League Supports CCULR Proposal from NCUA, But Notes Tight Deadline Between Comment Period, Board Consideration and RBC Effective Date

The National Credit Union Administration Board unanimously approved publication of a proposed rule that will offer a new regulatory framework designed to simplify risk-based capital requirements for “complex” credit unions.

Following NCUA Board action in January 2021, complex credit unions are now defined as those with more than $500 million in assets.

NCUA’s proposal would provide two alternatives to the adoption of risk-based capital requirements by complex credit unions set to become effective on Jan. 1, 2022.

The proposed approach would retain the 2015 risk-based capital rule but enable eligible complex FICUs to opt-in to a “Complex Credit Union Leverage Ratio” (CCULR) framework to meet all regulatory capital requirements. Under the CCULR approach, the NCUA anticipates that eligible credit unions would hold higher amounts of mandatory capital above the seven percent net worth ratio in exchange for an off-ramp from the RBC Rule.

“Though supportive of the Complex Credit Union Leverage Ratio approach, your League completely agrees with board member Hood’s assessment that the underlying risk-based capital framework passed in 2015 makes for a useful tool, but it should never have become a rule,” said League President/CEO Carrie Hunt. “That said, we’re grateful NCUA is working to provide a simplified method of capital adequacy for complex credit unions and that they’re addressing a number of technical issues with the RBC rule, which is showing its age.”

“Unfortunately, we face a very tight window between the end of the comment period for this rule, consideration by the board, and the RBC rule’s effective date of Jan. 1, 2022,” said Hunt. “There are almost two dozen questions on which NCUA seeks comment, so we strongly encourage credit unions to participate in the process.”

The 60-day comment period will begin once the proposed rule is published in the Federal Register.

“We look forward to reviewing the proposal and are hopeful the CCULR will allow credit unions flexibility when complying with the risk-based capital rule, though we continue to believe the rule itself is functionally unnecessary,” said CUNA President/CEO Jim Nussle. “We support minimizing the compliance burden for credit unions that would otherwise be required to comply with the 2015 rule, and we look forward to submitting more detailed feedback to the NCUA in our comments.”

Credit unions that meet certain criteria will be eligible to opt into the CCULR framework. The minimum net worth ratio would initially be established at 9% on Jan. 1, 2022, and be gradually increased to 10% by January 1, 2024.

A complex credit union that opts into the CCULR framework would not be required to calculate a risk-based capital ratio under the Oct. 29, 2015, risk-based capital final rule. A qualifying complex credit union that opts into the CCULR framework and that maintains the minimum net worth ratio would be considered to be well-capitalized.

The proposed rule would also make several updates to the 2015 rule, including addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, deducting certain mortgage servicing assets from a complex credit union’s risk-based capital numerator, updating several derivative-related definitions, and clarifying the definition of a consumer loan.

Read the Proposed Rule

In other board action, NCUA will issue a request for information and comment regarding the current and potential impact of activities connected to digital assets and related technologies on federally insured credit unions (FICUs), related entities, and the NCUA. Among the topics discussed at the board meeting: cryptocurrencies, distributed ledger technologies, virtual currencies, digital assets and more.

Every major federal banking regulator is now looking at crypto. In addition to the NCUA, the OCC and Federal Deposit Insurance Corporation are asking similar questions with regard to crypto. The Federal Reserve is seeking feedback on a proposal to allow fintech and crypto firms access to its master accounts.

Although discussion focused mostly on how the NCUA could provide regulatory guardrails and guidance to credit unions as they explore crypto-related services, Chairman Todd Harper again noted NCUA is the only federal prudential financial agency that lacks examination authority over third-party vendors, which would, of course, be providing many of these new technologies and services to credit unions. He noted this lack of authority presents unique challenges in mitigating potential risk associated with CUSO and non-CUSO vendors.

“I very much agree that we need to close this regulatory blind spot,” said Harper.

Though your League recognizes the need for safeguards as they relate to information and financial system security, we still have concerns about NCUA not having articulated the scope of authority it is seeking with regard to supervisory authority over third-party vendors.

Read the Request for Information