The Final RBC Rule…The Big Picture Highlights At A Glance
CU Counsel, PLLC will be posting a more detailed summary of the final RBC rule shortly. Like all of our regulatory summaries, our analysis will be available to all visitors to our website.
Meanwhile, here are key elements of the rule. It was adopted October 15, 2015, with NCUA Board Member McWatters voting against adoption.
RBC Regulation Highlights
When Is It Effective?
January 1, 2019
Which CUs Are Covered?
Federally insured credit unions with assets over $100 million at quarter-end.
What Does It Do?
- The RBC rule requires a covered well-capitalized credit union to maintain a 10% RBC ratio and a covered adequately capitalized credit union to maintain an 8% RBC ratio.
- It replaces the current system for applying risk-based net worth requirements to complex credit unions under the prompt corrective action rules with a new method for determining risk-based capital. The new approach is generally comparable to that applied to banks.
- It utilizes a new risk-based capital ratio measure that is determined by dividing a covered credit union’s capital, as defined under the rule, by the credit union’s risk-weighted asset base, also as determined under the rule. The final rule provides the risk weight to be used for each asset in determining the RBC ratio.
What About IRR?
The rule does not specially address interest rate risk, but NCUA has stated it may consider additional regulatory or supervisory approaches to IRR in the future.
Can Additional Capital Be Required of Covered CUs Under the Rule?
Yes. The rule provides the minimum regulatory capital for a covered credit union and adds a provision that covered credit unions must have a written strategy for assessing and maintaining adequate capital in relation to their risks. This plan and its implementation will be subject to examiner review, as well as a covered credit union’s compliance with the other aspects of the rule. The final rule does not generally change net worth requirements or other PCA provisions currently in place.
What Other Changes were Made to the Final Rule?
- assigning a lower risk weight to non-significant equity exposures and certain share-secured loans;
- giving credit unions the option to assign a 100 percent risk weight to certain charitable donation accounts;
- permitting credit unions to use the gross-up approach for non-subordinated investment tranches;
- assigning principal-only mortgage-backed-security Strips a risk-weight based on the underlying collateral;
- extending the period during which credit unions can count supervisory goodwill and supervisory other intangible assets in the risk-based capital ratio numerator;
- incorporating the text of the gross-up and look-through approaches into a new appendix A to the PCA rules. The final rule also makes conforming and other minor changes to NCUA’s regulations.