As Prepared for Delivery on July 22, 2021
Our core mission as an agency is to maintain a safe and sound credit union system and be good stewards of the National Credit Union Share Insurance Fund. Moreover, the Federal Credit Union Act requires the NCUA to maintain a system of prompt corrective action for federally insured credit unions that is based on an institution's level of capital that is its net worth. The act also requires us to maintain a risk-based net worth requirement for those institutions we deem to be complex credit unions. These are serious responsibilities, which we must faithfully uphold, and I would be derelict and feckless of my responsibilities if I did not do so.
In 2019, as then-Chairman, I worked with the Board to delay the risk-based capital rule for two years to holistically evaluate the NCUA's capital standards to ensure they would serve us well in the future. This also was an opportunity to further study the impact of the risk-based capital rule. During that time, staff said there were three main additional considerations that were warranted: subordinated debt, the credit union leverage ratio, and securitization.
While work remains with securitization, we made progress in terms of the agency's view of capital compared to where we were two years ago.
However, Mr. Chairman, after serious study and consideration, my preference would be to table the risk-based capital rule indefinitely or repealing and focus on the risk-based net worth rule as needed.
Let’s take a trip down memory lane. This is a rule that was passed in 2015, and it will be eight years old by the time it goes into effect. Not exactly fine-tuned. The world has changed since 2015. The reality is RBC should be a tool — not a rule. If it is effective in identifying risk, put it in the examiners’ toolbox, but the last thing the NCUA should do is impose it on credit unions as an operating model. The juice just isn’t worth the squeeze for risk-based capital because this is a regulatory burden with limited benefit. Again, we already have a risk-based net worth framework as required by law, so this is not needed.
While I do not support the risk-based capital rule at this time, I also am mindful that it is July 2021. And this date is relevant because the RBC rule goes into effect in January 2022 as it stands now. The proposed rule today does provide an offramp to RBC with the Complex Credit Union Leverage Ratio, which is a small step in the right direction. Because of these factors, Mr. Chairman, I will begrudgingly vote for today’s proposal.