Proposed Risk-Based Capital Rule Adds One Year Delay, Exempts More Credit Unions

Ninety percent of federally insured credit unions would be exempt from the NCUA’s risk-based capital rule, and covered credit unions would have an additional year to prepare, under a proposed supplemental rule (Part 702) approved by the NCUA during its meeting on Aug. 2.

“The proposed changes to the risk-based capital rule, reached through a collaborative and bi-partisan process, if finalized, would allow the agency to provide federally insured credit unions with a measure of regulatory relief without impairing the safety and soundness of the National Credit Union Share Insurance Fund,” NCUA Board Chairman J. Mark McWatters said.

“This proposed rule is a substantive solution, not just another delay,” Board Member Rick Metsger said. “It will give the agency time to finalize its systems and give the handful of complex credit unions who do not have adequate risk-based capital time to raise capital or adjust their balance sheets to achieve compliance and protect their members. This proposed rule continues the NCUA’s tradition of non-partisan problem-solving. Most importantly, it will better position the Share Insurance Fund, and the system, for the next set of challenges they face.”

The proposed rule would delay the current effective date of the risk-based capital rule approved in October 2015 to Jan. 1, 2020. The current effective date is Jan. 1, 2019.

In this graphic, two pie graphs illustrate the percentage of federally insured credit unions and the percentage of assets that are covered under the NCUA’s risk-based capital rule that was approved by the NCUA Board in 2015. The source for this information is the NCUA’s Call Report data. Only credit unions with more than $100 million in assets are considered as complex credit unions for risk-based capital purposes. This is the threshold that determines if a credit union must comply the rule. Under the current threshold of $100 million that defines a complex credit union for risk-based capital purposes, 72 percent of credit unions are not covered under the rule and 28 percent are. With this threshold, 93 percent of the system’s assets are covered by the risk-based capital rule, while 7 percent are not.

The proposed rule also would raise the current $100 million asset threshold for defining a complex credit union to $500 million. Under the proposal, more than 98 percent of all complex credit unions would be considered well-capitalized. This change also would exempt an additional 1,026 credit unions from the rule, reducing the number of covered complex credit unions from 1,557 to 531. It would also ensure that approximately 85 percent of the complex assets and liabilities and 76 percent of the total assets in the credit union system would still be subject to the risk-based capital requirement. As a result, this change in the threshold does not represent an undue risk to the Share Insurance Fund, nor significantly decreases the level of complex assets and liabilities covered by the risk-based capital requirement.

In this graphic, two pie graphs illustrate the percentage of federally insured credit unions and the percentage of assets that would be covered under the proposed $500 million threshold that would define a complex credit union for risk-based capital purposes. Under the proposed $500 million threshold 90 percent of all credit unions would not be covered the rule, only 10 percent would be. Also, 76 percent of the system’s total assets would be subject to the rule. Twenty-four percent of the systems assets would not be covered under the proposed rule.

If the rule is finalized, the NCUA’s current prompt corrective action requirements would remain in effect during the one-year delay.

Comments on the proposed rule must be received by Sept. 7. For more information or submit a comment, please visit the Federal Register.

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