Following a meeting with National Credit Union Administration (NCUA) Board Chairman Debbie Matz, Congresswoman Member Maxine Waters, Ranking Member of the Financial Services Committee, shared views with NCUA’s proposed risk-based capital rule for federally-insured credit unions. 

In a letter to Matz, Waters underscored her support for NCUA’s efforts to revise its capital rules, but also expressed concerns with the unintended consequences of the proposed rule. Specifically, the Ranking Member stated that the current proposal does not allow for examiners to impose capital requirements on credit unions that are tailored to the individual risks of the credit union’s portfolio.

“While I support the NCUA’s efforts to revise its capital rules to ensure that lessons learned from the crisis are not forgotten, it is also important that those rules retain the strengths of the current examination process without unintentionally forcing examiners or credit unions to merely check boxes, especially with regard to concentration and interest-rate risks. Although the statute dictates the NCUA’s regulations must address concentration and interest-rate risks, the current proposal does not allow for examiners to impose capital requirements on credit unions that are tailored to the individual risks of the credit union’s portfolio,” Waters wrote.

Waters also inquired about whether an alternative rule could be promulgated that triggers a review based upon metrics. For example, if the examiner determines that the risks identified upon review remain unaddressed, the credit union would then be required to hold more capital.

The text of the letter can be found below. A signed version is available online.

July 31, 2014

The Honorable Debbie Matz
Chairman
National Credit Union Administration Board
1775 Duke Street
Alexandria, VA 22314
 
Dear Chairman Matz:

Thank you for meeting me yesterday to discuss the National Credit Union Administration’s (NCUA) proposed risk-based capital rule for federally-insured credit unions.  I share your desire to modernize NCUA’s Prompt Corrective Action regulations to provide for a more resilient credit union system, as well as to better align rules for credit unions with those for banks. Credit unions, as non-profit cooperatives, have consistently met their members’ credit needs for generations, and performed comparatively well during the financial crisis.

While I support the NCUA’s efforts to revise its capital rules to ensure that lessons learned from the crisis are not forgotten, it is also important that those rules retain the strengths of the current examination process without unintentionally forcing examiners or credit unions to merely check boxes, especially with regard to concentration and interest-rate risks. Although the statute dictates the NCUA’s regulations must address concentration and interest-rate risks, the current proposal does not allow for examiners to impose capital requirements on credit unions that are tailored to the individual risks of the credit union’s portfolio. In our discussions, you acknowledged some of these unintended consequences, such as how the rules would affect credit unions that fund taxi medallions or finance agriculture loans. I encourage you to continue looking at other credit unions that may adversely be affected.

Given that Congress requires the NCUA to address all material risks in its net worth calculation, I would like to know if the NCUA could, as an alternative to the proposed rule, rely on metrics triggering a review by both the credit union and NCUA examiner. If the examiner determines that the risks identified upon review remain unaddressed, the credit union would then be required to hold more capital. Concentration and interest rate risks have long been part of the supervisory dialogue of credit unions and their examiners, and should continue to be.

I applaud the NCUA’s effort to reform capital standards for credit unions and appreciate your outreach to my office.  As you review the proposal and comments, please continue to take every effort to ensure that credit unions and banks are regulated comparably.
               
Sincerely,

Maxine Waters
Ranking Member

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