Final Rule on Risk-Based Capital
The NCUA issued a Final Rule on Risk-Based Capital Measures, delegated authority to the Office of Consumer Protection for approval of Community Charter Requests, issued a Proposed Rule making technical corrections for permissible Investment Activities, and received a quarterly report on the (National Credit Union Share Insurance Fund (NCUSIF). During the closed portion of the meeting the NCUA considered two Supervisory Actions and one Personnel matter. These items were closed to the public.
I. Final Rule – Part 702, Prompt Corrective Action and Risk-Based Capital Measures
This rule modernizes NCUAs risk-based capital standards to require credit unions with assets over ($100 million), which NCUA deems as complex to hold capital commensurate with their risk. This is an improvement over the last RBC2 proposal with many of the changes coming as a result of CUNA, League/Association, and credit union input. The new rule makes the following changes from the proposed rule:
1. Assigns a risk weight of 100 percent to all equity exposures when total equity exposures at a complex credit union are less than 10 percent of the risk-based capital ratio numerator. Equity exposures include investments in CUSOs, capital in corporate credit unions, and any other equity exposures;
2. Revises the risk weight for share-secured loans to zero percent where the shares securing the loan are on deposit at the complex credit union; and
3. Allows a lower risk weight for certain charitable donation accounts.
The final rule contains revisions to certain definitions to improve clarity and now contains an appendix describing alternative approaches which can be used to determine the risk weights assigned to certain assets.
Risk weights appear to be comparable to risk-based capital measures used by the FDIC, Fed Reserve, and OCC. NCUA states that after updating the Call Report system, CUs will have the ability to compare the regulatory risk-weighted capital measurements for complex credit unions to other federally insured depository institutions.
The effective date for the changes go into effect in January 1, 2019.
Please note that the rule is 424 pages long. CUNA will continue to analyze the rule and will provide a more thorough review shortly.
II. Delegations of Authority, Approval of Community Charter Requests
This amendment delegates the Director of the Office of Consumer Protection (OCP) to approve all community charter actions. This will enable the agency to speed up chartering issues and take action at the most efficient level consistent with supervisory control. Doing so is also consistent with the Board’s policy of providing such regulatory relief to credit unions as may be accomplished without sacrificing safety and soundness. Many of these changes were direct result of CUNA/League efforts on Field of Membership issues. We anticipate further changes/relief in this area as well.
It should be noted that the proposed changes to the delegations specifically limit the authority of the Director to redelegate. Action on any matter involving a large population community credit union that currently requires Board approval may not be redelegated by the OCP Director, but instead must remain at the Director level. Moreover, all such matters will continue to require review and comment from E&I before they may be approved. Importantly, the Board will continue to review all appeals of disapprovals.
III. Proposed Rule, Part 703.14, Permissible Investment Activities – Bank Notes
This proposed rule amends the maturity requirement for bank notes to be permissible investments for federal credit union by removing the word “original” from the current requirement that bank notes have “original weighted average maturities of less than 5 years.
The rule Provides flexibility to credit unions in purchasing bank notes. The suggestion came from a call to the investment hotline at NCUA. This change is largely a technical change.
Board member McWatters suggested that of all the regulatory review items pending this was not the highest priority that could be dealt with during the discussion but did not oppose the substance of the rule. He did ultimately vote against the rule based on the procedural issues.
IV. Quarterly Report – Share Insurance Fund
NCUA staff briefed the Board on the status of the National Credit Union Share Insurance Fund (NCUSIF). Staff noted that the NCUSIF ended the third quarter of this year with an equity ratio of 1.29% and continued to reflect stable trends in income and operating expenses. Investment and other income was at $56.8 million, and operating expenses were at $49.0 million. The percent of CAMEL Code 4/5 Shares to total Insured Shares stood at 0.81%. The number of credit union failures in 2015 sits at a 5 year low of 11.