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NCUA Board Member Todd M. Harper Statement on the Risk-Based Net Worth, Complex Threshold Proposed Rule

January 2021
NCUA Board Member Todd M. Harper Statement on the Risk-Based Net Worth, Complex Threshold Proposed Rule

As Prepared for Delivery on January 14, 2021

Kathryn and Tom, thank you for your presentation on the Risk-Based Net Worth, Complex Threshold proposed rule. And, Scott, thank you for being available to answer any questions. I will have none today.

The proposal before us would raise the asset threshold for defining a credit union as “complex” for the risk-based net worth requirement in part 702 of the NCUA’s regulations and would provide that any risk-based net worth requirement will be applicable only to a federally insured consumer credit union with quarter-end assets that exceed $500 million—up from the current $50 million. Hence, this proposal effectively lowers capital standards in the middle of a pandemic-induced economic crisis. On that principal alone, I will vote against advancing this ill-conceived proposal.

Even before the economic crisis brought about by the COVID-19 pandemic, I said that the agency’s safety-and-soundness supervisory efforts should focus on the institutions and activities posing the greatest risk to the Share Insurance Fund. In my view, all financial institutions backed by federal share or deposit insurance should hold capital commensurate with the risks held on their balance sheets. In the case of federally insured credit unions, such capital will protect taxpayers and credit union members by helping to either prevent credit union failures or mitigate losses to the Share Insurance Fund when a credit union fails.

Additionally, I advocated for safeguards like the revised final risk-based capital rule to be put place before the next recession or financial crisis, because that is good public policy. As I have repeatedly said, it is better to repair a roof before it rains than to patch it during a storm. Well, the next recession and financial crisis are here, and the proposal before us would weaken capital standards in the middle of this economic storm. In my book, deliberately weakening your roof in the midst of a hurricane is bad public policy.

Moreover, this rulemaking is a paper exercise without any substance. The proposal claims that it would provide regulatory relief for those credit unions currently subject to the risk-based net worth requirement between the current $50 million threshold and $500 million—supposedly 67 credit unions. All these credit unions, however, hold net worth in excess of the risk-based net worth requirement. So, the actual provided relief would be to zero credit unions. 

And, in a hocus-pocus sleight of hand befitting of Harry Houdini, another reason put forth to justify this proposed rule is that it would align the risk-based net worth standards with the risk-based capital rule set to take effect on January 1, 2022, which ta-da would be undone by another item on today’s agenda—the advance notice of proposed rulemaking on simplifying the risk-based capital requirement.

Once again, we are presented with a proposal that is bad public policy, has nothing to do with helping credit unions and their members weather the economic crisis caused by the COVID-19 pandemic, and is half-baked. As a result, I will oppose this short-sighted proposal. Mr. Chairman, I have no further comments.

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