We believe that capital standards for credit unions must be modernized and reflect the realities and challenges of the 21st century financial marketplace. NAFCU remains concerned about the impact the risk-based capital rulemaking will have on the credit union industry, including regulatory burden and increased costs. NAFCU continues to advocate for additional capital flexibility and in July 2020 submitted a comment letter expressing support for the NCUA proposal to allow certain credit unions the ability to issue subordinated debt. The NCUA’s subordinated debt final rule incorporated some of NAFCU’s suggestions and will take effect on January 1, 2022.
Risk-Based Capital Rule
NAFCU supports an appropriate risk-based capital system for credit unions, but has been opposed to the NCUA's risk-based capital rulemaking since its passage and has urged the rule be modified or the effective date delayed, particularly because of increased regulatory burdens and costs. Although the NCUA acted in October 2018 to delay the rule by one-year and to implement a higher asset threshold for a credit union to qualify as “complex,” NAFCU continued to push for an additional delay. At their July 2021 meeting, the NCUA Board approved the Complex Credit Union Leverage Ratio (CCULR) proposed rule that would create a simple measure of capital adequacy for complex credit unions with greater than $500 million of total assets. NAFCU continues to advocate for changes to the RBC rule, including a definition for complex credit unions that takes into account risk-based activities and does not rely on an arbitrary asset-based threshold.
Subordinated Debt
NAFCU has long advocated for regulatory reform that would authorize credit unions to issue supplemental capital. We believe that this is an option for improving capital buffers, encouraging growth, and meeting regulatory capital requirements – so long as it is compatible with the not-for-profit, cooperative structure of credit unions. NAFCU’s approach to subordinated debt emphasizes the following general principles:
- Preserve the not-for-profit, mutual, member-owned and cooperative structure of credit unions and ensure that ownership interest (including influence) remains with the members.
- Ensure that the capital structure of credit unions is not fundamentally changed and that the safety and soundness of the credit union community as a whole is preserved.
- Provide a degree of permanence such that a sudden outflow of capital will not occur.
- Allow for a feasible means to augment supplemental capital.
- Provide a solution with market viability.
NAFCU also supports changes to the Federal Credit Union Act that would permit credit unions to count certain forms of supplemental capital towards the net worth ratio calculation to alleviate current constraints on building net worth.