October 26, 2015

NCUA's Fazio details final RBC rule during NAFCU webcast

NCUA's Larry Fazio detailed the goals of the agency's risk-based capital framework and how credit unions can prepare for its 2019 implementation during a free NAFCU webcast yesterday.

Fazio, NCUA's director of the Office of Examination and Insurance, said the goals of this RBC framework, presented in a final rule adopted Oct. 15, are to address current "outliers" and make sure larger, more-complex credit unions remain well-capitalized as they grow and expand. He said there are 16 credit union outliers – institutions that will need to raise more capital or adjust their portfolios to be considered adequately capitalized. He said these 16 credit unions have combined assets of nearly $10 billion.

When discussing complex versus non-complex credit unions, Fazio said the agency "looked at what was a more modern view of complex." He said the agency went with a simple asset threshold of $100 million in determining if a credit union is classified as complex based on an analysis of the activities credit unions participate in that are considered risker than others, such as business lending. He said every credit union above $100 million in assets is involved in some sort of activity deeming the credit union complex.

Explaining the implementation deadline for the rule, Fazio said "complex credit unions should keep tabs on what is going on. Starting in 2017, they should be thinking about capital adequacy plans and what their RBC ratio is." He said if the credit union is planning to make changes to their business plans, they should look at how that will affect their capital ratios.

In a Q-and-A portion of the webcast, Fazio was asked about interest-rate risk. "Interest-rate risk is a real risk," he said. He noted that the issue needs to be dealt with and he hopes the scope of it will only deal with "outlier" credit unions. He said the board does not have any plans at this time to do a rule on interest-rate risk.

NAFCU Director of Regulatory Affairs Alicia Nealon moderated Monday's webcast. NAFCU's webcasts are available on demand for up to 12 months after the live broadcast.