Treasury report calls for revising risk-based capital,
adding supplemental capital

June 13, 2017 -- NCUA should revise its risk-based capital rules to limit the number of credit unions the rules apply to, and credit unions should have access to supplemental capital, a long-awaited report from the Treasury recommended Monday.

In its 142-page report, “A Financial System That Creates Economic Opportunities/Banks and Credit Unions,” issued in response to an executive order by President Donald Trump in February (and one of four such reports anticipated), the Treasury Department laid out a case for financial regulatory reform that included banks, credit unions and federal agencies, including the CFPB.

On risk-based capital rules, the Treasury recommended that risk-based capital requirements should only apply to credit unions with total assets of more than $10 billion – or, NCUA should “eliminate altogether risk-based capital requirements for credit unions satisfying a 10% simple leverage (net worth) test,” the report states. “This would eliminate the need for the October 2015 final rule implementing risk-based capital requirements for credit unions with over $100 million in assets starting in 2019.”

On supplemental capital, the report supports allowing credit unions to rely, in part, on “appropriately designed supplemental capital to meet a portion of their risk-based capital requirements.” The report adds that “such supplemental capital instruments, if required to have essential prudential features (e.g., noncumulative perpetual preferred stock and subordinated debt with long-maturity and lack of early event acceleration) will allow credit unions to increase their capital from investors rather than relying solely on retained earnings.”

The report notes that Congress would have to change the law to allow for the approach, and that NCUA regulations would also have to be revised.

More broadly, the Treasury report recommends that Congress take action on the U.S. federal financial regulatory structure, primarily aimed at reducing fragmentation. “This could include consolidating regulators with similar missions and more clearly defining regulatory mandates,” the report states. “Increased accountability for all regulators can be achieved through oversight by an appointed board or commission or, in the case of a director-led agency, appropriate control and oversight by the Executive Branch, including the right of removal at will by the President.”

A Financial System That Creates Economic Opportunities/Banks and Credit Unions