Report details approach for RBC supplemental capital rule

Nov. 24, 2015 -- Recommendations on how additional forms of supplemental capital could be included in NCUA’s risk-based capital ratio are expected to be made by a working group to the agency “in the near future,” according to a 228-page report submitted to Congress Monday by NCUA.

The document, Report to the House Financial Services Committee on the Final Risk-Based Capital Rule, includes legislative recommendations to improve the capital system for credit unions. Among them: the agency recommends that Congress allow well-managed credit unions to issue supplemental capital that will count as next worth.

In the near term, however, the report (in Appendix B) details the steps the agency expects to take to include additional forms of supplemental capital in the numerator of the risk-based capital ratio. That ratio will become operational when the RBC rule goes into effect in 2019. According to NCUA, the agency intends to finalize a new supplemental capital rule before the effective date of the RBC rule, more than three years from now.

“NCUA has formed a working group that consulted with stakeholders to develop a separate proposed rule regarding supplemental forms of capital that could be included in the numerator of the risk-based capital ratio,” the NCUA report states. “The working group has reviewed the comments received on this issue, studied the alternative forms of capital used internationally and within the cooperative system, and obtained additional insight from practitioners who were highly interested or experienced with alternative forms of capital.

The report notes that NCUA plans to address additional forms of supplemental capital in a separate proposed rule. “A notice of proposed rulemaking on supplemental capital with specific criteria and requirements
is necessary under the Administrative Procedure Act before the Board could issue a final rule,” the report states. “Issuing a new, more specific and detailed proposed rule on supplemental capital will give interested parties full opportunity to comment on it.”

According to NCUA, Board Chairman Debbie Matz in October committed to completing the report outlined in H.R. 2769, the Risk-Based Capital Study Act of 2015 (which would have required NCUA to "stop and study" the rule before proceeding any further). The House Financial Services Committee passed the bill Sept. 30.

NCUA Report to House Fin. Svcs. Cmte: Final Risk-Based Capital Rule (See page 145 for Appendix B: Supplemental Capital)

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