Risk-Based Capital: NCUA "So So" on Secondary Capital - A Lack of Regulatory Credibility On The Hill

NCUA: The "SO SO" Agency
(Same old same old...)

Guess you think this has become the regulatory version of the movie "Ground Hog Day", don't ya ! 

Well, in a sense that is exactly what NCUA's risk-based capital (RBC) proposal has proved to be - a continuing loop of repeated missteps by the Agency.

The "Three Pillars"
of NCUA RBC:
Silly, sillier and thoroughly ridiculous! 

Our list of RBC #1 "bloopers and blunders" included CU punitive capital requirements on mortgages, MBLs, GSE and local government investments, Fed deposits, and NCUSIF balances.  

On top of that,  NCUA added less than transparent - and definitely "ham-handed"- attempts to unilaterally rewrite the Federal statutory definitions of net worth, complexity,  and prompt corrective action (PCA) without Congressional consent. 

And for really good measure, NCUA accentuated the lack of trust all credit unions feel in "giving a loose cannon more ammunition", by trying to slip in the unchecked and unaccountable authority implicit in "individual minimum capital requirements" (IMCR) and third party vendor reviews.  NCUA does seem to understand the old saying: "If you're going to break the law, at least make it worth your while."

While RBC2 is better - like being killed by a train is better than dying from ebola - …

… the most glaring and embarrassing NCUA misstep of all remains:

The absence of a provision for supplemental capital for all credit unions.

Whether you are a fan of supplemental capital or not, it is a key component of the risk-based capital structure of all other insured depository institutions. Supplemental capital is not a political issue, it is not a competitive issue, it is not a philosophical issue.  

Supplemental capital is a core, fundamental, safety and soundness issue for all credit unions - and NCUA has "missed" yet again.

That supplemental capital is not in NCUA's proposed RBC 2 rule can only mean that the Agency has zero credibility on the Hill.  Why would Congress not want a greater capital cushion available for credit unions in "countercyclical times"?  Why would Congress not want the greater protection another layer of capital would provide for the U.S. taxpayer?  Why doesn't Congress take NCUA's leadership seriously?  

And, what is the difference between supplemental capital in corporate credit unions, in "low income" credit unions, or in a "natural person credit union"?  

Make it worth
your while...!

Rather than use the less than transparent "low income designation work around", why doesn't NCUA just rewrite the federal statute on supplemental capital - regardless of the law, as it has proposed to do for net worth, complexity, RBNW, and muli-tiered capital?