November 01, 2018

Fed proposes tailoring regs to match risk; NAFCU urges same for CUs

Chart explaining Fed's proposed framework
A chart detailing the changes of the Fed's proposed framework for large banking organizations.

The Federal Reserve Board of Governors Wednesday released a proposed framework that would more closely align regulations with risk profiles for large banking organizations with less than $700 billion in assets. NAFCU has encouraged the NCUA to take a similar approach to provide credit unions with regulatory relief, arguing that size does not equal risk and there are other factors that should be considered when creating regulations and exemptions.

The Fed's proposed framework would create four categories of standards for large banking organizations with more than $100 billion in total consolidated assets. The Fed reserved the ability to impose stricter rules on banks with less than $700 billion in assets if they engage in higher risk activities.

Some of the changes based on risk profile would eliminate or reduce liquidity requirements, adjust risk-based capital requirements and move institutions with $100 billion to $250 billion in assets to a two-year supervisory stress test cycle. A chart explaining the changes is available here.

The NCUA currently provides an extended exam cycle of 18-months to credit unions with assets less than $1 billion, among other criteria. NAFCU has encouraged the NCUA to use its authority to return all healthy and well-run credit unions to an extended exam cycle, regardless of asset size. During testimony before the NCUA Board last month, NAFCU Board Chair Jeanne Kucey (president and CEO of JetStream Federal Credit Union) reiterated this recommendation.

The NCUA recently outlined some of its exam modernization initiatives in a letter to credit unions and as outlined in the letter, is currently considering multiple changes to the exam process.