The National Credit Union Administration board agreed Thursday to solicit comments on a proposed rule that would amend the agency’s capital adequacy regulation governing credit unions with assets over $500 million.
The proposed rule would allow such credit unions that maintain the minimum net worth ratio to opt into the complex credit union leverage ratio. The minimum net worth would be set at 9% on Jan. 1, 2022 and gradually increase to 10% by Jan. 1, 2024.
Board Chairman Todd Harper and Vice Chairman Kyle Hauptman voted for the plan and board member Rodney Hood “begrudgingly” endorsed it.
Harper said the proposal is a balanced approach that is comparable to those developed by the other banking regulators. “It strengthens the system’s capital levels and provides complex credit unions with a streamlined approach to managing their capital,” he said.
Harper added that he believes that all financial institutions should hold capital equal to the risks on their balanced sheets.
Hauptman said that the chief benefit of the proposal is that it would allow some credit unions to bypass a risk-based capital approach. “For me, the point of this simpler leverage ratio is that it protects both credit unions and the Share Insurance Fund from the inevitable problems associated with risk-weightings,” he said.
In expressing his reservations, Hood said, “Risk is something that you manage every day, not a formula you can run on your balance sheet.” He said that the activities that credit unions engage in are more important in identifying risk than the size of an institution.
Hood added that he also would prefer to indefinitely set aside the agency’s upcoming Risk-Based Capital rule. “This is a rule that was passed in 2015, and it will be eight years old by the time it goes into effect,” he said, adding, “The world has changed since 2015.”
In other business, Harper said that the board had agreed to delay consideration of the agency’s strategic plan, saying that the delay would give the board more time to try to reach a consensus on issues. He did not elaborate on issues that divided the board, but sources told the Washington Credit Union Daily that board members could not agree on how climate issues should be addressed in the document.
The board also agreed to solicit comment on the impact that digital assets and related technologies may have on credit unions and the NCUA. “This notice is the logical next step in laying the groundwork for federally insured credit unions to operate in this arena, but we must recognize that this space continues to quickly evolve.,” Harper said.
Hood said that credit unions should look carefully at how technological tools may fit into their business models.
Hauptman also endorsed the plan to solicit comments on the issue. “I’m pleased to see agreement at NCUA that early regulatory clarity is better than waiting until credit unions are left behind in a changing marketplace,” he said. “The last thing we want is for credit unions to go the way of Blockbuster Video because their regulator didn’t allow them to compete.”