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114th Congress   }                                       {      Report
                        HOUSE OF REPRESENTATIVES
 2d Session      }                                       {     114-869

======================================================================



 
                  RISK-BASED CAPITAL STUDY ACT OF 2015

                                _______
                                

 December 12, 2016.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2769]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2769) to require the National Credit Union 
Administration to conduct a study of the appropriate capital 
requirements for credit unions, and for other purposes, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                          PURPOSE AND SUMMARY

    H.R. 2769 requires the National Credit Union Administration 
(NCUA) to conduct a study of the appropriate capital 
requirements for Federal and State credit unions, as defined 
under section 101 of the Federal Credit Union Act (FCUA). Any 
credit union may voluntarily provide information for the study 
if requested by the NCUA, but may not be required to provide 
such information.
    H.R. 2769 also requires the NCUA to issue a report to 
Congress containing all findings made in carrying out its study 
and any legislative recommendations to improve the capital 
system for credit unions. The report must be issued to Congress 
within 270 days of enactment. Until 120 days after it issues 
its report to Congress, the NCUA may not issue or implement any 
final risk-based capital rule or regulation.

                  BACKGROUND AND NEED FOR LEGISLATION

    On January 23, 2014, the NCUA issued a proposed rule to 
amend its risk-based capital requirements for credit unions. 
Known as the ``Risk-Based Net Worth Rule,'' the proposal 
generated significant controversy and garnered over 2,000 
comment letters, including over 300 from members of Congress. 
In response, the NCUA withdrew its original proposal and issued 
a revised risk-based capital rule on January 15, 2015. Concerns 
were not ameliorated with the issuance of the 2015 revision, as 
shown by the 2,147 comment letters received by the NCUA after 
re-issuance. Yet, on October 15, 2015, the NCUA Board voted 2-1 
to approve a final risk-based capital rule, which will take 
effect January 1, 2019.
    Many are concerned the risk-based capital is unnecessary, 
because as former NCUA Chairman Matz noted in a December 2011 
letter to the Governmental Accountability Office, ``consumer 
credit unions performed very well during the worst financial 
crisis since the Great Depression and NCUA was highly 
successful overall in mitigating failures and losses for 
consumer credit unions.'' While the NCUA has an important role 
in ensuring credit unions remain sound enough to withstand a 
range of economic conditions, there is an absence of adequate 
research, dialogue, and due diligence in its rulemaking 
efforts.
    Additionally, there are concerns that the final rule 
exceeds NCUA's statutory authority, as current law does not 
expressly permit the NCUA to establish a two-tiered risk-based 
capital system. As a result, several legal opinions were 
commissioned to determine whether the NCUA has legal authority 
to do so. Paul Hastings, LLP found that the Federal Credit 
Union Act is ambiguous and susceptible to differing 
interpretations, including that of the NCUA. Venable, LLP 
concluded that the Federal Credit Union Act (FCUA) does not 
permit NCUA to establish a higher risk based capital component 
for ``well-capitalized'' credit unions than what is required 
for ``adequately capitalized'' credit unions, and therefore the 
rule would violate the FCUA.
    In addition, NCUA Board Member Mark McWatters, an attorney 
and former law professor, voted against the final risk-based 
capital rule, arguing that the Hastings legal opinion was not a 
strong enough basis which to justify the NCUA's legal authority 
to implement a two-tier risk-based net worth system. In his 
October 15, 2015, dissent, Board Member McWatters stated:

          Since I am of the view that the NCUA Board does not 
        possess the legal authority under the FCUA to adopt a 
        two-tier RBNW standard, and based upon other major 
        concerns with the rule I have addressed in this 
        statement, I will not support the RBNW regulations as 
        currently drafted. Further, I would find it problematic 
        to support a single-tier RBNW standard unless the rule 
        permits the inclusion--or at least acknowledges a good 
        faith undertaking to investigate the viability--of 
        properly structured supplemental capital in the 
        calculation of the RBNW ratio to the fullest extent 
        permitted by applicable law.

    In a letter of support for H.R. 2769 dated June 15, 2015, 
the National Association of Federal Credit Unions wrote:

          This important legislation will require the National 
        Credit Union Administration (NCUA) to take a more 
        deliberate approach before it issues an unnecessary and 
        costly Risk-Based Capital final rule. It should be 
        noted that the legislation will not prevent NCUA from 
        instituting new capital requirements, but will require 
        NCUA to thoroughly examine the myriad of significant 
        concerns raised by the credit union industry . . .

                                HEARINGS

    The Committee held no hearings on H.R. 2769 in the 114th 
Congress. However, while the Committee did not hold a specific 
legislative hearing on this measure, it held a hearing entitled 
``National Credit Union Administration Operations and Budget'' 
on July 23, 2015, at which matters relating to this measure 
were discussed.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
September 30, 2015, and considered the bill. An amendment 
offered by Mr. Heck was ruled by the Chair to be not germane. 
The Committee ordered H.R. 2769 to be reported favorably to the 
House without amendment by a recorded vote of 50 yeas to 9 nays 
(recorded vote no. FC-60), a quorum being present.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion to table the appeal of the Chair's ruling that Mr. 
Heck's amendment was not germane was agreed to by a recorded 
vote of 28 yeas to 23 nays (recorded vote no. FC-58), a quorum 
being present. The second and final recorded vote was on a 
motion by Chairman Hensarling to report the bill favorably to 
the House without amendment. The motion was agreed to by a 
recorded vote of 50 yeas to 9 nays (Record vote no. FC-60), a 
quorum being present.


                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 2769 
will increase agency accountability by providing for review of 
the appropriate capital requirements for credit unions.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 15, 2015.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2769, the Risk-
Based Capital Study Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Martin von 
Gnechten.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 2769--Risk-Based Capital Study Act of 2015

    H.R. 2769 would direct the National Credit Union 
Administration (NCUA) to conduct a study of the appropriate 
capital requirements for federal and state credit unions and to 
report its findings to the Congress within 270 days of the 
legislation's enactment. The bill would delay the 
implementation of any proposed or final rule related to risk-
based capital for credit unions until 120 days after the report 
has been issued. In January 2015, the NCUA issued a proposed 
risk-based capital rule. That proposed rule will take effect on 
January 1, 2019.
    CBO estimates that enacting the legislation would affect 
direct spending; therefore, pay-as-you-go procedures apply. 
However we estimate that the net effects would be negligible 
because any increase in operating costs for NCUA to prepare the 
report required by the bill would be offset by additional fees 
collected from federal credit unions. CBO also expects that the 
report required by H.R. 2769 would not delay the implementation 
of the proposed rule on risk based capital or affect the 
financial risks facing federal credit unions, because the 
proposed rule will not take effect until 2019 under current 
law, after the report would be issued. Enacting the bill would 
not affect revenues.
    Enacting the bill would not increase net direct spending or 
on-budget deficits by more than $5 billion in any of the four 
10-year periods beginning in 2026.
    H.R. 2769 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Martin von 
Gnechten. The estimate was approved by H. Samuel Papenfuss, 
Deputy Assistant Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates reform 
Act.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    H.R. 2769 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 2769 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   DISCLOSURE OF DIRECTED RULEMAKING

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 2769 contains no directed 
rulemaking.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This Section cites H.R. 2769 as the ``Risk-Based Capital 
Study Act of 2015''.

Section 2. NCUA study

    This section requires the NCUA to conduct a study that 
includes an analysis of the NCUA's legal authority to prescribe 
separate risk-based capital thresholds to both ``adequately 
capitalized'' and ``well capitalized'' credit unions; a 
discussion of the differences between credit unions and other 
types of depository institutions and how they differ in their 
risk-weights for their capital requirements; a discussion of 
the rationale behind the risk-weights assigned in the NCUA's 
proposed rule; an analysis of the impact the proposed rule 
would have on excess capital above the minimum level for a 
credit union to be ``well-capitalized.'' This section also 
allows for any credit union to voluntarily provide information 
requested by the NCUA. Lastly, this section prescribes the NCUA 
to issue a report to Congress regarding the findings of their 
study.

Section 3. Delay of rulemaking

    This section prohibits the NCUA from issuing or 
implementing any final risk-based capital rule or regulation 
until 120 days after it issues its report to Congress.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 2769 does not repeal or amend any section of a 
statute. Therefore, the Office of Legislative Counsel did not 
prepare the report contemplated by Clause 3(e)(1)(B) of rule 
XIII of the House of Representatives.

                                  [all]