RBC2: This Proposal Is No Solution

The NCUA is proposing an invasive, possibly illegal solution to a problem that does not exist.


There is no problem to solve.  RBC2 may be better than draft one, but that doesn’t matter. There is no good reason to enact any proposal, better or not. No need for a regulation? It’s a bad regulation. Period. No caveats or explanations. 

Every regulation is a tax on resources. Compliance involves financial cost and opportunity cost. If a new rule doesn’t make a situation meaningfully, measurably better, it’s unacceptable. That’s a basic axiom of good government. It’s the rationale behind the Paperwork Reduction Act, sunset laws, cost-benefit analyses, and government reform efforts everywhere. 

Put another way, unless the NCUA has a darned good reason for doing so, it has no business enacting any new rule, let alone one as complex, invasive, directive, and expensive as RBC. So, why?

The easy answer, offered at every turn, is that the law requires it. 

Ahem. The NCUA regularly ignores legal mandates. At least this time, it would be for cause.

Last week, on April 1, the NCUA for the fourth-straight year again failed to deliver its legally mandated annual report to Congress and the president. This is a no-brainer ­— a universal bureaucratic exercise most other agencies manage to do in their sleep. If the NCUA can ignore this, why not RBC? 

Another example is the NCUA’s insistence on a two-tiered risk-based system. This is not called for by the law. Actually, in the judgment of board member Mark McWatters, it is almost certainly forbidden by the law.

Besides, there is no penalty for non-compliance with Dodd-Frank. Other financial services regulators are years behind in writing their implementing regulations. The most Congress can do is de-fund the laggards, but it rarely does so (and can’t to the NCUA). Concerns about complexity, internal contradictions, and unintended consequences aren’t criminal, they’re good government. 

So again, why? Why is the NCUA even pursuing this rule in the face of so many compelling reasons not to?

Whether you’re for the new RBC rule or against it, your comment is your vote. Cast it hereThe April 27 deadline is approaching.

Next up from Chris Howard: think RBC is just common sense?


April 6, 2015


  • Mr Howard does not seem to like regulation in general and the NCUA in particular. I guess he is not familiar with Basel which is trying to get us all on the same page with regard to capital. I started in banking in the 1970s when everyone had to have a capital ratio of 6%. Why 6%? We never knew how they came up with that magic number and it had nothing to do with the amount of risk a bank was taking. CFOs like me actually welcomed RBC because we could at least have some way to relate risk to capital. Yes the banking rbc model has flaws but on the whole it makes sense. I posted a very long comment on the original RBC proposal to the NCUA. Much of it was unsound (especially the IRR portion). Other risk weights made no sense like credit card loans carrying less risk than fully secured properly underwritten first mortgages. I still don't agree with the concentration limits among other issues, but to say that it is an necessary regulation is pandering to the crowd at best and irresponsible at worst. Capital is king and always will be. I have been through enough cycles since 1976 to know that. How much capital? Well that depends on the organization. and how do we quantify that? RBC may not be the best method but until Mr. Howard comes up with something better than no regulation at all, then I will go with RBC flaws and all. Let the individual credit unions decide. Really? Then we end up paying to the NCUSIF for the ones that make very bad decisions. Wake up everyone, Basel and RBC are here to stay. Now let's get something we can work with.
    Keith McCarthy
  • "but to say that it is an necessary regulation is pandering to the crowd at best and irresponsible at worst." Sorry I meant to say "unnecessary"
    keith mCCarthy