Mellin: RBC measure must allow for supplemental capital


In a recent letter to NCUA, New York Credit Union Association President/CEO William J. Mellin commended the agency for continuing to work with stakeholders to improve its risk-based capital rule, although the Association still feels implementing a capital ratio measure is unnecessary.

In January 2014, the NCUA board of directors issued a proposed rule to amend NCUA’s Prompt Corrective Action regulations to require federally insured, natural person credit unions with over $100 million in assets engaged in certain higher-risk activities to hold capital commensurate with the heightened risk. The proposed rule sought to require higher risk-based capital requirements based on a variety of risk factors rather than focusing primarily on interest rate risk, and assign specific risk weights to each factor.

After reviewing and considering more than 2,000 comments from stakeholders, the board issued a second proposed rule the following year at its January 2015 meeting. Among other changes adopted by the board based on the comments it received, the second proposal increased the asset threshold for a “complex” credit union for which the new risk-based capital ratio measures would apply from $50 million to $100 million and extended the effective date to January 2019.

On Aug. 8, 2018, the board issued a Supplemental Proposed Rule to address comments received from stakeholders in response to the second proposal. The supplemental proposal would increase the asset threshold for defining a credit union as “complex” and thereby triggering the new risk-based capital requirement from $100 million to $500 million. Additionally, the supplemental proposal delayed the effective date of the 2015 final rule by one year to January 1, 2020.

Mellin noted that New York’s credit unions appreciated the changes made in the supplemental proposal, but he said that implementing the risk-based capital ratio measure is unnecessary, calling the rule “a solution in search of a problem” that would “impose significant regulatory burdens on many of New York’s credit unions without protecting against losses to the Share Insurance Fund in a meaningful way. Accordingly, the risk-based capital rule is unnecessary and should not be implemented.”

He called on the agency to raise the compliance threshold to $10 billion in assets, which is consistent with recommendations from the U.S. Treasury Department.

Mellin went on to write that NCUA should use the delayed implementation period to consider broader capital reforms, including allowing credit unions to use supplemental capital to meet their risk-based capital requirements. He explained that the ability to take on supplemental capital would allow credit unions to expand products and services without diluting their regulatory capital.

“The purpose of the risk-based capital rule is to mitigate risks to the Share Insurance Fund. Authorizing credit unions to take on additional loss-absorbing capital would further that goal by creating a buffer for the Share Insurance Fund,” said Mellin.

He concluded: “NYCUA continues to support the implementation of a supplemental capital rule that would allow credit unions to use supplemental capital to meet their risk-based capital requirements and urges the NCUA to implement a supplemental capital rule expeditiously.”




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