NASCUS Recommends Consultation with State Regulators on Incentive-Based Compensation Proposal

June 1, 2011 - NASCUS commented recently to the National Credit Union Administration (NCUA) on its proposed rule regarding incentive-based compensation disclosure, a rulemaking required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under Dodd-Frank, federal agencies are to promulgate regulations that prohibit incentive-based compensation that encourage inappropriate risk taking as well as regulations that require covered institutions to report certain incentive-based compensation arrangements to their federal regulator. NCUA’s proposed rule is similar to the rules proposed by the other banking regulators with several exceptions, including a lower asset threshold for a credit union to be a “larger covered institution” under the proposed rules than for retail banks.

Regarding this proposed rule, NASCUS recommends NCUA address the need for consultation with state regulators; increase the asset threshold for a credit union to be considered a large institution under the rule; establish a “material incentive-based compensation” threshold for reporting; and consider other refinements and clarifications of the proposed rules.

In particular, NASCUS remarked that consultation and cooperation with state regulators will be necessary for effective implementation of the proposed rule. The proposed rule states that NCUA will “likely” consult with state regulators in the case of a state-chartered credit union. NASCUS indicates that NCUA must make clear that it will consult with state regulators regarding state-chartered credit unions.

NASCUS also focused on the proposed additional requirements for larger covered institutions, which includes credit unions with more than $10 billion in assets. NASCUS argues that the threshold for a large covered credit union should be similar to that for a large covered retail bank. It’s difficult to support the conclusion that an incentive-based compensation at a $10 billion credit union poses any greater risk to that credit union that the identical arrangement at a $10 billion retail bank, NASCUS wrote. To view our full comment letter, click here.