The National Credit Union Administration (NCUA), the independent agency created by Congress to regulate and supervise credit unions, is once again failing to fulfill its responsibilities (not that anyone is really THAT surprised anymore).
This time, NCUA has failed to follow through with enacting the risk-based capital rule. Proposed three (shouldn’t this be four? First proposed in January 2014) years ago, the rule required credit unions with assets more than $100 million to report on their lending practices and hold additional reserves against riskier assets as a way to assist a credit union in preparing for any future disturbance to its business lines. Sounds like the type of work a regulator should be doing to ensure a safe and sound industry, right?!
Unfortunately, after a lot of complaining from credit unions, NCUA recently proposed to delay the rule by yet another year, as well as cut the number of credit unions affected by it. Sigh.
It’s not shocking that credit unions didn’t love this idea, but NCUA should have held its ground and enforced this regulation anyway. The risk-based capital rule encourages credit unions to make the right decisions to keep members and taxpayers protected from paying for a bailout – versus simply making decisions for profits alone – and therefore, it is a win for everybody.
NCUA Board Member Risk Metsger, one of the original proponents of the rule, recently agreed to the delay after likely falling pressure to the opinions of his peers. However, in a prepared statement on his change of heart, Metsger emphasized “Insured banks are now operating successfully under significantly enhanced risk-based capital. It should also be noted that no banks are exempted from their risk-based capital rule, no matter how small they are.”
He even goes on to say “I expect anyone who desires further delay to explain why credit unions need significantly longer than banks to prepare for risk-based capital and why continued delayed in a rule that has been in development for five years meets our statutory obligation to adopt a system that is “consistent with” and “comparable to” the system with banks.”
That’s right. NCUA literally has a STATUTORY OBLIGATION mandated by Congress to make sure that prompt corrective action requirements for credit unions be both “consistent with” and “comparable to” the requirements for insured banks. So why is NCUA giving credit unions a free pass?
We all need NCUA to take its role more seriously. Just because credit unions are labelled as nonprofits and owned by members does NOT make them immune to financial crises. The billions in losses at the hands of corporate credit unions and taxi medallion credit unions prove that point. At the end of the day, Metsger says it best: “Risk-based capital is designed to protect the many- especially innocent credit union members – against bad decisions made by just a few.”
We agree, but actions speak louder than words. Until NCUA actually steps up to the plate and does its job, American taxpayers are at risk of paying the price.