It is all too easy on any given day to pile on to the criticism of NCUA. That is not a practice that CU Counsel, PLLC attorneys want to adopt. NCUA Board members are conscientious and have the best interests of credit unions at heart.
Yet three major factors lead to an inescapable conclusion that now is not the time for the RBC rule that despite the dissent of Board Member McWatters, NCUA adopted on a 2-1 vote today (October 15, 2015, International Credit Union Day).
First, it is an unavoidable realization that the agency has not satisfactorily addressed legal issues associated with the final RBC rule. Namely, there isn’t legal authority for a two-tiered risk based capital system that imposes a higher RBC requirement on well versus adequately capitalized credit unions. There are other unresolved legal issues as well, such as the definition of ‘complex’ credit unions, which ignores the FCU Act’s directive to take into account the assets and liabilities of covered credit unions. And, there is the concern about the imposition of even higher capital requirements on a case-by-case basis.
Second, the final rule comes at a time when the financial performance of the credit union system under the current PCA system continues to excel. Despite the significant costs of this rule that the agency estimates, NCUA has not sufficiently explained how this RBC rule would have actually prevented failures during the financial crisis or will preclude them in the future.
Third, in addition to the Stop and Study bill in the House, House Financial Services Chairman Hensarling has written to NCUA to urge the agency to hold off on the rule until the overriding legal and economic issues can be addressed.
The final RBC rule includes a number of changes and does not take effect until January 1, 2019. Those are positive steps. But those factors do not come close to balancing out the critical problems with this rule that NCUA has not resolved.
In the face of the major obstacles with the rule, the most reasonable course of action is not to proceed but to step back, consider whether serious questions can be sorted out and if not, move on to a better solution that is legal and will further safety and soundness. The Independent Bankers have had some success changing recent rules even after they are adopted, and this regulation does not have to be a done deal.
Reasonable people can and do disagree but there is still time for further study. There is no raging fire that must be put out…rather it is the RBC rule that needs to be extinguished and a better approach developed.