Congress: ‘Measure twice, cut once’ on proposed risk-based capital rule

As Congress returns this week, the adage “measure twice, cut once” would be an appropriate  principle for them to keep in mind as they consider the National Credit Union Administration’s (NCUA) recently proposed risk-based capital rule.

The craftsmen’s proverb is ideally suited to underscore the necessary caution that should be adopted in reviewing this proposal. As any carpenter knows, once you make a cut, it is often impossible to correct a mistake. And even if you do, it is never the same as it would have been if you took proper care the first time and did the job correctly.

{mosads}For credit unions, the effects of getting this proposed risk-based capital rule wrong could prove quite devastating. Credit unions are already bearing a heavy load in terms of overregulation. In fact, since the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the creation of the Consumer Financial Protection Bureau, more than 800 Main Street credit unions have shut their doors.

Lawmakers have recognized the potentially damaging consequences of this proposal. In a rare bipartisan effort, 324 lawmakers, led by Reps. Peter King (R-N.Y.) and Gregory Meeks (D-N.Y.),  joined together in May to write NCUA Chairman Debbie Matz of their concerns regarding the proposed rule’s possible effect on credit unions and their 98 million members. Senate Banking Committee Chairman Tim Johnson (D-S.D.), and Ranking Member Mike Crapo, (R-Ida.) jointly aired concerns about the proposal’s potential negative impact on agricultural lending and NCUA’s lack of recognition of the capital cushion examiners have encouraged credit unions to keep. House Financial Services Subcommittee on Oversight and Investigations Chairman Patrick McHenry (R-N.C.) has also pressed the agency to use great care in pursuing this proposed rule.

Additionally, in a House subcommittee hearing this summer where NAFCU testified on the regulatory burden, Rep. Ed Royce (R-Calif.) advocated a requirement that NCUA study its proposal and report back to Congress before a final rule is set.

Rep. Blaine Luetkemeyer (R-Mo.), a member of the House Financial Services Committee, proposed to implement such a requirement through an amendment to H.R. 4042, a bill that would require regulators to “stop and study” certain aspects of the new Basel III rules affecting community banks’ mortgage servicing assets. His amendment would have applied a similar “stop and study” requirement to NCUA’s risk-based capital proposal. While H.R. 4042 was reported out without this change, committee Chairman Jeb Hensarling (R-Texas) expressed his support for Luetkemeyer’s effort and he stated he will pursue parity for credit unions as this bill advances.

Credit unions have also done their part by submitting more than 2,000 comment letters to NCUA, and packing the rooms at the agency’s three summer listening sessions where the proposed rule was discussed. And now credit unions are gathering this week on Capitol Hill to meet with their lawmakers about this and other significant issues during NAFCU’s Congressional Caucus, which runs through Friday.

Regarding NCUA’s proposed risk-based capital rule, NAFCU is continuing to call for risk weights that are reasonable. Additionally, the association is advocating for an implementation period of at least three years as well as a second comment period.

NAFCU  believes NCUA needs to make sure this rule, in its final form, is fair and safeguards credit unions’ competitive viability in the future. To its credit, the agency has indicated that it will make “significant changes” to the proposed rule.

Ultimately, NAFCU’s objective is to help the credit union system thrive. The association hopes a “measure twice, cut once” approach can help ensure that the final risk-based capital rule that NCUA promulgates will help and not hinder credit unions’ ability to meet the financial services needs of their 98 million members.

Berger is president and CEO of the National Association of Federal Credit Unions.