The National Credit Union Administration approved the final version of its risk-based capital rule, delaying its implementation by one year to Jan. 1, 2020.
The intent of the rule is to force the largest credit unions in the U.S. to hold more capital and thus reduce the likelihood of those institutions exhausting their capital and causing large losses to the share insurance fund.
The NCUA board initially approved the risk-based capital rule at its October 2015 meeting. At that point, the rule was slated to take effect Jan. 1, 2019. But at its Oct. 18 meeting, NCUA staff said a one-year delay will give credit unions and the regulator more time to update their systems and policies and for the NCUA to provide additional training.
Chairman J. Mark McWatters called the extension "very generous" and said the new effective date strikes a balance between the original 2019 implementation and a longer delay sought by some. "You have to draw the line somewhere, and I would not be inclined to go beyond that," he said. "If Congress does, then Congress is certainly going to do that."
The regulator said credit unions will have had more than four years to prepare for the rule by the time it is implemented. Still, a few of the 38 comment letters the NCUA received on the proposal suggested the delay should be for at least two years.
Credit Union National Association President and CEO Jim Nussle called the rule "a move in the right direction and a commendable compromise." CUNA has advocated for an additional year for the rule to be implemented.
CUNA Chief Advocacy Officer Ryan Donovan recently called the rule good but imperfect. "While CUNA supports a longer delay and other substantive modifications to the rule, the proposal's changes are important and will provide relief," Donovan said.
The NCUA board also raised the asset threshold of credit unions that would be impacted by the rule from $100 million to $500 million. That change exempts an additional 1,026 credit unions from the rule. Only 531 credit unions will be subject to the final rule when it goes into effect.
McWatters said raising the asset threshold to $500 million does present concerns about safety and soundness. But he added that 70% of assets in the credit union system will still be covered. The higher threshold increases risk to the system but also provides some regulatory relief, he said.
The NCUA said it will continue to address capital deficiencies for credit unions below $500 million through the examination process.
Board member Rick Metsger called the process leading to the risk-based capital rule "one of the largest and longest debates in credit union history." He said the average complex credit union today has 18% risk-based capital, which is 800 basis points more than what would be required to be considered well capitalized.
Metsger said the NCUA can now turn its attention to other issues including developing an alternative capital rule to help those larger credit unions reach the required capital levels. The regulator in 2017 issued a notice of proposed rulemaking on alternative capital, and Metsger believes the implementation date of that rule could coincide with the risk-based capital rule.