold level for coverage from $100 million to $500 million. At the NCUA Board’s October 2018 meeting, Chairman McWatters and Board Member Metsger voted to finalize the rule. NAFCU thanked the NCUA Board for revisiting the rule, but emphasized that statutory changes are required to provide credit unions with a modern capital regime, and that the risk-based capital rule should be significantly revised or withdrawn prior to its implementation date (full comments here).
On April 8, 2019, Rodney Hood and Todd Harper were sworn into the NCUA Board, and Hood was named Chairman. McWatters remains on as a Board Member. At their June meeting, the NCUA Board approved a proposal to further delay implementation of the risk-based capital rule to January 1, 2022. Chairman Hood and Board Member McWatters voted for the proposal, while Board Member Harper voted against it. The proposal was finalized at the December 2019 Board meeting. NAFCU supports the delay, especially given concerns that the NCUA’s current definition of “complex” is overly simplistic and the NCUA’s commitment to further consider asset securitization, subordinated debt, and a community bank leverage ratio (CBLR) analog.
The NCUA Board approved a proposed rule during their July 2021 meeting that would modify the RBC rule to create a new method for complex credit unions to qualify as “well-capitalized.” Credit unions with greater than $500 million in total assets and that meet other eligibility requirements could opt in to the Complex Credit Union Leverage Ratio (CCULR) framework, an alternative to subjective risk-weighting determinations required by the RBC rule. NAFCU issued a Regulatory Alert that explains the CCULR proposed rule. The NCUA published the CCULR final rule in December 2021. The final rule, which NAFCU analyzed in a Final Regulation, incorporated NAFCU’s requests for a CCULR level of 9 percent and a simplified opt-out process, as well as an improvement to the treatment of goodwill.
On the legislative side, bipartisan legislation to delay the effective date of the RBC rule to January 1, 2021 passed in the House of Representatives three times in 2018 as part of larger packages. For example, it passed as part of the FY 2019 Financial Services and General Government appropriations measure. It was also a part of the House amendments to S. 488, the JOBS and Investor Confidence Act of 2018, which passed the House 406-4. NAFCU lobbied Congress for a further delay, listing the request as a priority for 2019 (see NAFCU’s letter to the House and Senate). Additionally, as part of its coronavirus advocacy efforts, NAFCU asked Congress in a letter to House Financial Services Committee (HFSC) Chairwoman Maxine Waters and HFSC Subcommittee Chairs to permanently grandfather “excluded goodwill” and “excluded other intangible assets” in the RBC calculation for credit unions. NAFCU has also lobbied for capital flexibility for credit unions equivalent to community banking provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Subordinated Debt
In February 2017, the NCUA issued an advance notice of proposed rulemaking (ANPR) on then-termed “alternative capital” (you can read NAFCU’s Regulatory Alert on the ANPR here). The ANPR included discussion of both supplemental capital and secondary capital, which the NCUA now regards as subordinated debt, and described how enhanced regulatory capital treatment of these instruments could be accommodated under existing NCUA rules. NAFCU supports a framework for authorizing subordinated debt and enhancing regulatory capital treatment so long as it does not conflict with the mutual, cooperative structure of credit unions. The NCUA’s subordinated debt final rule was published in December 2020 and will take effect on January 1, 2022. NAFCU released a Final Regulation that analyzes the impact of the new rule.
In January 2020, the NCUA proposed a rule that creates a new subpart within the final RBC rule to address the requirements for treatment of subordinated debt. The proposal allows low-income credit unions (LICUs), complex credit unions (as defined in the RBC rule), and newly-formed credit unions to issue subordinated debt for the purposes of regulatory capital treatment. It also introduces new requirements that are designed to enhance protections for investors and tightens eligibility standards for issuing credit unions. NAFCU issued a Regulatory Alert in March 2020 outlining the NCUA’s rule.
In a final rule published in December 2021, the NCUA amended the definition of “grandfathered secondary capital” to accommodate credit unions affected by delays in the Treasury Department’s Emergency Capital Investment Program (ECIP). NAFCU anticipates that the NCUA will issue a rule in 2022 to extend the maturity limit for ECIP funding. NAFCU issued a Final Regulation that fully analyzed this rule.
Capital Planning and Stress Testing
On April 25, 2018, the NCUA published a final rule amending Part 702 of its regulations to provide covered credit unions (i.e., those with $10 billion or more in total assets) with a more flexible framework for meeting capital planning and stress testing requirements as they grow. NAFCU has prepared a Final Regulation that analyzes the new rule.
While the final rule’s tiered regulatory approach provides some flexibility for credit unions just crossing the $10 billion asset threshold, it is fundamentally limiting – particularly for the largest credit unions. NAFCU believes that capital planning requirements should not only be tailored based on the complexity and financial condition of covered credit unions, but also contextualized in terms of overall industry risk.