This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

13494 

Vol. 86, No. 44 

Tuesday, March 9, 2021 

1NCUA Letter No. 93. Letter to Credit Unions, 

(September 25, 1987). 

2NCUA Letter to Credit Unions 07–CU–12 (Dec. 

2007). 

3At the time, the FFIEC was comprised of the 

Federal Deposit Insurance Corporation (FDIC), the 

Board of Governors of the Federal Reserve (Federal 

Reserve), and the Office of Comptroller of the 

Currency (OCC), the NCUA, and the Office of Thrift 

Supervision (OTS). OTS merged into OCC as a 

result of the Dodd Frank Wall Street Reform and 

Consumer Protection Act. See Section 312 of Public 

Law 111–203. 

4 62 FR 752, (Jan. 6, 1997). 

5Letter to Credit Unions 00–CU–08 (Nov. 2000). 

6NCUA Letter to Credit Unions 07–CU–12 (Dec. 

2007). 

7 In 1998, Congress enacted the Credit Union 

Membership Access Act (‘‘CUMAA’’). (Pub. L. 105– 

219, 112 Stat. 913 (1998). CUMAA amended the 

Federal Credit Union Act (‘‘the Act’’) to require the 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Parts 700, 701, 703, 704, and 

713 

RIN 3133–AF32 

CAMELS Rating System 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Proposed rule with request for 

comments. 

SUMMARY: The Board is proposing to add 

the ‘‘S’’ (Sensitivity to Market Risk) 

component to the existing CAMEL 

rating system and redefine the ‘‘L’’ 

(Liquidity Risk) component, thus 

updating the rating system from CAMEL 

to CAMELS. The proposal to add the 

‘‘S’’ component will enhance 

transparency and allow the NCUA, State 

Supervisory Authorities, and federally 

insured credit unions to better 

distinguish between liquidity risk (‘‘L’’) 

and sensitivity to market risk (‘‘S’’). The 

amendment would also enhance 

consistency between the regulation of 

credit unions and other financial 

institutions. The Board is proposing to 

implement the addition of the ‘‘S’’ 

rating component and a redefined ‘‘L’’ 

rating as early as the first quarter of 

2022. 

DATES: Comments must be received on 

or before May 10, 2021. 

ADDRESSES: You may submit comments 

by any of the following methods (Please 

send comments by one method only): 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• NCUA Website: http://

www.ncua.gov/ 

RegulationsOpinionsLaws/proposed_

regs/proposed_regs.html. Follow the 

instructions for submitting comments. 

• Email: Send messages to 

regcomments@ncua.gov. Use the subject 

line: ‘‘[Your name] Comments on Notice 

of Proposed Rulemaking Regarding 

CAMELS Rating System.’’ 

• Fax: (703) 518–6319. Include 

‘‘[Your name] Comments on Notice of 

Proposed Rulemaking Regarding 

CAMELS Rating System’’ on the cover 

page. 

• USPS/Hand Delivery/Courier: 

Address to Melane Conyers-Ausbrooks, 

Secretary of the Board, National Credit 

Union Administration, 1775 Duke 

Street, Alexandria, Virginia 22314– 

3428. 

Public Inspection: All public 

comments will be made available on the 

NCUA’s website (http://www.ncua.gov/ 

Legal/Regs/Pages/PropRegs.aspx) as 

submitted, except for those we cannot 

post for technical reasons. The NCUA 

will not edit or remove any identifying 

or contact information from the public 

comments submitted. 

FOR FURTHER INFORMATION CONTACT: 

Thomas Fay, Director of Capital Markets 

at (703) 518–1179 or Robert Bruneau, 

Senior Capital Markets Specialist at 703 

945–2491, Office of Examination and 

Insurance, or Marvin Shaw, Staff 

Attorney Office of General Counsel at 

(703) 518–6554. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The NCUA adopted its current rating 

system, known as CAMEL, in 1987.1

The current CAMEL rating is based 

upon an evaluation of five critical 

elements of a credit union’s operations: 

Capital adequacy, asset quality, 

management, earnings, and liquidity 

and asset-liability management. CAMEL 

is designed to take into account and 

reflect all significant financial, 

operational, and management factors 

examiners assess in their evaluation of 

a credit union’s performance and risk 

profile. 

Under this system, the NCUA assigns 

each credit union a composite CAMEL 

rating based on the agency’s evaluation 

and rating of five components of an 

institution’s financial condition and 

operations. As specified in the 2007 

Letter to Credit Unions,2 these 

components address a credit union’s: 

• Capital adequacy; 

• Asset quality; 

• Management; 

• Earnings; and 

• Liquidity and asset liability 

management. 

Examiners assign composite and 

component CAMEL ratings using a scale 

that ranges from ‘‘1’’ to ‘‘5.’’ The highest 

rating is a ‘‘1,’’ indicating the strongest 

performance and risk management 

practices, and the least degree of 

supervisory concern. The lowest rating 

is a ‘‘5,’’ indicating the weakest 

performance, inadequate risk 

management practices, and the highest 

degree of supervisory concern. When 

evaluating these components, examiners 

use their professional judgement and 

consider both qualitative and 

quantitative factors when analyzing a 

credit unions performance. 

In 1997, members of the Federal 

Financial Institution Examination 

Council (FFIEC),3 with the exception of 

the NCUA, proposed and subsequently 

adopted revisions to the Uniform 

Financial Institutions Rating System 

(UFIRS) and a Policy Statement that 

reaffirmed the five CAMEL rating 

system components and added a sixth 

component, Sensitivity to Market Risk 

(‘‘S’’), to address price and interest rate 

risks (IRR).4 The NCUA opted not to use 

the ‘‘S’’ component and retained its 

existing CAMEL rating system based on 

the relative lack of complexity in the 

consolidated balance sheets of credit 

unions at the time. However, since 

1997, credit unions have increased in 

size and complexity by significantly 

increasing their mortgage-related assets 

from 19 percent of total assets to 42 

percent at September 2020. 

The NCUA has made several pertinent 

modifications to the CAMEL rating 

system since 1997. These involve 

changes to financial ratios,5 adding and 

subsequently eliminating a CAMEL 

matrix,6 accommodating the adoption of 

Prompt Corrective Action (PCA),7 and 


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NCUA to adopt, by regulation, a system of prompt 

corrective action (PCA) consisting of minimum 

capital standards and corresponding remedies to 

improve the net worth of federally-insured ‘‘natural 

person’’ credit unions. 

8NCUA Letter to Credit Unions –03–CU–04 

(March 2003). 

9 77 FR 5155 (Feb. 2, 2012). 

10 79 FR 5228 (Jan 31, 2014). 

11Revised Interest Rate Risk Supervision √ 

National Credit Union Administration (ncua.gov) 

16–CU–08/October 2016. 

12NCUA Letter to Credit Unions 07–CU–12, 

CAMEL Rating System. (Dec. 2007). 

13The banking regulators (Federal Reserve, FDIC, 

and OCC) each include the ‘‘S’’ component to 

evaluate sensitivity to market place risk. In 

addition, 24 state supervisory authorities adopted 

the ‘‘S’’ component. 

14OIG–15–11 Review of NCUA’s Interest Rate 

Risk Program. 

15https://www.fdic.gov/regulations/laws/rules/ 

5000-900.html. 

incorporating the NCUA’s risk-focused 

exam approach.8

As balance sheets of credit unions 

have become larger and more complex, 

the NCUA consistently provided 

supervision and guidance regarding 

exposures to market risk to the credit 

union industry. The NCUA also advised 

credit unions that IRR was a supervisory 

priority from 2012 through 2019. 

Since 2012, the Board implemented 

regulations that introduced standards 

and expectations affecting examiner 

procedures and the NCUA’s IRR 

assessment requirements. The NCUA’s 

IRR rule became effective for credit 

unions in September 2012.9 The rule 

requires credit unions that have more 

than $50 million in assets to maintain 

a written IRR policy and an effective 

risk management program. The NCUA 

also finalized its derivatives rule in 

April 2014 providing authority for 

qualified federal credit unions to use 

financial derivatives to conduct hedging 

activities to better optimize their 

interest rate risk management.10

The NCUA also implemented its 

revised IRR supervision program in 

January 2017 11 incorporating the 

regulatory requirements from parts 741 

(IRR) and 703 (derivatives), enhancing 

examiner guidance, improving the 

consistency of IRR ratings, and to 

identify outlier credit unions with 

excessive risk levels. 

II. Rationale for Proposed Rule 

The NCUA’s existing CAMEL rating 

process addresses both sensitivity to 

market risk and liquidity risk within the 

‘‘L’’ component.12 While there is an 

interrelationship between sensitivity to 

market risk and liquidity risk, there are 

also differences that support separating 

the risks into distinct components. The 

proposed rule would enhance the 

existing CAMEL rating system by 

adding an ‘‘S’’ component to assess 

sensitivity to market risk and modify the 

‘‘L’’ component to include only 

liquidity evaluation content and rating 

criteria. 

Adding an ‘‘S’’ component and 

modifying the ‘‘L’’ component will 

provide greater clarity and transparency 

regarding credit unions’ sensitivity to 

market risk and liquidity risk exposures. 

The proposed addition would make the 

NCUA’s rating system more consistent 

with the other financial institution 

regulators’ ratings system both at the 

federal and state levels.13

Separating the ‘‘S’’ and ‘‘L’’ 

component ratings will allow NCUA to 

enhance the: 

• Monitoring of sensitivity to market 

risk and liquidity risk in the credit 

union system; 

• Communication of specific 

concerns to individual credit unions; 

and 

• Allocation of resources. 

Evaluating, rating, and disclosing 

assessments of interest rate and 

liquidity risks to credit union 

management is a long-standing 

examination procedure at the NCUA. 

The proposed change to add the ‘‘S’’ 

provides greater transparency into the 

NCUA’s evaluation and conclusions 

regarding these two risks. 

In 2015, the NCUA Office of Inspector 

General (OIG) recommended the 

addition of an ‘‘S’’ component to better 

capture a credit union’s sensitivity to 

market risk and improve clarity and 

transparency in the CAMEL rating 

system.14 The NCUA OIG also 

recommended the NCUA revise its ‘‘L’’ 

component rating to reflect only 

liquidity factors. 

Also in 2015, the NCUA initiated a 

comprehensive restructuring of its 

supervision activities through the 

Enterprise Solution Modernization 

program (ESM). The ESM is a multi-year 

introduction of emerging and secure 

technology solutions supporting the 

NCUA’s examination, data collection, 

and reporting efforts to improve key, 

integrated business processes. The 

NCUA planned the implementation of 

the OIG’s 2015 CAMELS 

recommendations as part of the 

development of a new examination 

platform, known as the Modern 

Examination and Risk Identification 

Tool, or MERIT. The NCUA anticipates 

completing the transition from its legacy 

examination software to MERIT (which 

has been configured to support the ‘‘S’’ 

in ‘‘CAMELS’’) in 2021. Other revisions 

to examiner supervision guidance and 

procedures will also be updated as part 

of the transition. 

In general, the NCUA Board expects 

that adopting a sixth CAMELS rating 

component will not have any adverse 

effect on a credit union’s CAMEL 

composite rating. The proposed 

separation of sensitivity to market risk 

and liquidity risk into individual 

CAMELS rating components will reduce 

potential rating inconsistencies. 

Currently, examiners combine the risk 

evaluation of these related, but separate, 

risk areas into the ‘‘L’’ component. The 

separation into two components 

provides greater clarity of the 

assessment of each risk area. The Board 

anticipates the agency can make this 

transition smoothly and without 

significant disruption to the exam 

process or agency operations as early as 

the first quarter of 2022. 

III. Summary of the Proposed Rule 

The Board is proposing to add the ‘‘S’’ 

component to the existing CAMEL 

rating system and redefine the current 

‘‘L’’ component. Evaluation of these as 

individual components will enhance the 

communication and monitoring of 

credit unions’ sensitivity to market risk 

and liquidity risk. The Board is 

requesting comments on this proposal, 

such as, but not limited to, the 

definitions of both the ‘‘L’’ and ‘‘S’’ 

components and the criteria for each of 

the specific 1–5 assigned ratings. For 

example, the Board may consider 

modifying the rating descriptions used 

for the ‘‘L’’ and ‘‘S’’ ratings used by the 

other banking agencies rating system 

(The Uniform Financial Institutions 

Rating System (UFIRS)), detailed below 

in Sections IIA and IIB of this 

proposal.15

A. ‘‘S’’ Component for Sensitivity to 

Market Risk 

The sensitivity to market risk reflects 

the exposure of a credit union’s current 

and prospective earnings level and 

economic capital position arising from 

changes in market prices and the 

general level of interest rates. Effective 

risk management programs include 

comprehensive interest rate risk 

policies, appropriate and identifiable 

risk limits, clearly defined risk 

mitigation strategies, and a suitable 

governance framework. 

Sensitivity to Market Risk ratings are 

based on, but not limited to, the 

following evaluation factors: 

• Sensitivity of a credit union’s 

current and future earnings and 

economic value of capital to adverse 

changes in market prices and interest 

rates; 

• Management’s ability to identify, 

measure, monitor, and control exposure 


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13496 Federal Register / Vol. 86, No. 44 / Tuesday, March 9, 2021 / Proposed Rules 

to market risk considering a credit 

union’s size, complexity, and risk 

profile; and 

• The nature and complexity of 

interest rate risk exposure. 

Examiners will rate a credit union’s 

‘‘S’’ CAMELS rating component on a 

scale of ‘‘1’’ to ‘‘5’’ using the same rating 

descriptions for ‘‘S’’ as the other 

banking agencies. 

‘‘S’’ rating Description 

1 ........................ • Market risk sensitivity is well controlled and that there is minimal potential that the earnings performance or capital position 

will be adversely affected; 

• Risk management practices are strong for the size, sophistication, and market risk accepted by the institution; and 

• The level of earnings and capital provide substantial support for the degree of market risk taken by the institution. 

2 ........................ • Market risk sensitivity is adequately controlled and that there is only moderate potential that the earnings performance or 

capital position will be adversely affected; 

• Risk management practices are satisfactory for the size, sophistication, and market risk accepted by the institution; and 

• The level of earnings and capital provide adequate support for the degree of market risk taken by the institution. 

3 ........................ • Control of market risk sensitivity needs improvement or that there is significant potential that the earnings performance or 

capital position will be adversely affected; 

• Risk management practices need to be improved given the size, sophistication, and level of market risk accepted by the institution; and 

• The level of earnings and capital may not adequately support the degree of market risk taken by the institution. 

4 ........................ • Control of market risk sensitivity is unacceptable or that there is high potential that the earnings performance or capital position will be adversely affected; 

• Risk management practices are deficient for the size, sophistication, and level of market risk accepted by the institution; 

and 

• The level of earnings and capital provide inadequate support for the degree of market risk taken by the institution. 

5 ........................ • Control of market risk sensitivity is unacceptable or that the level of market risk taken by the institution is an imminent 

threat to its viability; and 

• Risk management practices are wholly inadequate for the size, sophistication, and level of market risk accepted by the institution. 

The Board also requests comments on 

the proposal to describing the ‘‘L’’ 

component and the criteria used in 

determining the 1–5 assigned ratings. 

B. ‘‘L’’ Component for Liquidity Risk 

In evaluating the adequacy of a credit 

union’s liquidity profile, examiners 

consider the current and prospective 

sources of liquidity compared to 

funding needs and the adequacy of 

liquidity risk management relative to a 

credit union’s size, complexity, and risk 

profile. A credit union’s liquidity risk 

management practices should ensure 

the credit union maintains sufficient 

liquidity to timely meet its financial 

obligations and member share and loan 

demands. These practices should reflect 

the credit union’s ability to manage 

unplanned changes in funding sources, 

changes in market conditions affecting 

its ability to quickly liquidate assets 

with minimal loss, ensure liquidity is 

maintained at a reasonable cost and 

limit reliance on funding sources that 

may not be available in times of 

financial stress or adverse changes in 

market conditions. 

A credit union’s liquidity risk 

management practices should also be 

commensurate with the complexity of 

the balance sheet and its capital 

adequacy. This includes evaluating the 

reporting mechanisms in place to 

monitor and control risk, management’s 

response when risk exposure 

approaches or exceeds the credit 

union’s risk limits, and the prescribed 

corrective action taken when necessary. 

Examiners will rate a credit union’s 

‘‘L’’ CAMELS rating component on a 

scale of ‘‘1’’ to ‘‘5’’ using the same rating 

descriptions for ‘‘L’’ as the other 

banking agencies. 

‘‘L’’ rating Description 

1 ........................ • Strong liquidity levels and well-developed funds management practices; and 

• The institution has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity

needs. 

2 ........................ • Satisfactory liquidity levels and funds management practices; 

• The institution has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity 

needs; and 

• Modest weaknesses may be evident in funds management practices. 

3 ........................ • Liquidity levels or funds management practices in need of improvement; and 

• Institutions rated 3 may lack ready access to funds on reasonable terms or may evidence significant weaknesses in funds 

management practices. 

4 ........................ • Deficient liquidity levels or inadequate funds management practices; and 

• Institutions rated 4 may not have or be able to obtain a sufficient volume of funds on reasonable terms to meet liquidity 

needs. 

5 ........................ • Liquidity levels or funds management practices so critically deficient that the continued viability of the institution is threatened; and 

• Institutions rated 5 require immediate external financial assistance to meet maturing obligations or other liquidity needs. 

The CAMEL rating system is not set 

forth in a separate section or part in the 

NCUA’s regulations. Rather, references 

to CAMEL appear in several parts in the 

Code of Federal Regulations (CFR). 

NCUA regulations regularly refer to 

CAMEL composite ‘‘1’’ or ‘‘2’’ rated 

credit unions, which indicate the ability 

to safely support additional regulatory 

flexibility, or CAMEL composite ‘‘4’’ or 

‘‘5’’ rated credit unions, which warrant 

increased regulatory scrutiny. 


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16 5 U.S.C. 603(a). 

17 Interpretive Ruling and Policy Statement 

(‘‘IRPS’’) 03–2, 68 FR 31949 (May 29, 2003) as 

amended by IRPS 13–1, 78 FR 4032 (Jan. 18, 2013). 

18 44 U.S.C. 3507(d); 5 CFR part 1320. 19Public Law 105–277, 112 Stat. 2681 (1998). 

The Board is planning technical 

amendments to the following sections in 

which the term ‘‘CAMEL’’ appears by 

changing the term to ‘‘CAMELS.’’ These 

sections include: 

• Section 700.2 definition of 

‘‘Troubled condition’’ 

• Section 701.14 Change in official or 

senior executive officer in credit 

unions that are newly chartered or are 

in troubled condition 

• Section 701.23 Purchase, sale, and 

pledge of eligible obligations 

• Section 703.13 Permissible 

investment activities 

• Section 703.14 Permissible 

investments 

• Section 703.108 Eligibility 

• Section 704.4 Prompt corrective 

action 

• Section 713.6 Fidelity Bond and 

Insurance Coverage for FCUS—What 

is the permissible deductible? 

In addition to amendments in the 

CFR, the Board notes the agency will 

modify certain documents and systems 

related to its supervisory activities to 

reflect the addition of the ‘‘S’’ CAMEL 

rating component. 

IV. Regulatory Procedures 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

requires the NCUA to prepare an 

analysis to describe any significant 

economic impact a regulation may have 

on a substantial number of small 

entities.16 For purposes of this analysis, 

the NCUA considers small credit unions 

to be those having under $100 million 

in assets.17 This rule would not affect 

FCUs regardless of asset size because it 

is not adding any substantive 

requirement. Accordingly, the 

associated cost is minimal. The NCUA 

certifies the rule will not have a 

significant economic impact on small 

credit unions. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) applies to rulemakings in 

which an agency by rule creates a new 

paperwork burden on regulated entities 

or modifies an existing burden.18 For 

purposes of the PRA, a paperwork 

burden may take the form of either a 

reporting or a recordkeeping 

requirement, both referred to as 

information collections. This proposed 

rule imposes no new paperwork-related 

requirements. Therefore, this proposed 

rule will not create new paperwork 

burdens or modify any existing 

paperwork burdens. 

C. Executive Order 13132 

Executive Order 13132 encourages 

independent regulatory agencies to 

consider the impact of their actions on 

state and local interests. In adherence to 

fundamental federalism principles, the 

NCUA, an independent regulatory 

agency as defined in 44 U.S.C. 3502(5), 

voluntarily complies with the executive 

order. This rule will not have a 

substantial direct effect on the states, on 

the connection between the national 

government and the states, or on the 

distribution of power and 

responsibilities among the various 

levels of government. The NCUA has 

determined this rule does not constitute 

a policy that has federalism 

implications for purposes of the 

executive order. 

D. Assessment of Federal Regulations 

and Policies on Families 

The NCUA has determined that this 

proposed rule will not affect family 

well-being within the meaning of 

Section 654 of the Treasury and General 

Government Appropriations Act, 

1999.19

List of Subjects 

12 CFR Part 700 

Credit unions. 

12 CFR Part 701 

Credit unions. Insurance. Reporting 

and recordkeeping requirements. 

12 CFR Part 703 

Credit unions. Investments. Reporting 

and recordkeeping requirements. 

12 CFR Part 704 

Corporate Credit Unions, Prompt 

Corrective Action. 

12 CFR Part 713 

Bonds. Credit unions. Insurance. 

By the National Credit Union 

Administration Board on January 14, 2021 

Melane Conyers-Ausbrooks, 

Secretary of the Board. 

For the reasons discussed above, the 

Board proposes to amend 12 CFR parts 

700, 701, 703, 704, and 713 as follows: 

PART 700—DEFINITIONS 

■ 1. The authority citation for part 700 

continues to read as follows: 

Authority: 12 U.S.C. 1752, 1757(6), 1766. 

§ 700.2 [Amended] 

■ 2. In § 700.2, amend the definition of 

‘‘troubled condition’’, by removing the 

word, ‘‘CAMEL’’, and adding, in its 

place, the word, ‘‘CAMELS’’, wherever 

it appears. 

PART 701—ORGANIZATION AND 

OPERATION OF FEDERAL CREDIT 

UNIONS 

■ 3. The authority citation for part 701 

continues to read as follows: 

Authority: 12 U.S.C. 1752(5), 1755, 1756, 

1757, 1758, 1759, 1761a, 1761b, 1766, 1767, 

1782, 1784, 1786, 1787, 1788, 1789. Section 

701.6 is also authorized by 15 U.S.C. 3717. 

Section 701.31 is also authorized by 15 

U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601– 

3610. Section 701.35 is also authorized by 42 

U.S.C. 4311–4312. 

§ 701.14 [Amended] 

■ 4. Amend § 701.14(b) by removing the 

word, ‘‘CAMEL’’, and adding, in its 

place, the word, ‘‘CAMELS’’, wherever 

it appears. 

§ 701.23 [Amended] 

■ 5. Amend § 701.23(b)(2) by removing 

the word, ‘‘CAMEL’’, and adding, in its 

place, the word, ‘‘CAMELS.’’ 

PART 703—INVESTMENT AND 

DEPOSIT ACTIVITIES 

■ 6. The authority citation for part 703 

continues to read as follows: 

Authority: 12 U.S.C. 1757(7), 1757(8), and 

1757(15). 

§ 703.13 [Amended] 

■ 7. Amend § 703.13(d)(3)(iii) by 

removing the word, ‘‘CAMEL’’, and 

adding, in its place, the word, 

‘‘CAMELS.’’ 

§ 703.14 [Amended] 

■ 8. Amend § 703.14 by removing the 

word, ‘‘CAMEL’’, and adding, in its 

place, the word, ‘‘CAMELS’’, wherever 

it appears. 

PART 704—CORPORATE CREDIT 

UNIONS 

■ 9. The authority citation for part 704 

continues to read as follows: 

Authority: 12 U.S.C. 1766(a), 1781, 1789. 

§ 704.4 [Amended] 

■ 10. Amend § 704.4(d)(3)(ii) by 

removing the word, ‘‘CAMEL’’, and 

adding, in its place, the word, 

‘‘CAMELS.’’ 

PART 713—FIDELITY BOND AND 

INSURANCE COVERAGE FOR 

FEDERAL INSURED CREDIT UNIONS 

■ 11. The authority citation for part 713 

continues to read as follows: 


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13498 Federal Register / Vol. 86, No. 44 / Tuesday, March 9, 2021 / Proposed Rules 

1Public Law 105–219, 112 Stat. 913 (1998). 

2The FCUA is codified at 12 U.S.C. 1751 et seq. 

Section 216 of the act is codified at 12 U.S.C. 

1790d. 

3 12 U.S.C. 1790d(e), (f), (g), (i); 12 U.S.C. 

1786(h)(1)(F), 1787(a)(3)(A). 

4 12 U.S.C. 1790d(b)(1)(A). Section 38 of the FDI 

Act, 12 U.S.C. 1831o, was added by section 131 of 

the Federal Deposit Insurance Corporation 

Improvement Act, Public Law 102–242, 105 Stat. 

2236 (1991). 

5 12 U.S.C. 1790d(d)(1). 

6 12 U.S.C. 1790d(d). 

7 65 FR 8560 (Feb. 18, 2000). 

8 80 FR 66626 (Oct. 29, 2015). 

Authority: 12 U.S.C. 1761a, 1761b, 

1766(a), 1766(h), 1789(a)(11). 

§ 713.6 [Amended] 

■ 12. Amend § 713.6 by removing the 

word, ‘‘CAMEL’’, and adding, in its 

place, the word, ‘‘CAMELS’’, wherever 

it appears. 

[FR Doc. 2021–01396 Filed 3–8–21; 8:45 am] 

BILLING CODE 7535–01–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Parts 702 and 703 

[NCUA–2021–0010] 

RIN 3133–AF35 

Simplification of Risk Based Capital 

Requirements 

AGENCY: National Credit Union 

Administration. 

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: The National Credit Union 

Administration (NCUA) Board (Board) 

is issuing this advance notice of 

proposed rulemaking (ANPR) to solicit 

comments on two approaches to 

simplify its risk-based capital 

requirements. The Board’s risk-based 

capital requirements are set forth in a 

final rule dated October 29, 2015, which 

is currently scheduled to become 

effective on January 1, 2022. The 

delayed effective date has provided the 

Board with additional time to evaluate 

the capital standards for federallyinsured credit unions (FICUs) that are 

classified as ‘‘complex’’ (those with total 

assets greater than $500 million). The 

first approach would replace the riskbased capital rule with a Risk-based 

Leverage Ratio (RBLR) requirement, 

which uses relevant risk attribute 

thresholds to determine which complex 

credit unions would be required to hold 

additional capital (buffers). The second 

approach would retain the 2015 riskbased capital rule but enable eligible 

complex FICUs to opt-in to a ‘‘complex 

credit union leverage ratio’’ (CCULR) 

framework to meet all regulatory capital 

requirements. The CCULR approach 

would be modeled on the ‘‘Community 

Bank Leverage Ratio’’ framework, which 

is available to certain banks. 

DATES: Comments must be received on 

or before May 10, 2021. 

ADDRESSES: You may submit comments, 

by any of the following methods (Please 

send comments by one method only): 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. The docket 

number for this advance notice of 

proposed rulemaking is NCUA–2021– 

0010. Follow the instructions for 

submitting comments. 

• Fax: (703) 518–6319. Include 

‘‘[Your name] Comments on 

‘‘Simplification of Risk Based Capital 

Requirements’’ in the transmittal. 

• Mail: Address to Melane Conyers 

Ausbrooks, Secretary of the Board, 

National Credit Union Administration, 

1775 Duke Street, Alexandria, Virginia 

22314–3428. 

• Hand Delivery/Courier: Same as 

mail address. 

Public inspection: All public 

comments are available on the Federal 

eRulemaking Portal at http://

www.regulations.gov as submitted, 

except as may not be possible for 

technical reasons. Public comments will 

not be edited to remove any identifying 

or contact information. 

Due to social distancing measures in 

effect, the usual opportunity to inspect 

paper copies of comments in the 

NCUA’s law library is not currently 

available. After social distancing 

measures are relaxed, visitors may make 

an appointment to review paper copies 

by calling (703) 518–6540 or emailing 

OGCMail@ncua.gov. 

FOR FURTHER INFORMATION CONTACT: 

Policy: Thomas Fay, Director, Division 

of Capital Markets, Office of 

Examination and Insurance, at (703) 

518–1179; Legal: Rachel Ackmann, at 

(703) 548–2601 or Ariel Pereira, at (703) 

548–2778; or by mail at National Credit 

Union Administration, 1775 Duke 

Street, Alexandria, Virginia 22314. 

SUPPLEMENTARY INFORMATION: 

I. Background 

II. This ANPR 

III. Legal Authority 

IV. Risk-Based Leverage Ratio (RBLR) 

V. Complex Credit Union Leverage Ratio 

(CCULR) 

VI. Timeline 

VII. Conclusion 

I. Background 

Capital adequacy standards are a 

prudential tool to protect the safety and 

soundness of individual credit unions 

and the credit union system as a whole. 

Capital serves as a buffer for credit 

unions to prevent institutional failure 

during times of stress. During a financial 

crisis, a buffer can mean the difference 

between the financial institution 

surviving or failing. Higher levels of 

capital insulate credit unions from the 

effects of adverse developments in 

assets and liabilities, allowing credit 

unions to continue to serve as credit 

providers during times of stress without 

government intervention. Higher levels 

of capital also reduce the probability of 

a systemic crisis, producing benefits 

that generally outweigh the associated 

costs. 

On August 7, 1998, Congress enacted 

the Credit Union Membership Access 

Act (CUMAA).1 CUMAA addressed 

credit union capital adequacy standards 

by adding section 216 to the Federal 

Credit Union Act (FCUA).2 Section 216 

directed the Board to adopt a regulation 

to establish a system of prompt 

corrective action (PCA) to restore the net 

worth of all FICUs if they are 

inadequately capitalized. Section 216 

requires supervisory actions indexed to 

five statutory net worth categories, 

ranging from well capitalized to 

critically undercapitalized. The 

mandatory actions and conditions 

triggering conservatorship and 

liquidation are expressly prescribed by 

statute.3 To supplement the mandatory 

actions, section 216 charged the NCUA 

with developing discretionary actions 

which are comparable to the 

discretionary safeguards available under 

section 38 of the Federal Deposit 

Insurance Act—the statute that applies 

PCA to other federally insured 

depository institutions.4

Section 216(d)(1) of the FCUA 

requires that the NCUA’s PCA system 

include, in addition to the statutorily 

defined net worth ratio requirement, ‘‘a 

risk-based net worth requirement’’ for 

credit unions that are complex, as 

defined by the Board.5 The FCUA 

directs the NCUA to base its definition 

of ‘‘complex’’ credit unions ‘‘on the 

portfolios of assets and liabilities of 

credit unions.’’ 6 If a credit union is not 

classified as complex, as defined by the 

NCUA, it is not subject to a risk-based 

net worth requirement. The NCUA 

implemented the regulatory PCA system 

mandated by section 216 through a final 

rule published on February 18, 2000.7

The NCUA’s PCA regulations are 

codified in 12 CFR part 702. 

Following the 2007–2009 recession, 

the NCUA substantially reevaluated the 

capital adequacy standards codified in 

part 702. On October 29, 2015, the 

Board published a final rule 

restructuring the PCA regulations (2015 

Final Rule).8 The overarching intent of 


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