NCUA’s RBC2 remains fundamentally flawed

CUNA urges NCUA withdraw proposal; substantial improvements offered

WASHINGTON, DC (April 17, 2015) – The Credit Union National Association (CUNA) firmly believes that the National Credit Union Administration’s (NCUA) second Risked-Based Capital proposal (RBC2) remains fundamentally flawed and should be withdrawn, CUNA states in the association’s comment letter on the proposal. If the agency finds the proposal necessary, CUNA strongly urges the agency to make the substantial improvements recommended to the agency in its comment letter.

“We listened to our members in developing this letter on NCUA’s risk-based capital proposal,” said Jim Nussle, President and CEO of CUNA. “We heard from CUNA’s Governmental Affairs Committee and its Examination and Supervision Subcommittee, from members of CUNA’s CFO Council, from many credit union CEOs and volunteers, and from leagues. Their input was vital in shaping our response to what I believe is a solution in search of a problem that doesn’t exist.”

Withdrawing the proposal, CUNA’s letter states, is essential because the agency has failed to demonstrate the need for the proposal:

  • The proposed rule, and other recent NCUA initiatives, goes too far in treating credit unions like banks, ignoring the importance of the credit union difference as cooperative, not-for-profit, member owned and directed institutions. If credit unions are regulated and supervised more and more like banks, they will act more and more like banks. That would be a tragic loss for the consumers of financial services in America’s working and middle class.
  • CUNA holds firm to the view that NCUA does not have the legal authority to impose a two-tiered RBC system.
  • The strong performance of credit unions and the NCUSIF during and after the financial crisis demonstrates there is no need for a major overhaul of credit union capital requirements.There is virtually no evidence of the need for a revision of credit union capital standards, particularly one modeled on commercial bank Basel-style risk-based capital requirements, and CUNA can’t find any evidence that had RBC2 been in place before the crisis that it would have reduced NCUSIF losses in any noticeable way.

In the event that the proposal isn’t withdrawn and the agency believes the new rule is necessary under current law, CUNA recommends a number of changes and further improvements outlined in its letter, including:

  • The new proposed capital adequacy provisions, beyond net worth and RBC ratio requirements, should be removed. These provisions would grant examiners considerable latitude to determine whether a credit union needs more capital even if it is well-capitalized according to standard net worth and risk-based capital ratio requirements.
  • A number of the risk weights should be lowered.
  • NCUA should provide a better tailored definition of “complex” to ensure that the only credit unions covered are those with activities that pose extraordinary risk, beyond routine loans and investments, for which their adequately-capitalized-level net worth does not provide adequate protection. The definition should be based on something more than simply asset size, and should be limited to credit unions of at least $500 million in assets.
  • The conditions under which goodwill could be included in the RBC ratio should be expanded and all previous supervisory goodwill should be grandfathered without time limit, subject to regular impairment testing.
  • NCUA should minimize the burden on credit unions of expanding the Call Report for purposes of RBC2, and consider an approach where credit unions will have the optionof providing the additional, detailed information provided in the proposal.
  • NCUA should allow credit unions to use supplemental capital in meeting RBC requirements.
  • A separate interest rate risk rule is unnecessary because examiners have sufficient tools to supervise interest rate risk.
  • The implementation of RBC2 should be delayed until 2021, to coincide with expected refunds from the Corporate Stabilization Fund.

The association’s letter states that CUNA believes “the proposal is fundamentally flawed and, in certain areas, exceeds NCUA’s statutory authority.  We urge NCUA to withdraw the proposal and, in lieu of that, we strongly encourage NCUA to make substantial improvements to the proposal consistent with our comments herein.”

The complete text of the CUNA letter is here.

About CUNA:

With its network of affiliated state credit union leagues, Credit Union National Association (CUNA) serves America’s credit unions, which are owned by more than 100 million consumer members. Credit unions are not-for-profit cooperatives providing affordable financial services to people from all walks of life. For more information about CUNA, visit or follow @CUNA on Twitter. For more information about credit unions, visit and follow @asmarterchoice on Twitter. Visit the CUNA Press Room for a full listing of media mentions, press releases and resources to stay informed on current events within the credit union industry.

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