April 08, 2014

Congress grills NCUA on risk-based capital

April 9, 2014 – Rep. Ed Royce, R-Calif., during a hearing Tuesday questioned NCUA General Counsel Michael McKenna on the agency's proposed risk-based capital rule, echoing NAFCU's concern that the proposal's risk weights are not accurate reflections of risk.

McKenna was testifying along with representatives from CFPB, the Federal Reserve Board, the FDIC and the Office of the Comptroller of the Currency during a House Financial Services Committee hearing titled "Who's in Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom."

While questioning McKenna, Royce asked why the proposal's risk weights are higher than those used by the FDIC when the delinquency rate at credit unions is lower than at banks.

McKenna responded that the rule is still in the proposal stage. He said NCUA has received comments on the risk-weights issue and will consider those in drafting the final rule. He also said the agency believes the risk weights are equivalent to those used by the FDIC given the unique nature of credit unions and other factors.

Rep. Brad Sherman, D-Calif., also questioned McKenna and said he thinks the proposed rule is tougher on credit unions than Basel III (a regulatory standard for banks) is on community banks.

Sherman also said credit unions should have access to supplemental capital and asked why NCUA hasn't addressed supplemental capital in its proposal. McKenna indicated that the agency may take a look at supplemental capital as the rule progresses.

Also during the hearing, Royce asked McKenna about H.R. 4226, the "Credit Union Residential Loan Parity Act," which Royce introduced with Rep. Jared Huffman, D-Calif., to exempt certain residential loans from credit unions' federal statutory cap on member business loans. McKenna said NCUA has no concerns about the bill from a safety and soundness perspective.