Hensarling, Moore, Capito weigh in on NCUA RBC Proposal

(June 20 ,2014) — House Financial Services Committee Chairman Jeb Hensarling (R-Texas) and Rep. Shelley Moore Capito (R-W.Va.), Chairman of the House Financial Services subcommittee on financial institutions and consumer credit, joined forces today in a letter to the National Credit Union (NCUA) Administration on their proposed risk-based capital proposal. The lawmakers urge the Agency to consider whether its proposed risk weights – which deviate markedly in some areas from the standards banking regulators have applied for banks – are appropriate.

At issue is NCUA’s proposal that would impose on credit unions with greater than $50 million in assets new standards that would restructure the agency’s current “prompt corrective action” regulation to involve calculation of a capital-to-risk-assets ratio.

Full text of the letter below:

June 20, 2014

The Honorable Debbie Matz


June 20, 2014

National Credit Union Administration

1775 Duke Street

Alexandria, VA 22314-3428

Chairman Matz:

We are writing you regarding the National Credit Union Administration’s (NCUA’ s) proposed rule on risk based capital, published in the Federal Register on February 27, 2014.

We share the NCUA’s goal to “help creditunions better absorb losses and establish a safer,more resilient and more stable credit unionsystem.”1 Financial institutions that maintainsubstantial capital buffers are better able to absorb losses during times of economic downturn or crisis. We are also encouraged byyour desire to “incorporate the lessons learned” from the recent failures of credit unions, for which both those credit unions and you, as their regulator, bear responsibility. However, we have some concerns about specific provisionsof the proposed rule.

The proposed rule notes that in “developing the proposed risk-weights, the NCUA reviewed the Basel accords and both the U.S. andinternational banking system’s existing riskweight measures.” While we agree with your desire to apply capital standards to creditunions that are similar to those that apply toother insured depository institutions, as theNCUA did not participate in the negotiations ofthe Basel Accords, careful consideration iswarranted before applying these internationalstandards to American credit unions.

The proposed rule will require affected creditunions to hold higher levels of capital if thecredit union has high levels of concentration inassets like mortgages, member-business loans,and long term investments. While we agree thata credit unions’ concentration risk should be closely monitored, it is our understanding that this risk is considered as part of the supervisoryand examination process. To the extent thatNCUA examiners already have the ability tomitigate concentration risk through other regulatory actions, it appears that the inclusionof concentration risk as part of the calculation of capital rules could be redundant and placecredit unions at a competitive disadvantagerelative to other insured depository institutions.We are concerned such a one-size-fits-all approach could result in less credit availabilityfor credit union members. Although there isprecedent for mitigating concentration riskthrough capital requirements, we urge you toclosely study the economic impact its inclusion will have on the availability of credit for creditunion members, and whether the costs of its continued inclusion outweigh its benefits.

NOTE: 1 79 Fed. Reg. 11186.

We are also concerned that the proposed implementation period of 18 months isunnecessarily short. An extended implementation period will not only allow credit unions more time to raise capital, if needed, but it will also allow all affected credit unions sufficient time to adjust their internalsystems to be in compliance with the final risk weights.

We thank you for your consideration of these concerns. If you have any questions regardingthis letter, please do not hesitate to contactAaron Sporck or Beth Zorc at 202-225- 7502.




Committee on Financial Services



Subcommittee on Financial Institutions andConsumer Credit

Cc: The Honorable Maxine Waters

Cc: The Honorable Gregory Meeks

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