WASHINGTON — The two main credit union trade groups, generally in lockstep on most issues, are split in their reactions to a bill in the House that calls for a delay to NCUA's proposed risk-based capital rule.
The bill, introduced by U.S. Reps. Stephen Fincher (R-Tenn.), Bill Posey (R-Fla.), and Denny Heck (D-Wash.), calls for a nine-month "stop and study" period to determine whether NCUA has the legal authority to set tiered risk-based thresholds, assess risk-weights for CUs relative to other financial institutions, review the impact on lending and more.
After submitting the study to Congress, NCUA would then be required to wait another four months before finalizing the rule.
"We think it really moves the ball forward for credit unions," said Jillian Pevo, NAFCU's director of legislative affairs. "It's bipartisan, which is fantastic, and clearly as evidenced by the bill, the Hill still has a lot of concerns about NCUA's proposal and its impact on lending."
While they support the bill, CUNA was less effusive with its praise.
"It goes without saying that we're interested in doing everything we can to minimize the adverse impact that [RBC2] would have on credit unions, so this is an effort in that direction," said Ryan Donovan, CUNA's chief advocacy officer. "Having said that, what we're doing right now is taking a look at the legislation to get a sense of what it would cost NCUA to do the study." CUNA's chief concern, he said, is that the cost of the study—borne, ultimately, by credit unions—would not necessarily result in what Donovan called "a meaningfully improved proposal."
In the past, however, CUNA has supported "stop and study" measures in bills, particularly as they pertained to mortgage assets.
According to Donovan, "in those cases it was for a very narrow issue and the delay was part of a broader look at capital standards that was more than just credit unions, but also involved FDIC-insured institutions."
Political vs. Legal Hurdles
Dennis Dollar, a former NCUA chairman and a partner at Dollar Associates, posited that the political hurdles RBC faces have always been greater than any legal hurdles.
"While courts normally defer to agency discretion on rulemakings that may have some question as to their statutory authority, the elected officials—particularly in a GOP-controlled Congress that feels too many agencies are essentially lawmaking during this administration—do not always easily defer to the agencies with a majority of appointees from the other party," he told Credit Union Journal. "That is Politics 101, and it certainly comes into play when a Democrat-controlled NCUA board majority faces a Republican-controlled majority in both the House and Senate committees that oversee NCUA."
Mark Calabria, director of financial regulatory studies at the Cato Institute, said that there continues to be broad bipartisan support for smaller institutions like credit unions that aren't normally associated with the financial crisis yet have borne much of the regulatory burden in its aftermath.
"There's definitely this sense of the post-financial crisis, Dodd-Frank regulatory environment that has been tough for small institutions, which of course includes credit unions," he said.
Even in the best cases, legislation moves slowly through the House—and even more slowly through the Senate—but many observers said the fact that the bill already has bipartisan support is a good sign. For now, that appears to be one of the few places the two trades are aligned on this issue.
"All three members how have signed onto this bill understand credit unions," said Donovan. "Rep. Heck is a former employee, so he probably has a pretty keen insight."
"Obviously you have someone who is aware of credit unions and aware of first-hand experience and knowledge here, so that is a positive in that regard for the legislation," Brad Thaler, NAFCU's VP of legislative affairs, said of Heck. "To get three members of the Financial Services Committee, bipartisan, two Republicans, one Democrat, shows this is an issue that's going to be on the committee's radar, and they're going to be watching NCUA and ready to step in and get involved should NCUA try to push this rule forward."
Heck's office declined Credit Union Journal's request for an interview.
Calabria suggested that the bill's most likely path forward may be to pass the House on its own but be packaged together with other bills in the Senate as part of broader regulatory reform.
"There are still intentions to bring the Shelby [reg relief] bill to the [Senate] floor despite a party-line vote in committee and this has pretty good odds of being attached to that," he said.
Prospects and Precedents
There is some historical precedent for this sort of thing, observers said, pointing to the banks' BASEL regulations.
"The BASEL effort took a number of years because of questions raised by Congress, and you had legislation to stop and study that, and a lot of members of Congress weighing in with concerns," reminded Thaler. "It's going to be the same type of issue here as it relates to risk-based capital."
But CUNA's Donovan countered that Congressional intervention on BASEL "probably had more of an impact once the proposals were finalized than in the early stages," and NCUA's RBC rule isn't expected to be finalized until yearend.
Dollar said that while he doubts the bill will garner enough support to pass, the measure "will certainly generate a congressional hearing and perhaps a GAO study on the RBC issue as a whole and the final rule in particular. This level of congressional scrutiny could force either a longer delay in the implementation of any final RBC rule, even more changes in the final version or perhaps both."
One other prospect—perhaps the more likely one, given the speed with which Congress moves—is that NCUA finalizes the rule before any legislation is passed.
In that case, many said, Congress could step in and delay implementation of the rule, overturn it entirely or change specific provisions."
While Congress could always overturn the rule, said Calabria, "often pieces of legislation are introduced not with the expectation that they'll get passed but with the foremost hope that they influence the regulatory process. This very well could be the case."
Others said it serves as a reminder that Congress is keeping an eye on the regulator at a time when legislators are already looking for increased transparency from NCUA.
"Even if this is not enacted into law," said Thaler, "it should be a message to NCUA that Congress is watching what is happening with risk-based capital, and should they decide to push forward with this problematic proposal, it lays a groundwork for Congress to step in.