Advance Notice on Proposed Rulemaking on RISK BASED Capital Requirements COMMENTS DUE!


COMMENTS DUE MAY 10TH!!!



In January By a 2-1 vote, the Board approved an advance notice of proposed rulemaking (ANPR) that seeks comments on two alternative approaches to simplify risk-based capital requirements.


The Board’s current risk-based capital requirements are set forth in a 2015 final rule, which is scheduled to become effective on Jan. 1, 2022.


In December 2019 meeting, the NCUA delayed the effective date of the final risk-based capital rule by providing additional time to evaluate the capital standards for federally insured credit unions that are classified as “complex” or those with total assets greater than $500 million.


WHAT ARE THE PROPOSED ALTERNATIVES?


The first approach would replace the risk-based capital rule with a risk-based leverage ratio requirement, using relevant risk attribute thresholds to determine those complex credit unions required to hold additional capital.


In my opinion this is a promising potential improvement for the credit union industry.


The second approach would retain the 2015 risk-based capital rule but enable eligible complex federally insured credit unions to opt-in to a “complex credit union leverage ratio” framework to meet all regulatory capital requirements. The complex credit union leverage ratio approach would be modeled on the community bank leverage ratio framework, which is available to certain banks.


This too is a promising potential improvement, providing the "opt-in" approach gives credit unions more paths to choose that best fit your credit union.


WHAT TO WATCH FOR?


Chairman Todd Harper voted against this proposal. With comments due May 10th, it will be interesting to watch what the board does on this later this year. With two Republican Board members we could see a this rule come forward without the support of the Board Chairman. That would be a historical occurrence at NCUA.


In any event, without action by the NCUA Board, the current rule goes into play January 1, 2022.


I predict that rule will be delayed as a compromise, or one of the two proposals in the ANPR will be approved by the Board.




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A link to the proposed ANPR follows:


https://www.ncua.gov/files/agenda-items/AG20210114Item9b.pdf


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