45824 Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 

1 80 FR 66626 (Oct. 29, 2015). See also, 83 FR 

55467 (Oct. 18, 2018). 2See 12 U.S.C. 1782(c). At the times the Board 

prescribes, subject to statutory parameters, the 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Parts 702 and 703 

[NCUA–2021–0072] 

RIN 3133–AF12 

Capital Adequacy: The Complex Credit 

Union Leverage Ratio; Risk-Based 

Capital 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Proposed rule. 

SUMMARY: The NCUA is seeking 

comment on a proposed rule that would 

provide a simplified measure of capital 

adequacy for federally insured, naturalperson credit unions (credit unions) 

classified as complex (those with total 

assets greater than $500 million). Under 

the proposed rule, a complex credit 

union that maintains a minimum net 

worth ratio, and that meets other 

qualifying criteria, will be eligible to opt 

into the complex credit union leverage 

ratio (CCULR) framework. The 

minimum net worth ratio would 

initially be established at 9 percent on 

January 1, 2022, and be gradually 

increased to 10 percent by January 1, 

2024. A complex credit union that opts 

into the CCULR framework would not 

be required to calculate a risk-based 

capital ratio under the Board’s October 

29, 2015, risk-based capital final rule, as 

amended on October 18, 2018. A 

qualifying complex credit union that 

opts into the CCULR framework and 

that maintains the minimum net worth 

ratio would be considered well 

capitalized. The proposed rule would 

also make several amendments to 

update the NCUA’s October 29, 2015, 

risk-based capital final rule, including 

addressing asset securitizations issued 

by credit unions, clarifying the 

treatment of off-balance sheet 

exposures, deducting certain mortgage 

servicing assets from a complex credit 

union’s risk-based capital numerator, 

updating several derivative-related 

definitions, and clarifying the definition 

of a consumer loan. 

DATES: Comments must be received on 

or before October 15, 2021. 

ADDRESSES: You may submit comments 

using one of the following methods 

(please do not send the same comments 

via two or more methods): 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. The docket 

number for this proposed rule is NCUA– 

2021–0072. Follow the instructions for 

submitting comments. 

• Fax: (703) 518–6319. Include 

‘‘[Your name] Comments on ‘‘Capital 

Adequacy: The Complex Credit Union 

Leverage Ratio, Amendments to RiskBased Capital, and other Technical 

Amendments’’ in the transmittal. 

• Mail: Address to Melane ConyersAusbrooks, 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 where technical limitations make 

posting the comments on the portal 

impossible. 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 and Accounting: Thomas Fay, 

Director, Division of Capital Markets, 

Office of Examination and Insurance, at 

(703) 518–1179; 

Legal: Rachel Ackmann, at (703) 623– 

9363 or Ariel Pereira, at (703) 548–2778; 

or by mail at National Credit Union 

Administration, 1775 Duke Street, 

Alexandria, Virginia 22314. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. The NCUA’s Risk-Based Capital 

Requirements 

B. The Other Banking Agencies’ Risk-Based 

Capital and CBLR Framework 

C. The NCUA’s Advance Notice of 

Proposed Rulemaking 

II. Legal Authority 

III. Proposed Rule 

A. Overview of the CCULR Framework 

B. Qualifying Complex Credit Unions 

C. The CCULR Ratio 

D. Calibration of the CCULR 

E. Opting Into the CCULR Framework 

F. Voluntarily Opting Out of the CCULR 

Framework 

G. Compliance With the Proposed Criteria 

to Be a Qualifying Complex Credit Union 

H. Treatment of a Qualifying Complex 

Credit Union That Falls Below the 

CCULR Requirement 

I. Transition Provision 

J. Reservation of Authority 

K. Effect of the CCULR on Other 

Regulations 

L. Illustrative Reporting Forms To Support 

the CCULR 

M. Amendments to the 2015 Final Rule 

N. Technical Amendments 

O. Illustrative Reporting Forms for RiskBased Capital 

IV. Regulatory Procedures 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Executive Order 13132 on Federalism 

D. Assessment of Federal Regulations and 

Policies on Families 

I. Background 

A. The NCUA’S Risk-Based Capital 

Requirements 

The NCUA’s mission is to ensure the 

safety and soundness of federally 

insured credit unions (FICUs), in 

addition to carrying out other statutory 

responsibilities. The NCUA performs 

this function by examining and 

supervising federally chartered credit 

unions (FCUs), participating in the 

examination and supervision of 

federally insured, state-chartered credit 

unions (FISCUs) in coordination with 

state regulators, and insuring members’ 

accounts at all FICUs up to the limits 

prescribed by statute. 

Capital adequacy standards are an 

important prudential tool to ensure 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 and dramatic 

deleveraging during times of stress. 

During a financial crisis, a buffer can 

mean the difference between the 

survival or failure of a financial 

institution. Higher levels of capital 

insulate credit unions from the effects of 

unexpected adverse developments in 

their financial condition, reduce the 

probability of a systemic crisis, allow 

credit unions to continue to serve as 

credit providers during times of stress 

without government intervention, and 

produce benefits that outweigh the 

associated costs. 

Following the 2007–2009 recession, 

the NCUA substantially reevaluated its 

capital adequacy standards, which are 

codified in 12 CFR part 702 (part 702). 

On October 29, 2015, as amended on 

October 18, 2018, the Board published 

a final rule restructuring its capital 

adequacy regulations (2015 Final Rule).1

The effective date of the 2015 Final Rule 

was originally January 1, 2019. The 

overarching intent of the 2015 Final 

Rule was to reduce the likelihood that 

a relatively small number of high-risk 

credit unions would exhaust their 

capital and cause large losses to the 

National Credit Union Share Insurance 

Fund (NCUSIF). Under the Federal 

Credit Union Act (FCUA), FICUs are 

collectively responsible for replenishing 

losses to and capitalizing the NCUSIF.2


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FCUA requires each insured credit union to pay an 

insurance premium equal to a percentage of the 

credit union’s insured shares. The FCUA also 

requires each insured credit union to pay and 

maintain a deposit with the NCUSIF equaling one 

percent of the credit union’s insured shares. The 

NCUSIF’s reserves are available to pay potential 

share insurance claims, to provide assistance in 

connection with the liquidation or threatened 

liquidation of credit unions, and for administrative 

and other expenses the Board incurs in carrying out 

the purposes of the share insurance subchapter of 

the FCUA. See 12 U.S.C. 1783(a). 

3The Federal Reserve Board and OCC issued a 

joint final rule on October 11, 2013 (78 FR 62018), 

and the FDIC issued a substantially identical 

interim final rule on September 10, 2013 (78 FR 

55340). On April 14, 2014 (79 FR 20754), the FDIC 

adopted the interim final rule as a final rule with 

no substantive changes. 

4See, supra note 1. 

5 83 FR 55467 (Nov. 6, 2018). 

6 84 FR 68781 (Dec. 17, 2019). 

7 Id. at 68782. 

8 Id. 

9See, 84 FR 35234, 35235 (July 22, 2019). The 

other banking agencies’ 2013 capital rule also 

reflected agreements reached by the Basel 

Committee on Banking Supervision (BCBS) in 

‘‘Basel III: A Global Regulatory Framework for More 

Resilient Banks and Banking Systems’’ (Basel III), 

including subsequent changes to the BCBS’s capital 

standards and recent BCBS consultative papers. 

Their rule also included changes consistent with 

the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (the Dodd-Frank Act). 

10 12 CFR part 3, subparts D & E (OCC); 12 CFR 

part 217, subparts D & E (Federal Reserve Board); 

12 CFR part 324, subparts D & E (FDIC). 

11Public Law 115–174 (May 24, 2018). Section 

201 is codified at 12 U.S.C. 5371 note. 

12 84 FR 61776 (Nov. 13, 2019). 

13Under section 4012 of the Coronavirus Aid, 

Relief, and Economic Security Act (CARES Act), 

Public Law 116–136, 134 Stat. 281 (Mar. 27, 2020), 

the CBLR was temporarily set to eight percent. See, 

85 FR 22924 (Apr. 23, 2020). Under the statute, the 

temporary CBLR of eight percent ended on 

December 31, 2020. The CBLR transitions back to 

nine percent during calendar year 2021. See, 85 FR 

22930 (Apr. 23, 2020). 

14See, 85 FR 77345 (Dec. 2, 2020), providing 

temporary relief from December 2, 2020, through 

December 31, 2021, for purposes of determining the 

asset size of an institution. 

15 12 U.S.C. 1831o. 

The 2015 Final Rule restructured the 

NCUA’s current capital adequacy 

regulations and made various revisions, 

including amending the agency’s riskbased net worth requirement by 

replacing a credit union’s risk-based net 

worth ratio with a risk-based capital 

ratio. The risk-based capital 

requirements in the 2015 Final Rule are 

more consistent with the NCUA’s riskbased capital ratio measure for corporate 

credit unions, are more comparable to 

the risk-based capital measures 

implemented by the Federal Deposit 

Insurance Corporation (FDIC), Board of 

Governors of the Federal Reserve 

System (Federal Reserve Board), and 

Office of the Comptroller of Currency 

(OCC) (collectively, the other banking 

agencies) in 2013, and consistent with 

the FCUA.3

The risk-based capital provisions of 

the 2015 Final Rule apply only to credit 

unions that are complex, which the rule 

defined as those with total assets over 

$100 million.4 On November 6, 2018, 

the Board published a supplemental 

final rule that raised the threshold level 

for a complex credit union to $500 

million (2018 Supplemental Rule).5

Therefore, only credit unions with over 

$500 million in assets are now subject 

to the risk-based capital requirements of 

the 2015 Final Rule. The 2018 

Supplemental Rule also delayed the 

effective date of the 2015 Final Rule for 

one year (from January 1, 2019, to 

January 1, 2020). 

The effective date was delayed a 

second time through a final rule 

published on December 17, 2019 (2019 

Supplemental Rule).6 The 2015 Final 

Rule is now scheduled to become 

effective on January 1, 2022. The delay 

has provided credit unions and the 

NCUA with additional time to 

implement the 2015 Final Rule. Further, 

as explained in the 2019 Supplemental 

Rule, the delay provided the Board 

additional time to holistically and 

comprehensively evaluate the NCUA’s 

capital standards for credit unions.7

Among a few items that the Board made 

reference to, the rule highlighted a 

community bank leverage ratio (CBLR) 

analogue and the treatment of asset 

securitizations issued by credit unions 

as items for possible consideration by 

the Board during the delay.8

B. The Other Banking Agencies’ RiskBased Capital and CBLR Framework 

As discussed previously, the other 

banking agencies adopted a revised riskbased capital rule in 2013, which was 

designed to strengthen their capital 

requirements and improve risk 

sensitivity. These rules, along with 

subsequent amendments, were intended 

to address weaknesses that became 

apparent during the financial crisis of 

2007–08 (the other banking agencies’ 

2013 capital rule).9 The other banking 

agencies’ 2013 capital rule provides two 

methodologies for determining riskweighted assets: (i) A standardized 

approach; and (ii) a more complex, 

models-based approach, which includes 

both the internal ratings-based approach 

for measuring credit risk exposure and 

the advanced measurement approach for 

measuring operational risk exposure.10

The standardized approach applied to 

all banking organizations, whereas the 

internal ratings-based approach applied 

only to certain large or internationally 

active banking organizations. 

In 2018, section 201 of the Economic 

Growth, Regulatory Relief, and 

Consumer Protection Act (EGRRCPA), 

directed the other banking agencies to 

propose a simplified, alternative 

measure of capital adequacy for certain 

federally insured banks.11 On November 

13, 2019, the other banking agencies 

issued a final rule implementing this 

statutory directive (CBLR Final Rule).12

Under the CBLR Final Rule, the CBLR 

framework is optional for depository 

institutions and depository institution 

holding companies that meet the 

following criteria: 

(1) A leverage ratio (equal to tier 1 

capital divided by average total 

consolidated assets) of greater than nine 

percent; 13

(2) Total consolidated assets of less 

than $10 billion; 14

(3) Total off-balance sheet exposures 

of 25 percent or less of its total 

consolidated assets; 

(4) Trading assets plus trading 

liabilities of five percent or less of its 

total consolidated assets; and 

(5) Not an advanced approaches 

banking organization (advanced 

approaches banking organizations are 

generally those with at least $250 billion 

in total consolidated assets or at least 

$10 billion in total on-balance sheet 

foreign exposure, and depository 

institution subsidiaries of those firms). 

The CBLR Final Rule refers to the 

depository institutions and depository 

institution holding companies that meet 

these criteria as ‘‘qualifying community 

banking organizations.’’ Qualifying 

community banking organizations that 

opt into the CBLR framework are 

considered to be in compliance with the 

other banking agencies’ generally 

applicable risk-based and leverage 

capital requirements. Further, these 

qualifying banking organizations will be 

considered to have met the wellcapitalized ratio requirements for 

purposes of section 38 of the Federal 

Deposit Insurance Act (FDI Act), which 

applies prompt corrective action to 

federally insured depository 

institutions.15 Qualifying community 

banking organizations may opt into or 

out of the CBLR framework at any time. 

The CBLR Final Rule includes a twoquarter grace period during which a 

qualifying community banking 

organization that temporarily fails to 

meet any of the qualifying criteria, 

including the greater than nine percent 

leverage ratio requirement, generally 

will still be deemed well-capitalized so 

long as the qualifying community 

banking organization maintains a 

leverage ratio greater than eight percent. 

At the end of the grace period, the 

banking organization must meet all 


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16Public Law 116–136. 

17See, 85 FR 22924 (Apr. 23, 2020). 

18See, 85 FR 22930 (Apr. 23, 2020). 

19 86 FR 13498 (Mar. 9, 2021). 

20 12 CFR 702.102(a)(1) (effective Jan. 1, 2022). 

21 12 U.S.C. 1752–1775. 

22 12 U.S.C. 1766(a). 

23 12 U.S.C. 1787(b)(1). 

24 12 U.S.C. 1789(a)(11). 

25Public Law 105–219, 112 Stat. 913 (1998). 

26 12 U.S.C. 1790d. 

27The risk-based net worth requirement for credit 

unions meeting the definition of complex was first 

applied on the basis of data in the Call Report 

reflecting activity in the first quarter of 2001. 65 FR 

44950 (July 20, 2000). The NCUA’s risk-based net 

worth requirement has been largely unchanged 

since its implementation, with the following 

limited exceptions: Revisions were made to the rule 

in 2003 to amend the risk-based net worth 

requirement for member business loans, 68 FR 

56537 (Oct. 1, 2003); revisions were made to the 

rule in 2008 to incorporate a change in the statutory 

definition of ‘‘net worth,’’ 73 FR 72688 (Dec. 1, 

2008); revisions were made to the rule in 2011 to 

expand the definition of ‘‘low-risk assets’’ to 

include debt instruments on which the payment of 

qualifying criteria to remain in the 

CBLR framework or otherwise must 

comply with and report under the 

generally applicable risk-based and 

leverage capital requirements. Similarly, 

a banking organization that fails to 

maintain a leverage ratio greater than 

eight percent will not be permitted to 

use the grace period and must comply 

with the generally applicable capital 

requirements and file the appropriate 

regulatory reports. 

In March 2020, the CBLR was 

temporarily set to eight percent by 

statute.16 Accordingly, effective the 

second quarter of 2020, the CBLR 

requirement was eight percent or 

greater.17 At the start of 2021, the CBLR 

requirement was increased to 8.5 

percent or greater and the minimum 

requirement during the grace period is 

7.5 percent.18 Beginning on January 1, 

2022, the CBLR requirement will return 

to nine percent and the minimum 

requirement during the grace period 

will return to eight percent. 

C. The NCUA’S Advance Notice of 

Proposed Rulemaking 

At its January 14, 2021, meeting the 

Board issued an advance notice of 

proposed rulemaking (ANPR) to solicit 

comments on two approaches to 

simplify the 2015 Final Rule.19 The riskbased leverage ratio (RBLR) is the first 

alternative to the 2015 Final Rule 

included in the ANPR, which would 

replace the 2015 Final Rule with a new 

capital framework. The RBLR would use 

relevant risk-attribute thresholds to 

determine which complex credit unions 

would be required to hold additional 

capital buffers above the statutory 

leverage ratio. The second alternative 

contemplated in the ANPR is to retain 

the 2015 Final Rule but enable eligible 

complex credit unions to opt-in to the 

CCULR framework. 

The ANPR provided for a 60-day 

comment period that closed on May 10, 

2021. The Board received 19 comments. 

Almost all commenters supported the 

stated goal of simplifying the 2015 Final 

Rule. In general, commenters favored 

the NCUA developing a CCULR 

complement to risk-based capital rather 

than adopting a RBLR system of capital 

adequacy. 

Several commenters were opposed to 

the RBLR framework because it would 

likely call for higher capital 

requirements for credit unions holding 

certain assets compared to the current 

RBC requirements. Several commenters 

also stated that introducing a RBLR 

regime at this point would increase 

regulatory burden and negate the 

substantial work complex credit unions 

have undertaken to achieve compliance 

with the 2015 Final Rule. Commenters 

also generally stated that the RBLR 

would increase transaction costs for 

complex credit unions as they would be 

required to invest additional resources 

to redevelop the processes that have 

been put in place in anticipation of the 

RBC requirements. A few commenters 

also stated that a RBLR framework could 

result in a capital cliff. These 

commenters were concerned that a 

small change in assets could move a 

credit union to a new buffer, thereby 

causing a large increase in minimum 

capital requirements. 

Almost all commenters that favored 

the CCULR framework noted that it is a 

more flexible framework than the RBLR 

because complex credit unions have the 

option of calculating the more complex 

risk-based capital measure for a more 

precise and generally lower overall 

capital requirement. A few commenters 

noted that a benefit of the CCULR 

framework, as compared to a RBLR 

framework, is its similarity to the capital 

framework of the other banking 

agencies. 

After reviewing the comments 

received in response to the ANPR, the 

Board decided to issue this proposed 

rule to provide a simple measure of 

capital adequacy for complex credit 

unions that would serve as a 

complement to the 2015 Final Rule. 

II. Legal Authority 

This proposed rule would primarily 

provide a simple measure of capital 

adequacy for credit unions classified as 

complex based on the principles of the 

CBLR framework. The CCULR would 

relieve complex credit unions that 

satisfy specified qualifying criteria from 

having to calculate the risk-based 

capital ratio. In exchange, the credit 

union would be required to maintain a 

higher net worth ratio than is otherwise 

required for the well-capitalized 

classification for risk-based capital 

purposes. This is a similar trade-off to 

the decision qualifying community 

banks make under the CBLR. After the 

initial phase in period, a qualifying 

complex credit union that has a net 

worth ratio of 10 percent or greater will 

be eligible to opt into the CCULR 

framework. 

A qualifying complex credit union 

that opts into the CCULR framework 

and maintains the minimum net worth 

ratio (both during and after the 

threshold transition) will be considered 

well capitalized under the 2015 Final 

Rule.20 The proposed rule would also 

make several amendments to update the 

NCUA’s 2015 Final Rule, including 

addressing asset securitizations issued 

by credit unions, clarifying the 

treatment of off-balance sheet 

exposures, deducting certain mortgage 

servicing assets from a complex credit 

union’s risk-based capital numerator, 

updating certain derivative-related 

definitions and clarifying the definition 

of a consumer loan. 

The Board is issuing this proposed 

rule pursuant to its authority under the 

FCUA. Under the FCUA, the NCUA is 

the chartering and supervisory authority 

for FCUs and the federal supervisory 

authority for FICUs.21 The FCUA grants 

the NCUA a broad mandate to issue 

regulations governing both FCUs and all 

FICUs. Section 120 of the FCUA is a 

general grant of regulatory authority and 

authorizes the Board to prescribe rules 

and regulations for the administration of 

the FCUA.22 Section 207 of the FCUA is 

a specific grant of authority over share 

insurance coverage, conservatorships, 

and liquidations.23 Section 209 of the 

FCUA is a plenary grant of regulatory 

authority to the Board to issue rules and 

regulations necessary or appropriate to 

carry out its role as share insurer for all 

FICUs.24 Accordingly, the FCUA grants 

the Board broad rulemaking authority to 

ensure that the credit union industry 

and the NCUSIF remain safe and sound. 

The FCUA also includes an express 

grant of authority for the Board to 

develop capital adequacy standards for 

credit unions. In 1998, Congress enacted 

the Credit Union Membership Access 

Act (CUMAA).25 Section 301 of 

CUMAA added section 216 to the 

FCUA,26 which required the Board to 

adopt by regulation a system of prompt 

corrective action (PCA) to restore the net 

worth of credit unions that become 

inadequately capitalized.27 Section 


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principal and interest is unconditionally guaranteed 

by NCUA, 76 FR 16234 (Mar. 23, 2011); revisions 

were made in 2013 to exclude credit unions with 

total assets of $50 million or less from the definition 

of complex credit union, 78 FR 4033 (Jan. 18, 2013); 

and revisions were made in 2020 to reflect loans 

issued under the Paycheck Protection Program, 85 

FR 23212 (Apr. 27, 2020). 

28 12 U.S.C. 1790d(b)(1)(A); see also 12 U.S.C. 

1831o (section 38 of the FDI Act setting forth the 

PCA requirements for insured banks). In discussing 

the statutory requirement for comparability, the 

2019 Supplemental Rule stated that ‘‘the FCU Act 

requires the Board to adopt a PCA framework 

comparable to the PCA framework in the FDI Act. 

The FCU Act, however, does not require the Board 

to adopt a system of risk-based capital identical to 

the risk-based capital framework for federally 

insured banking organizations.’’ 

29 12 U.S.C. 1790d(b)(1)(B). 

30 12 CFR part 702; see also 65 FR 8584 (Feb. 18, 

2000) and 65 FR 44950 (July 20, 2000). 

31 12 U.S.C. 1790d(c). 

32 12 U.S.C. 1790d(o)(2). 

33 12 U.S.C. 1790d(o)(3). 

34 12 U.S.C. 1790d(c)–(g); 12 CFR 702.204(a)–(b). 

35 12 U.S.C. 1790d(d)(2). For purposes of this 

rulemaking, the term risk-based net worth 

requirement is used in reference to the statutory 

requirement for the Board to design a risk-based net 

worth requirement to take account of any material 

risks against which the net worth ratio required for 

an insured credit union to be adequately capitalized 

may not provide adequate protection. The term riskbased capital ratio is used to refer to the specific 

standards established in the 2015 Final Rule to 

function as criteria for the statutory risk-based net 

worth requirement. The term risk-based capital 

ratio is also used by the other banking agencies and 

the international banking community when 

referring to the types of risk-based requirements 

that are addressed in the 2015 Final Rule. This 

change in terminology throughout the proposed 

rule would have no substantive effect on the 

requirements of the FCUA, and is intended only to 

reduce confusion for the reader. 

36 12 U.S.C. 1790d(d)(1). 

37 12 U.S.C. 1790d(d). 

38 Id. 

39 12 CFR part 3 (OCC), 12 CFR part 217 (Federal 

Reserve Board), and 12 CFR part 324 (FDIC). 

40 12 U.S.C. 5371. 

41The Board also briefly considered an additional 

independent legal basis for the proposed CCULR 

framework. As discussed in the section III.D. 

Calibration of the CCULR, the proposed CCULR 

framework would result in complex credit unions 

generally holding more capital than under the 2015 

Final Rule. Because of the higher capital 

requirements under the proposed CCULR 

framework, the Board also considered whether the 

proposal could be considered an alternative method 

to demonstrate compliance with the 2015 Final 

Rule, instead of an alternative measure of risk-based 

net worth. This approach would be within the 

Board’s general discretion to determine the means 

and manner by which it measures compliance with 

its regulations, including the risk-based net worth 

requirement. However, in light of the express 

statutory authority to define complex and design a 

risk-based net worth framework, the Board believes 

this alternative basis, while valid, is not necessary 

to support the proposed rule. 

42When Congress expressly authorizes or directs 

an agency to define a statutory term, it grants the 

agency broad discretion. Under these 

circumstances, an agency is permitted to interpret 

a term so long as its interpretation is not manifestly 

contrary to the statute. The interpretation need not 

conform to the ordinary meaning of the term. See 

Am. Bankers Ass’n v. Nat’l Credit Union Admin., 

934 F.3d 649, 663 (D.C. Cir. 2019) (‘‘An express 

delegation of definitional power ‘‘necessarily 

suggests that Congress did not intend the [terms] to 

be applied in [their] plain meaning sense,’’ Women 

Involved in Farm Econ. v. U.S. Dep’t of Agric., 876 

F.2d 994, 1000 (D.C. Cir. 1989), that they are not 

‘‘self-defining,’’ id., and that the agency ‘‘enjoy[s] 

broad discretion’’ in how to define them, Lindeen 

v. SEC, 825 F.3d 646, 653 (D.C. Cir. 2016)). 

216(b)(1)(A) requires the Board to adopt 

by regulation a system of PCA for credit 

unions consistent with section 216 of 

the FCUA and comparable to section 38 

of the FDI Act.28 Section 216(b)(1)(B) 

requires that the Board, in designing the 

PCA system, also take into account the 

‘‘cooperative character of credit unions’’ 

(that is, credit unions are not-for-profit 

cooperatives that do not issue capital 

stock, must rely on retained earnings to 

build net worth, and have boards of 

directors that consist primarily of 

volunteers).29 The Board initially 

implemented the required system of 

PCA in 2000,30 primarily in part 702, 

and, as discussed previously, most 

recently made substantial updates to the 

regulation in the 2015 Final Rule. 

Among other things, section 216(c) of 

the FCUA requires the NCUA to use a 

credit union’s net worth ratio to 

determine its classification among five 

net worth categories set forth in the 

FCUA.31 Section 216(o) generally 

defines a credit union’s net worth as its 

retained earnings balance as determined 

under generally accepted accounting 

principles (GAAP),32 and a credit 

union’s net worth ratio, as the ratio of 

its net worth to its total assets.33 As a 

credit union’s net worth ratio declines, 

so does its classification among the five 

net worth categories, thus subjecting it 

to an expanding range of mandatory and 

discretionary supervisory actions.34

Section 216(d)(1) of the FCUA 

requires that the NCUA’s system of PCA 

include, in addition to the statutorily 

defined net worth ratio requirement, ‘‘a 

risk-based net worth 35 requirement for 

credit unions that are complex, as 

defined by the Board.’’ 36 The FCUA 

directs the NCUA to base its definition 

of complex credit unions ‘‘on the 

portfolios of assets and liabilities of 

credit unions.’’ 37 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. In addition to 

granting the NCUA broad authority to 

determine which credit unions are 

complex, and therefore subject to a riskbased net worth requirement, the FCUA 

also grants the NCUA broad authority to 

design a risk-based net worth 

requirement to apply to such complex 

credit unions.38 Specifically, unlike the 

terms net worth and net worth ratio, the 

term risk-based net worth is not defined 

in the FCUA. Accordingly, section 216 

grants the Board the authority to design 

risk-based net worth requirements, so 

long as the regulations are comparable 

to those applicable to other federally 

insured depository institutions and 

consistent with the requirements of the 

FCUA. 

The proposed CCULR framework is 

comparable to section 38 of the FDI Act, 

as implemented by CBLR Final Rule.39

As discussed previously, section 201 of 

the EGRRCPA amended part of the other 

banking agencies’ capital adequacy 

framework to direct the other banking 

agencies to propose a simplified, 

alternative measure of capital adequacy 

for certain federally insured banks.40

The other banking agencies 

implemented this requirement, 

including amendments to their PCA 

regulations under section 38 of the FDI 

Act, in the CBLR Final Rule. The Board 

also notes that the proposed 

amendments to the NCUA’s 2015 Final 

Rule would make the rule more 

comparable to the other banking 

agencies’ 2013 capital rules. 

In addition to satisfying the 

comparability requirement in section 

216, the proposed CCULR framework 

also meets the requirements in section 

216 for the NCUA’s risk-based net worth 

framework. Section 216 has two express 

provisions that authorize an NCUA 

analogue to the CBLR—the definition of 

complex credit unions and the mandate 

for the Board to design a risk-based net 

worth requirement. In designing its 

CCULR framework, the Board 

considered both its legal authority to 

exclude credit unions from risk-based 

net worth requirements under the 

definition of complex, and its authority 

to design a system of risk-based net 

worth that includes a higher net worth 

ratio in place of calculating a ratio based 

on risk-adjusted assets.41

The Board considered its express 

authority under section 216 to define 

which credit unions are complex, and 

thus exclude noncomplex credit unions 

from the risk-based net worth 

requirement.42 The express delegation 

grants the Board significant discretion to 

determine which credit unions are 

considered complex. Under this legal 

basis, the Board would continue to limit 

the definition of complex to only those 

credit unions with quarter-end total 

assets that exceed $500 million dollars. 

In using asset size as a proxy for 

complexity, the Board complied with 

the statutory directive that the 

definition of complex be based on the 

portfolios of assets and liabilities of 

credit unions. Specifically, the Board 

relied on a complexity index that 

counted the number of complex 


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43Supra note 5 at 55470. 

44 Id. 

45Case law research revealed no decisions 

discussing the meaning of ‘‘risk-based’’ under the 

FCUA or other statutes that impose risk-based 

capital requirements on financial institutions. 

46By contrast, in 2010, Congress specifically 

elaborated on the risk-based measures applicable to 

banks by providing that the generally applicable 

risk-based capital requirements for those 

institutions must include risk-weighted assets in 

the denominator of the ratio. Public Law 111–203, 

codified at 12 U.S.C. 5371. Congress did not elect 

to amend the FCUA to add a similar elaboration on 

the risk-based net worth requirement applicable to 

complex credit unions, which is consistent with the 

Board’s interpretation that the term risk-based by 

itself does not necessarily entail risk-weighted 

assets. This reading is consistent with judicial 

interpretations of the closely related phrase ‘‘based 

on,’’ which the Supreme Court has held to indicate 

a causal or but-for causation relationship between 

the phrase ‘‘based on’’ and the term it modifies. 

Babb v. Wilkie, 140 S.Ct. 1168, 2020 WL 1668281, 

at *4 (Apr. 6. 2020). Similarly, a ‘‘risk-based’’ 

requirement can be understood as a requirement 

that bears a causal relationship to the relevant risks 

but does not require a specific form for the 

calculation of this requirement. 

47 In a similar manner, the Board initially 

explored a non-risk-adjusted approach in the 

advance notice of proposed rulemaking that the 

Board issued following CUMAA’s enactment in 

1998, in which it requested comments on 

addressing this provision through increased net 

worth requirements as well as through risk-adjusted 

measures. 63 FR 57938 (Oct. 29, 1998). This 

approach is also consistent with the Senate report 

accompanying CUMAA, which stated: ‘‘The NCUA 

must design the risk-based net worth requirement 

to take into account any material risks against 

which the 6 percent net worth ratio required for an 

insured credit union to be adequately capitalized 

may not provide adequate protection. Thus the 

NCUA should, for example, consider whether the 

six percent requirement provides adequate 

protection against interest-rate risk and other 

market risks, credit risk, and the risks posed by 

contingent liabilities, as well as other relevant risks. 

The design of the risk-based net worth requirement 

should reflect a reasoned judgment about the actual 

risks involved.’’ S. Rep. No. 105–193 at 14 (May 21, 

1998) (emphasis added). The report indicates that 

Congress did not intend to prescribe the manner in 

which the Board accounts for any relevant risks that 

the six percent net worth ratio does not adequately 

address. 

products and services provided by 

credit unions.43 The complexity index 

demonstrated that credit unions with 

greater than $500 million in total assets 

held complex assets and liabilities as 

larger share of their total assets than 

smaller credit unions.44

The Board, however, could also 

propose a definition of complex that, 

rather than looking at the assets and 

liabilities of credit unions in the 

aggregate, looks at the individual 

portfolios of credit unions with total 

assets greater than $500 million. This 

approach is also consistent with the 

statutory provision that the complex 

definition should be based on the 

portfolios of assets and liabilities of 

credit unions. The Board would use the 

same qualifying criteria as in the 

proposed rule, as measures of 

complexity. If a credit union would 

otherwise meet the proposed definition 

of a qualifying credit union, it would be 

considered not complex, and therefore 

not subject to risk-based capital, as 

implemented by the 2015 Final Rule. 

This alternative approach would create 

a functionally equivalent requirement to 

the one set forth in this proposed rule, 

with the only difference being the 

technical details of the implementing 

regulatory text in part 702. 

The Board also considered its express 

authority and mandate to design the 

CCULR on the basis that the CCULR 

constitutes a risk-based net worth 

requirement, as required for complex 

credit unions in section 216(d). As 

discussed previously, the FCUA does 

not define the term risk-based net worth 

requirement and only sets forth general 

guidelines for the design of the riskbased net worth requirement mandated 

under section 216(d)(1). Specifically, 

section 216(d)(2) requires that the Board 

‘‘design the risk-based net worth 

requirement to take account of any 

material risks against which the net 

worth ratio required for an insured 

credit union to be adequately 

capitalized may not provide adequate 

protection.’’ Under section 216(c)(1)(B) 

of the FCUA, the net worth ratio 

required for a credit union to be 

adequately capitalized is six percent. 

The plain language of section 

216(d)(2) supports the NCUA’s 

interpretation that Congress intended 

for the NCUA to design the risk-based 

net worth requirement to take into 

account any material risks beyond those 

already addressed through the statutory 

six percent net worth ratio required for 

a credit union to be adequately 

capitalized. In other words, the language 

in paragraph 216(d)(2) simply identifies 

the types of risks that the NCUA’s riskbased net worth requirement must 

address, that is, those risks not already 

addressed by the statutory six percent 

net worth requirement. Notably, the 

FCUA does not require that the riskbased net worth requirement include 

risk-adjusted assets as part of its 

calculation.45 Instead, the Board 

interprets ‘‘risk-based’’ to require an 

accounting for risks in some manner— 

that is, the measure must be based on a 

consideration of risks—but not any 

particular manner of doing so.46

Therefore, provided the Board 

determines that the proposed CCULR 

considers all material risks against 

which the six percent net worth ratio 

does not provide protection, then the 

Board has satisfied the statutory 

requirements for a risk-based net worth 

ratio.47

The Board believes that both 

approaches to designing the CCULR 

framework are supported by the FCUA. 

The Board, however, has chosen to draft 

the proposed rule under its authority to 

design a risk-based net worth 

requirement. The Board believes that 

considering the CCULR as an alternative 

way to calculate a risk-based net worth 

requirement is more straightforward, 

consistent with the structure of section 

216, and simpler for complex credit 

unions to implement. 

III. Proposed Rule 

A. Overview of the CCULR Framework 

This proposed rule would provide a 

simplified measure of capital adequacy 

for credit unions classified as complex 

(credit unions with total assets greater 

than $500 million). Under the proposed 

rule, a qualifying complex credit union 

that meets the minimum CCULR, which 

is equal to its net worth ratio, would be 

eligible to opt into the CCULR 

framework and would be considered 

well capitalized. The proposed CCULR 

framework is based on the principles of 

the CBLR framework. It would relieve 

complex credit unions that meet 

specified qualifying criteria and have 

opted into the CCULR framework from 

having to calculate a risk-based capital 

ratio, as implemented by the 2015 Final 

Rule. In exchange, the qualifying 

complex credit union would be required 

to maintain a higher net worth ratio 

than is otherwise required for the wellcapitalized classification. This is a 

similar trade-off to the one qualifying 

community banking organizations are 

able to make under the CBLR. The 

CCULR would further the goal of the 

FCUA’s PCA requirements by ensuring 

that complex credit unions continue to 

hold sufficient capital, while 

minimizing the burden associated with 

complying with the NCUA’s risk-based 

capital requirement. 

As noted previously, the 2015 Final 

Rule is scheduled to take effect on 

January 1, 2022. Accordingly, the 

regulatory amendments contained in 

this proposed rule, if finalized, would 

not take effect until January 1, 2022, and 

qualifying complex credit unions would 

not be able to opt into the proposed 

CCULR framework prior to this effective 

date. 

B. Qualifying Complex Credit Unions 

Under the proposal, a qualifying 

complex credit union would be defined 

as a complex credit union under 

§ 702.103 that meets the following 

criteria (qualifying criteria), each as 

described further below: 


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48For an additional discussion on why the Board 

set the ratio to 10 percent, see Section D. 

Calibration of the CCULR. For additional 

information on the transition period, see Section I. 

Transition Provision. 

49The proposed amendments to § 702.104, Riskbased capital ratio, include credit conversion 

factors and risk-weights for off-balance sheet 

exposures. 

50The proposed rule would also include risk 

weights for each new exposure in the definition of 

off-balance sheet exposure. See, Section M. 

Amendments to the 2015 Final Rule. 

(1) Has a CCULR (net worth) of 10 

percent or greater, subject to an initial 

transition period; 48

(2) Has total off-balance sheet 

exposures of 25 percent or less of its 

total assets; 

(3) Has the sum of total trading assets 

and total trading liabilities of five 

percent or less of its total assets; and 

(4) Has the sum of total goodwill, 

including goodwill that meets the 

definition of excluded goodwill, and 

total other intangible assets, including 

intangible assets that meet the definition 

of excluded other intangible assets, of 

two percent or less of its total assets. 

The Board believes that complex 

credit unions that do not meet any one 

of the qualifying criteria should remain 

subject to risk-based capital to ensure 

that such credit unions hold capital 

commensurate with the risk profile of 

their activities. The Board would 

continue to evaluate the qualifying 

criteria over time to ensure that they 

continue to be appropriate. 

Question 1: The Board invites 

comment on the qualifying criteria. 

What are the advantages and 

disadvantages of each qualifying 

criterion? What is the burden associated 

with determining whether a complex 

credit union meets the proposed 

qualifying criteria? What other criteria, 

if any, should the Board consider in the 

proposed definition? What are 

commenters’ views on the tradeoffs 

between simplicity and having 

additional qualifying criteria? In 

specifying any alternative qualifying 

criteria regarding a credit union’s risk 

profile, please provide information on 

how alternative qualifying criteria 

should be considered in conjunction 

with the calibration of the CCULR level 

and why the Board should consider 

such alternative criteria. For example, if 

the Board were to consider a CCULR of 

less than 10 percent to be well 

capitalized, should additional 

qualifying criteria be incorporated? The 

Board may consider qualifying criteria 

related to mortgage servicing assets, 

investments in credit union service 

organizations (CUSOs), or investments 

in corporate credit unions if a 

permanent CCULR of less than 10 

percent is considered. 

1. CCULR of 10 Percent or Greater 

After the transition period, the 

proposed rule would require a complex 

credit union to have a CCULR of at least 

10 percent to be classified as a 

qualifying complex credit union. An 

otherwise qualifying complex credit 

union could not opt into the CCULR 

framework unless its CCULR was at 

least 10 percent. 

Transition Provision 

Under the proposed rule, there is a 

transition provision to phase in the 10 

percent CCULR over two years to give 

complex credit unions time to adjust 

and adapt to the new requirements. The 

transition provision provides for full 

effectiveness of the 10 percent CCULR 

on January 1, 2024. From January 1, 

2022, to December 31, 2022, a complex 

credit union may opt into the CCULR 

framework if it has a CCULR of nine 

percent or greater. Therefore, a 

qualifying complex credit union that 

opts into the CCULR framework and 

that maintains a CCULR of nine percent 

would be considered well capitalized. 

Beginning January 1, 2023, a complex 

credit union that has opted into the 

CCULR framework must have a CCULR 

of 9.5 percent or greater to meet the 

eligibility criteria and be considered 

well-capitalized. After January 1, 2024, 

a complex credit union would need to 

maintain a CCULR of 10 percent to be 

considered well-capitalized. 

Accordingly, the proposed rule provides 

a complex credit union two years to 

meet a CCULR of 10 percent or greater. 

See, Section I. Transition Provision for 

additional information. 

2. Off-Balance Sheet Exposures 

Under the proposal, a qualifying 

complex credit union would be required 

to have total off-balance sheet exposures 

of 25 percent or less of its total assets, 

as of the end of the most recent calendar 

quarter. The Board is including these 

qualifying criteria in the CCULR 

framework because the CCULR includes 

only on-balance sheet assets in its 

denominator and thus would not 

require a qualifying complex credit 

union to hold capital against its offbalance sheet exposures. This qualifying 

criterion is intended to reduce the 

likelihood that a qualifying complex 

credit union with significant off-balance 

sheet exposures would be required to 

hold less capital under the CCULR 

framework than under the risk-based 

capital ratio.49

The other banking agencies’ CBLR 

framework also excludes banking 

organizations with significant offbalance sheet exposures. The CBLR 

Final Rule excludes banking 

organizations that have more than 25 

percent of total consolidated assets in 

off-balance sheet exposures. The other 

banking agencies’ definition of offbalance sheet exposures, however, has 

several differences from the current 

definition of off-balance sheet exposures 

in the 2015 Final Rule. Therefore, to 

make the CCULR framework more 

comparable to the CBLR and to improve 

on the effectiveness of the 2015 Final 

Rule, the proposed rule would amend 

the NCUA’s definition of off-balance 

sheet exposures. The proposed 

amendments to the definition of offbalance sheet exposure would apply to 

both the proposed CCULR framework 

and the risk-based capital framework.50

Under the proposed CCULR 

framework, off-balance sheet exposures 

would mean: 

(1) For unfunded commitments, 

excluding unconditionally cancellable 

commitments, the remaining unfunded 

portion of the contractual agreement. 

(2) For loans transferred with limited 

recourse, or other seller-provided credit 

enhancements, and that qualify for true 

sale accounting, the maximum 

contractual amount the credit union is 

exposed to according to the agreement, 

net of any related valuation allowance. 

(3) For loans transferred under the 

Federal Home Loan Bank (FHLB) 

mortgage partnership finance program, 

the outstanding loan balance as of the 

reporting date, net of any related 

valuation allowance. 

(4) For financial standby letters of 

credit, the total potential exposure of 

the credit union under the contractual 

agreement. 

(5) For forward agreements that are 

not derivative contracts, the future 

contractual obligation amount. 

(6) For sold credit protection through 

guarantees and credit derivatives, the 

total potential exposure of the credit 

union under the contractual agreement. 

(7) For off-balance sheet securitization 

exposures, the notional amount of the 

off-balance sheet credit exposure 

(including any credit enhancements, 

representations, or warranties that 

obligate a credit union to protect 

another party from losses arising from 

the credit risk of the underlying 

exposures) that arises from a 

securitization. 

(8) For securities borrowing or 

lending transactions, the amount of all 

securities borrowed or lent against 


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51New exposure categories may require changes 

to the Call Report. For example, unconditionally 

cancellable commitments, off-balance sheet 

securitization exposures, forward agreements, sold 

credit protection through guarantees and credit 

derivatives, and securities borrowing and lending 

transactions may require additional Call Report 

fields. 

52 Derivative contract means a financial contract 

whose value is derived from the values of one or 

more underlying assets, reference rates, or indices 

of asset values or reference rates. Derivative 

contracts include interest rate derivative contracts, 

exchange rate derivative contracts, equity derivative 

contracts, commodity derivative contracts, and 

credit derivative contracts. Derivative contracts also 

include unsettled securities, commodities, and 

foreign exchange transactions with a contractual 

settlement or delivery lag that is longer than the 

lesser of the market standard for the particular 

instrument or five business days. 12 CFR 702.2 

(effective Jan. 1, 2022). 

53A guarantee means a financial guarantee, letter 

of credit, insurance, or similar financial instrument 

that allows one party to transfer the credit risk of 

one or more specific exposures to another party. 12 

CFR 702.2 (effective Jan. 1, 2022). 

collateral or on an uncollateralized 

basis.51

Each element of the off-balance sheet 

definition is discussed in more detail 

below. 

Unfunded Commitments 

The current definition of off-balance 

sheet exposures in the 2015 Final Rule 

includes all unfunded commitments. 

The proposed definition, however, 

would not include commitments that 

are unconditionally cancellable. Under 

the proposed rule, an unconditionally 

cancellable commitment would mean a 

commitment that a credit union may, at 

any time, with or without cause, refuse 

to extend credit under (to the extent 

permitted under applicable law). The 

Board notes that for an exposure to be 

treated as unconditionally cancellable, 

the contractual agreement must 

explicitly state that the credit union can 

unconditionally refuse to extend credit 

under the commitment. A provision 

stating the credit union can cancel the 

commitment for good cause would be 

insufficient. 

Loans Transferred With Limited 

Recourse 

The current definition of off-balance 

sheet exposures in the 2015 Final Rule 

includes all other loans transferred with 

limited recourse or other seller-provided 

credit enhancements and that qualify for 

true sales accounting. The proposed rule 

would make no substantive changes to 

this prong of the off-balance sheet 

exposure definition. The exposure 

amount for loans transferred with 

limited recourse is the maximum 

contractual amount the credit union is 

exposed to according to the agreement, 

net of any related valuation allowance. 

Loans Transferred Under the Federal 

Home Loan Bank (FHLB) Mortgage 

Partnership Finance Program Loans 

The current definition of off-balance 

sheet exposures in the 2015 Final Rule 

includes loans transferred under the 

FHLB mortgage partnership finance 

program. The proposed rule would 

clarify the language of this item in the 

off-balance sheet exposure definition 

but would make no other substantive 

change. The exposure amount for loans 

that meet the definition of mortgage 

partnership finance program and are 

transferred under the FHLB mortgage 

partnership finance program is the 

outstanding loan balance as of the 

reporting date, net of any related 

valuation allowance. 

Financial Standby Letters of Credit 

The proposed rule would include 

financial standby letters of credit in the 

definition of off-balance sheet 

exposures. These exposures are not 

explicitly included in the current 

definition of off-balance sheet exposure 

in the 2015 Final Rule; however, they 

are included as off-balance sheet items. 

Under the proposed rule, the exposure 

amount for financial standby letters of 

credit would be the total potential 

exposure of the credit union under the 

contractual agreement. 

Forward Agreements 

The proposed definition of off-balance 

exposures would also include forward 

agreements that are not derivative 

contracts. Forward agreements are not 

explicitly included in the current 

definition of off-balance sheet exposure 

in the 2015 Final Rule; however, 

forward agreements are included as offbalance sheet items. A forward 

agreement would mean a legally binding 

contractual obligation to purchase assets 

with certain drawdown at a specified 

future date, not including commitments 

to make residential mortgage loans or 

forward foreign exchange contracts. The 

exposure amount of a forward 

agreement that is not a derivative 

contract would be the future contractual 

obligation amount. 

Similar to the other banking agencies, 

the Board is also clarifying that typical 

mortgage lending activities such as 

forward loan delivery commitments 

between credit unions and investors are 

typically derivative contracts, and 

therefore, would be excluded from the 

off-balance sheet exposure definition.52

The Board also notes that put and call 

options on mortgage-backed securities 

are also typically derivatives and would 

be excluded from the definition of offbalance sheet exposure. A contractual 

obligation for the future purchase of a 

‘‘to be announced’’ (that is, whenissued) mortgage securities contract that 

does not meet the definition of a 

derivative contract, however, would be 

captured by the off-balance sheet 

exposure definition as it would be 

considered a forward agreement. In 

contrast, a contractual obligation for the 

future sale (rather than purchase) of a 

‘‘to be announced’’ mortgage securities 

contract that does not meet the 

definition of a derivative contract would 

not be captured in the off-balance sheet 

qualifying criterion, as it would not be 

considered a forward agreement. 

Sold Credit Protection Through 

Guarantees and Credit Derivatives 

The proposed definition of off-balance 

sheet exposure would also include sold 

credit protection through guarantees 53

and credit derivatives. These exposures 

are not explicitly included in the 

definition of off-balance sheet exposure 

in the 2015 Final Rule; however, 

guarantees are included as off-balance 

sheet items. Credit derivatives are 

included in the other banking agencies’ 

CBLR framework as part of the offbalance sheet threshold. Under the 

proposed definition, the exposure 

amount for sold credit protection 

through guarantees and credit 

derivatives would be the total potential 

exposure of the credit union under the 

contractual agreement. A credit 

derivative would mean a financial 

contract executed under standard 

industry credit derivative 

documentation that allows one party 

(the protection purchaser) to transfer the 

credit risk of one or more exposures 

(reference exposure[s]) to another party 

(the protection provider) for a certain 

period of time. At this time, FCUs are 

not permitted to have credit derivatives 

and the Board is unaware of any statechartered credit unions engaging in 

credit derivatives. The Board is 

including this provision for consistency 

with the other banking agencies and to 

ensure that the proposed rule is flexible 

should credit unions hold credit 

derivatives in the future. 

Off-Balance Sheet Securitizations 

Additionally, compared to the current 

definition of off-balance sheet exposure, 

the proposed definition would include 

off-balance sheet securitizations, 

including any credit enhancements, 

representations, or warranties that 

obligate a credit union to protect 

another party from losses arising from 

the credit risk of the underlying 


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54The other banking agencies define the term 

‘‘credit enhancements, representations, or 

warranties.’’ The Board believes the definition used 

by the other banking agencies introduces additional 

complexity and therefore is not adopting it at this 

time and, instead, will rely on the plain meaning 

of these terms. 

55 12 CFR 703.13. 12 CFR 703.2 defines securities 

lending as lending a security to a counterparty, 

either directly or through an agent, and accepting 

collateral in return. 

56Currently, the Call Report does not include a 

reporting requirement for trading assets and trading 

liabilities. As discussed in Section III. L. Illustrative 

Reporting Forms to Support the CCULR, if the 

proposed rule is finalized, the NCUA would update 

the Call Report before January 1, 2022. The revised 

Call Report would include reporting requirements 

for trading assets and trading liabilities. 57 12 CFR 703.15. 

exposures.54 Off-balance sheet 

securitizations are not included in the 

current definition of off-balance sheet 

exposure or off-balance sheet items, but 

are included in the other banking 

agencies’ CBLR framework as part of the 

off-balance sheet threshold. An offbalance sheet securitization exposure 

could arise in a number of 

circumstances. For example, if an 

originating credit union provides 

liquidity or credit support for an issued 

securitization, the credit union may 

report an off-balance sheet 

securitization exposure. The exposure 

amount of an off-balance sheet 

securitization exposure would be the 

notional amount of the exposure. 

Securities Borrowing or Lending 

Transactions 

Finally, the proposed rule would 

explicitly include securities borrowing 

or lending transactions. Securities 

borrowing or lending transactions are 

not included in the current definition of 

off-balance sheet exposure or offbalance sheet items, but are included in 

the other banking agencies’ CBLR 

framework as part of the off-balance 

sheet qualifying criterion. These types 

of transactions are permissible for FCUs 

under part 703 of NCUA regulations and 

may be permissible for FISCUs as 

well.55 For these transactions, the 

exposure amount would be the amount 

of all securities borrowed or lent against 

collateral or on an uncollateralized 

basis. 

Collectively, the above eight elements 

comprise the proposed definition of offbalance sheet exposures that would 

apply to both the proposed CCULR 

framework and the risk-based capital 

framework under the 2015 Final Rule. 

Section M. Amendments to the 2015 

Final Rule, which addresses two 

additional off-balance sheet exposures, 

that are not part of the off-balance 

exposure definition because they are not 

included as an off-balance sheet 

exposure in either the CCULR or the 

other banking agencies’ CBLR offbalance sheet thresholds. However, they 

are considered in the other banking 

agencies’ 2013 capital rule and are 

proposed amendments to the NCUA’s 

2015 risk-based capital rule. By 

applying the proposed changes to both 

frameworks, the Board would establish 

consistency between the 2015 Final 

Rule and the proposed CCULR 

framework. Without these conforming 

amendments to the definition of offbalance sheet exposures, a credit union 

might be required to hold less capital 

under the CCULR framework than under 

the risk-based capital framework of the 

2015 Final Rule. 

The Board proposes a 25 percent 

threshold for off-balance sheet 

exposures, as this threshold is similar to 

the CBLR framework and it would 

provide enough flexibility for complex 

credit unions to engage in normal 

lending practices. The Board does not 

believe that traditional banking 

activities, such as extending loan 

commitments to members, should 

necessarily preclude a complex credit 

union from qualifying to use the CCULR 

framework. The 25 percent threshold 

will also ensure that complex credit 

unions engaging in substantial offbalance sheet activity will also have the 

commensurate regulatory capital 

requirement. Therefore, the Board 

proposes a 25 percent threshold for offbalance sheet exposures, consistent with 

the CBLR Final Rule. 

Question 2: The Board invites 

comment on the proposed off-balance 

sheet exposures qualifying criterion. 

What aspects of the off-balance sheet 

exposures qualifying criterion, 

including the related definition, 

requires further clarity? What other 

alternatives should the Board consider 

for purposes of defining the proposed 

qualifying criterion? What impact 

would the proposed qualifying criterion 

have on a complex credit union’s 

business strategies and lending 

decisions? Is a 25 percent threshold 

appropriate? If commenters believe an 

alternative threshold is more 

appropriate, please provide data. 

3. Trading Assets and Liabilities 

Under the proposal, a qualifying 

complex credit union would be required 

to have the sum of its total trading assets 

and total trading liabilities be five 

percent or less of its total assets, each 

measured as of the end of the most 

recent calendar quarter.56 The proposed 

rule would include new definitions for 

the terms trading assets and trading 

liabilities. Trading assets would be 

defined as securities or other assets 

acquired, not including loans originated 

by the credit union, for the purpose of 

selling in the near term or otherwise 

with the intent to resell to profit from 

short-term price movements. Trading 

assets would not include shares of a 

registered investment company or a 

collective investment fund used for 

liquidity purposes. Trading assets, 

however, would include derivatives 

recorded as assets on a credit union’s 

balance sheet that are used for trading 

purposes. The Board notes that FCUs do 

not currently have the authority under 

part 703 to enter into derivative 

transactions for trading. 

The Board is proposing to define 

trading assets similarly to the other 

banking agencies’ definition with the 

exception of including securities or 

investments acquired through 

underwriting or dealing, or securities 

acquired as an accommodation to a 

customer. The Board does not believe 

these are activities that credit unions 

currently engage in and, additionally, 

they would still likely be captured in 

the definition of trading assets. The 

Board notes that any loan originated by 

a credit union would not be considered 

a trading asset. However, under the 

proposed definition, loans purchased 

with the intent to sell in the short-term 

would be considered trading assets. 

Trading liabilities would be defined 

as the total liability for short positions 

of securities or other liabilities held for 

trading purposes. A short position is 

established when an investor sells an 

investment that the investor does not 

own. The following is an example of a 

short position that would not be 

included within the definition of 

trading liability because it is used to 

manage interest rate risk. In managing 

interest rate risk, an investor might sell 

a 10-year Treasury Note to decrease the 

price volatility of the investor’s bond/ 

loan portfolio. The value of the 10-year 

Treasury Note, which is a liability for 

the investor, would change in the same 

direction as the bond/loan portfolio, 

reducing interest rate risk if the price 

change of assets minus liabilities is less 

than it would have been without 

shorting the 10-year Treasury Note. If a 

credit union engaged in such a 

transaction, it would not be included in 

the trading liabilities definition. The 

Board also notes that FCUs do not 

currently have the authority to short 

securities.57 Additionally, trading 

liabilities would include derivatives 

recorded as liabilities on a credit 

union’s balance sheet that are used for 

trading purposes. The Board notes that 

FCUs do not currently have the 


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58Even though it is permissible for FCUs to trade 

securities, Call Report data shows FCUs do not hold 

substantial trading assets. See, 12 CFR 703.13(f). 

Depending on state law, FISCUs also may be 

permitted to hold trading assets, however, again, 

the Board’s analysis shows that FISCUs do not hold 

material amounts of trading assets. As of December 

2020, the largest concentration in trading debt 

securities at a complex credit union was 2.3 percent 

of assets. Furthermore, only four complex credit 

unions had over one percent of assets in trading 

debt securities. 

59Excluded goodwill means the outstanding 

balance, maintained in accordance with GAAP, of 

any goodwill originating from a supervisory merger 

or combination that was completed on or before 

December 28, 2015. This term and definition expire 

on January 1, 2029. Excluded other intangible assets 

means the outstanding balance, maintained in 

accordance with GAAP, of any other intangible 

assets such as core deposit intangible, member 

relationship intangible, or trade name intangible 

originating from a supervisory merger or 

combination that was completed on or before 

December 28, 2015. This term and definition expire 

on January 1, 2029. 12 CFR 702.2 (effective Jan. 1, 

2022). 60See e.g., 12 CFR 324.22. 

authority to enter into derivative 

transactions for trading. 

These qualifying criteria would be 

calculated in accordance with the 

reporting instructions in the Call Report 

and the complex qualifying credit union 

would divide the sum of its total trading 

assets and total trading liabilities by its 

total assets. 

The other banking agencies limited a 

qualifying community banking 

organization to having total trading 

assets and trading liabilities of five 

percent or less of its total consolidated 

assets. In the CBLR Final Rule, the other 

banking agencies discussed the 

potential elevated levels of risk and 

complexity that can be associated with 

certain trading activities and, therefore, 

required banking organizations with 

significant trading assets and liabilities 

to be subject to risk-based capital 

requirements. The other banking 

agencies noted that elevated levels of 

trading activity can produce a 

heightened level of earnings volatility, 

which has implications for capital 

adequacy. The other banking agencies 

also expressed concerns about making 

the CBLR framework available to 

banking organizations with material 

market risk exposure. For similar 

reasons, the Board believes it is 

important to have a qualifying criterion 

based on the sum of total trading assets 

and trading liabilities. 

Based on the Board’s analysis of 

currently available Call Report data and 

permissible activities for FCUs, the 

Board believes the vast majority of 

complex credit unions do not have 

material amounts of trading assets and 

trading liabilities.58 The Board has 

included a trading activity criterion, 

despite the general lack of credit union 

trading activity, because the Board 

recognizes the potential elevated levels 

of risk and complexity that can be 

associated with certain trading activities 

even if is not applicable to most 

complex credit unions. In addition, the 

Board recognizes that the level of credit 

union trading activity could increase in 

the future. 

Question 3: The Board invites 

comment on the proposed trading 

activity criterion. What other alternative 

measures of trading activity should the 

Board consider for purposes of defining 

a qualifying complex credit union and 

why? 

4. Goodwill and Other Intangible Assets 

Under the proposal, a qualifying 

complex credit union would be required 

to have the sum of total goodwill and 

other intangible assets of two percent or 

less of its total assets. Qualifying 

complex credit unions would be 

required to include excluded goodwill 

and excluded other intangible assets in 

this calculation.59 Goodwill is defined 

as an intangible asset, maintained in 

accordance with GAAP, representing 

the future economic benefits arising 

from other assets acquired in a business 

combination (for example, a merger) 

that are not individually identified and 

separately recognized. Other intangible 

assets mean intangible assets, other than 

servicing assets and goodwill, 

maintained in accordance with GAAP. 

Other intangible assets do not include 

excluded other intangible assets. These 

are the same definitions as in the 2015 

Final Rule. However, as discussed 

previously, for purposes of the CCULR, 

complex credit unions would be 

required to include in the proposed 

threshold excluded goodwill and 

excluded other intangible assets, even 

though excluded goodwill and excluded 

other intangible assets are not included 

in the goodwill deduction under the 

2015 Final Rule. The 2015 Final Rule 

established an implementation period 

for deducting goodwill and other 

intangible assets acquired by certain 

supervisory mergers prior to the 

publication of the 2015 Final Rule. This 

approach ensured credit unions were 

not treated punitively for goodwill and 

other intangible assets acquired before 

the publication of the 2015 Final Rule. 

However, the CCULR framework is 

voluntary and the same fairness 

concerns are not present. Therefore, the 

Board has chosen to include the full 

amount of goodwill and other intangible 

assets for this criterion. 

The Board is proposing a qualifying 

criterion related to goodwill and other 

intangible assets because goodwill and 

other intangible assets contain a high 

level of uncertainty regarding a credit 

union’s ability to realize value from 

these assets, especially under adverse 

financial conditions. Due to the 

uncertainty of recognizing value from 

goodwill and other intangible assets, the 

other banking agencies require insured 

banks to deduct goodwill and intangible 

assets from tier 1 capital.60 The Board 

believes it is prudent to assess the credit 

union’s balance of goodwill and other 

intangible assets to ensure 

comparability with the banking 

industry. Without this proposed 

criterion, a qualifying credit union 

could use the CCULR despite 

substantial goodwill and intangible 

assets, which would be inconsistent 

with the principles of the CBLR 

framework. The Board also notes that 

under the 2015 Final Rule, goodwill and 

other intangible assets are deducted 

from both the risk-based capital ratio 

numerator and denominator. 

As stated previously, the proposed 

rule includes a two percent threshold on 

goodwill and other intangibles assets. 

The Board believes that complex credit 

unions with two percent or less of their 

assets in goodwill and other intangibles 

assets would not hold less capital under 

the CCULR framework than under the 

risk-based capital ratio. In addition, a 

two percent threshold only would 

exclude a small portion of otherwise 

qualifying complex credit unions, an 

estimated four credit unions as of 

December 31, 2020, from the CCULR 

framework. Therefore, the Board 

believes a two percent threshold 

balances regulatory relief for most 

qualifying complex credit unions, while 

still recognizing the uncertainty and 

volatility of goodwill and other 

intangible assets. The Board believes 

that complex credit unions with 

substantial goodwill and other 

intangible assets should calculate their 

capital adequacy using the risk-based 

capital ratio, as their portfolios may 

require higher capital levels. 

Question 4: The Board invites 

comment on the proposed qualifying 

criterion for the sum of total goodwill 

and other intangible assets. What are 

commenters’ views on the inclusion of 

such a qualifying criterion? Should 

qualifying complex credit unions be 

required to include excluded goodwill 

and excluded other intangible assets 

that would have been excluded under 

the 2015 Final Rule? 

Question 5: As discussed previously, 

under the 2015 Final Rule, goodwill and 

other intangible assets are deducted 

from both the risk-based capital ratio 

numerator and denominator in order to 


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61Supra note 11. 

62Supra note 12. 63 12 CFR 702.502. 

achieve a risk-based capital ratio 

numerator reflecting equity available to 

cover losses in the event of liquidation. 

The Board, however, recognized that 

requiring the exclusion of goodwill and 

other intangibles associated with 

supervisory mergers and combinations 

of credit unions that occurred prior to 

the 2015 Final Rule could directly 

reduce a credit union’s risk-based 

capital ratio. Accordingly, under the 

2015 Final Rule, the Board also 

permitted credit unions to exclude 

certain goodwill and other intangible 

assets from the deduction in the riskbased capital ratio numerator. In 

particular, the 2015 Final Rule excluded 

from the definition of goodwill, which 

must be deducted from the risk-based 

capital ratio numerator, certain goodwill 

or other intangible assets acquired by a 

credit union in a supervisory merger or 

consolidation. 

Under the 2015 Final Rule, excluded 

goodwill is defined as the outstanding 

balance, maintained in accordance with 

GAAP, of any goodwill originating from 

a supervisory merger or combination 

that was completed on or before 

December 28, 2015. This term and 

definition expire on January 1, 2029. 

Excluded other intangible assets is 

defined as the outstanding balance, 

maintained in accordance with GAAP, 

of any other intangible assets such as 

core deposit intangible, member 

relationship intangible, or trade name 

intangible originating from a 

supervisory merger or combination that 

was completed on or before December 

28, 2015. This term and definition 

expire on January 1, 2029. The Board 

added these two definitions to take into 

account the impact goodwill or other 

intangible assets recorded from 

transactions defined as supervisory 

mergers or combinations have on the 

calculation of the risk-based capital 

ratio upon implementation. Both 

definitions apply to supervisory mergers 

or combinations that occurred before 

December 28, 2015. The date, December 

28, 2015, was 60 days after the 2015 

Final Rule was published in the Federal 

Register, which provided sufficient 

notice to complex credit unions 

contemplating supervisory mergers at 

the time the 2015 Final Rule was issued. 

The Board understands, however, that 

there is some confusion as to whether 

the dates were amended after the 

subsequent delays to the 2015 Final 

Rule in the 2018 Supplemental Rule and 

the 2019 Supplemental Rule. The Board 

notes that as currently written, the 

delays to the effective date of the 2015 

Final Rule do not amend the December 

28, 2015, date for excluded goodwill 

and other intangible assets. Any 

supervisory mergers that included 

goodwill and other intangible assets 

after December 28, 2015, are required 

deductions once the 2015 Final Rule 

becomes effective on January 1, 2022. 

The Board, however, is open to 

considering an amendment to the 2015 

Final Rule. Should the Board amend the 

December 28, 2015, date to alleviate any 

potential confusion in the date caused 

by the delayed effective date of the 2015 

Final Rule? The Board also notes that 

the CCULR framework, as proposed, 

would not require a deduction, so any 

potential amendment would only be 

relevant for complex credit unions that 

are not qualifying complex credit 

unions or that have not opted to 

calculate their risk-based capital 

measure under the CCULR framework. 

What are the advantages and 

disadvantages of deducting goodwill 

from regulatory capital under the 2015 

Final Rule? As goodwill is not a tangible 

asset, how would not deducting 

goodwill from regulatory capital 

adequately protect the NCUSIF in the 

event of a failure and liquidation? 

Question 6: Please comment on 

whether the Board should consider 

qualifying criteria for other categories of 

exposures that are subject to heightened 

risk weights under the 2015 Final Rule. 

Should the Board combine several 

categories of higher risk-weighted 

exposures to ensure a complex credit 

union’s aggregate exposure is under a 

certain threshold? 

5. Other CBLR Eligibility Criteria 

Total Assets of Less Than $10 Billion 

Under the other banking agencies’ 

CBLR framework, only depository 

institutions or depository institution 

holding companies with total 

consolidated assets of less than $10 

billion are eligible to use the CBLR. The 

$10 billion limitation was included in 

the EGRRCPA.61 The other banking 

agencies also stated that a risk-based 

capital ratio is more appropriate for 

larger banking organizations because 

such banking organizations may present 

risks that are not appropriately captured 

by the CBLR framework.62 Commenters 

to the ANPR that addressed the scope of 

eligible institutions generally favored 

not using the CBLR threshold of $10 

billion. One commenter stated that 

because credit unions are generally 

subject to more stringent portfolio 

shaping regulations than banks, a $10 

billion cap was not appropriate. One 

commenter stated that the NCUA could 

set a higher threshold of $15 billion or 

$20 billion to harmonize the CCULR 

with the more granular stress testing 

tiers. Other non-credit union 

commenters favored a $10 billion limit 

on eligibility to opt into the CCULR 

framework. 

The Board is not proposing to include 

this qualifying criterion in the proposed 

rule. The Board believes that the CCULR 

framework would appropriately capture 

the risk for all complex credit unions 

regardless of asset size. The FCUA 

limits the types of assets a Federal credit 

union can hold compared to banking 

organizations. Consequently, larger 

banking organizations may be more 

likely to include assets that cannot be 

adequately risk weighted with a 

leverage ratio than a complex credit 

union. Therefore, the Board believes 

permitting all complex credit unions 

regardless of asset size to opt into the 

CCULR framework is prudent and does 

not present a risk to the NCUSIF. 

Permitting credit unions with total 

assets over $10 billion would only 

include 18 additional credit unions, 

with total assets of over $438 billion, or 

27 percent of all complex credit union 

assets as of March 31, 2021. In addition, 

these credit unions are highly 

capitalized and have an average net 

worth ratio of just under 10 percent. 

Twelve of the eighteen credit unions 

have net worth ratios over nine percent. 

The remaining six credit unions with 

total assets over $10 billion as of March 

2021 have an average net worth ratio of 

8.32 percent. 

The Board notes that $10 billion is the 

threshold for credit unions to begin 

capital planning under part 702. In 

addition, complex credit unions with 

$20 billion or more in total assets are 

subject to stress testing requirements.63

These requirements are independent of 

the complex credit union’s CCULR 

selection. Therefore, a complex credit 

union that meets the applicable 

thresholds for capital planning and 

stress testing requirements will be 

subject to such requirements regardless 

of its CCULR opt in election. 

Question 7: Should the Board 

consider limiting eligibility to the 

CCULR framework to only complex 

credit unions with less than $10 billion 

in total assets? The Board seeks 

comments on a potential $10 billion 

asset limitation and whether it is 

appropriate for the CCULR framework. 

Question 8: In contrast to the other 

banking agencies’ CBLR statute and 

regulation, the Board is not proposing to 

include a qualifying criterion for 

mortgage servicing assets (MSAs). As 


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64 12 CFR 702.2 (effective Jan. 1, 2022). 

65 86 FR 34924 (July. 1, 2021). 66 12 CFR 702.2 (effective Jan. 1, 2022). 

67Supra note 12, at 61783. 

68See, 12 CFR 324.10(b)(4). 

69 12 CFR 702.104(b) (effective Jan. 1, 2022). 

70As proposed, both the 2015 Final Rule and this 

CCULR framework would be effective January 1, 

2022. 

discussed subsequently in this 

preamble, the Board is proposing 

changes to the risk-weighting of MSAs 

under the 2015 Final Rule consistent 

with the other banking agencies’ riskbased capital regulations. Currently, 

MSA balances are insignificant enough 

relative to total assets that the Board 

believes a qualifying criterion would be 

unnecessary and would not have much, 

or any, effect. However, as discussed in 

the section on risk-based capital, 

revisions to the other banking agencies’ 

capital rules on this subject and 

potential increases in future activity 

warrant at least some adjustment to the 

risk-based capital treatment of MSAs. 

But the Board does not currently find 

that even that potential increase, which 

is not certain and would depend on a 

separate, pending rulemaking, would 

warrant including MSAs as a qualifying 

criterion for the CCULR framework. The 

Board invites comment on this issue. 

What are commenters’ views on the 

exclusion of such a qualifying criterion? 

C. The CCULR Ratio 

Under the proposal, the CCULR 

would be the net worth ratio, which is 

defined under the 2015 Final Rule as 

the ratio of the credit union’s net worth 

to its total assets rounded to two 

decimal places.64 Therefore, any 

amendments to the definition of the net 

worth ratio would also be applicable to 

the calculation of CCULR. For example, 

the Board finalized changes to the net 

worth ratio to provide that, for purposes 

of the prompt corrective action 

regulations, credit unions may phase-in 

the day-one impact of transitioning to 

the Current Expected Credit Loss (CECL) 

methodology over a three-year period.65

This change would be part of a credit 

union’s net worth ratio, and therefore, 

its CCULR. The 2015 Final Rule, as 

amended, defines net worth as: 

(1) The retained earnings balance of 

the credit union at quarter-end as 

determined under GAAP, subject to 

paragraph (3) of this definition. 

(2) With respect to a low-income 

designated credit union, the outstanding 

principal amount of Subordinated Debt 

treated as Regulatory Capital in 

accordance with § 702.407, and the 

outstanding principal amount of 

Grandfathered Secondary Capital 

treated as Regulatory Capital in 

accordance with § 702.414, in each case 

that is: 

(i) Uninsured; and 

(ii) Subordinate to all other claims 

against the credit union, including 

claims of creditors, shareholders, and 

the NCUSIF. 

(3) For a credit union that acquires 

another credit union in a mutual 

combination, net worth also includes 

the retained earnings of the acquired 

credit union, or of an integrated set of 

activities and assets, less any bargain 

purchase gain recognized in either case 

to the extent the difference between the 

two is greater than zero. The acquired 

retained earnings must be determined at 

the point of acquisition under GAAP. A 

mutual combination, including a 

supervisory combination, is a 

transaction in which a credit union 

acquires another credit union or 

acquires an integrated set of activities 

and assets that is capable of being 

conducted and managed as a credit 

union. 

(4) The term ‘‘net worth’’ also 

includes loans to and accounts in an 

insured credit union, established 

pursuant to section 208 of the Act [12 

U.S.C. 1788], provided such loans and 

accounts: 

(i) Have a remaining maturity of more 

than 5 years; 

(ii) Are subordinate to all other claims 

including those of shareholders, 

creditors, and the NCUSIF; 

(iii) Are not pledged as security on a 

loan to, or other obligation of, any party; 

(iv) Are not insured by the NCUSIF; 

(v) Have non-cumulative dividends; 

(vi) Are transferable; and 

(vii) Are available to cover operating 

losses realized by the insured credit 

union that exceed its available retained 

earnings. 

The proposed denominator of the 

CCULR would be a complex credit 

union’s total assets, consistent with the 

net worth ratio. Total assets, as defined 

under the 2015 Final Rule, means: 

(1) Average quarterly balance. The 

credit union’s total assets measured by 

the average of quarter-end balances of 

the current and three preceding 

calendar quarters; 

(2) Average monthly balance. The 

credit union’s total assets measured by 

the average of month-end balances over 

the three calendar months of the 

applicable calendar quarter; 

(3) Average daily balance. The credit 

union’s total assets measured by the 

average daily balance over the 

applicable calendar quarter; or 

(4) Quarter-end balance. The credit 

union’s total assets measured by the 

quarter-end balance of the applicable 

calendar quarter as reported on the 

credit union’s Call Report.66

The Board is proposing to use the net 

worth ratio for the CCULR for its 

simplicity. Complex credit unions are 

required to calculate their net worth 

ratio regardless of whether they opt into 

the CCULR framework. Therefore, 

complex credit unions would not be 

required to calculate a unique ratio for 

purposes of opting into the CCULR 

framework. Additionally, complex 

credit unions are already familiar with 

the net worth ratio, which would reduce 

compliance costs compared to a unique 

ratio designed for the CCULR. The 

Board intends for the CCULR to be a 

simple alternative to the risk-based 

capital ratio and is concerned that the 

burden imposed by a unique CCULR 

would exceed its possible utility as a 

capital reporting measure. 

The Board notes that the other 

banking agencies originally proposed a 

new ratio for purposes of the CBLR, but 

declined to adopt the definition due to 

the complexities that would be created 

by adopting a new measure of capital.67

Instead, the other banking agencies 

based the CBLR on the existing tier 1 

capital definition, which is also the 

basis of the other banking agencies’ 

leverage ratio.68 Similarly, the Board is 

proposing to use the established and 

well understood net worth ratio rather 

than proposing a new definition of 

capital for purposes of the CCULR. 

The Board considered using the riskbased capital ratio numerator from the 

2015 Final Rule.69 The Board believes 

that the numerator to the 2015 Final 

Rule is a more conservative measure of 

capital compared to the net worth ratio 

because it includes several deductions, 

including deductions for the NCUSIF 

capitalization deposit, goodwill, other 

intangible assets, and identified losses 

not reflected in the risk-based capital 

ratio numerator. The 2015 Final Rule, 

however, is not yet effective, and 

complex credit unions are not familiar 

with calculating and implementing the 

definition of capital.70 Therefore, the 

Board believes it is preferable to base 

the CCULR on the net worth ratio. 

Several commenters to the ANPR 

requested that all complex credit unions 

be permitted to use Subordinated Debt 

under any proposed CCULR framework. 

Under the proposed rule, however, the 

CCULR is defined as net worth; 

therefore, Subordinated Debt would not 

eligible for inclusion as capital under 

the CCULR framework unless the 

complex credit union is also a lowincome designated credit union. As 


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71 12 CFR 6.4 (OCC), 12 CFR 208.43 (Federal 

Reserve Board), and 12 CFR 324.403 (FDIC). 

72Supra note 11. 

73Supra note 12, at 61778. 

74The Department of the Treasury, Comparing 

Credit Unions With Other Depository Institutions, 

p. 11 (Jan. 2001) (2001 Treasury Report). 

75 Id. 

76Note, 6,874 of 10,972 credit unions had more 

than 0.5 percent of assets in Membership Capital 

Share Deposit and Paid-In Capital of Corporate 

Credit Unions as of December 1998. The Board also 

notes that an FCU is permitted to invest up to two 

percent of its assets in the perpetual and 

nonperpetual capital in one corporate credit union. 

An FCU’s aggregate amount of contributed capital 

in all corporate credit unions is limited to four 

percent of assets. Therefore, it is possible that in the 

future credit union investments in corporate credit 

unions exceeds the current investment amounts. 

See 12 CFR 703.14(b). 

77 616 of 649 complex credit unions have less 

than 0.25 percent of assets in nonperpetual capital 

and perpetual contributed capital as of December 

2020. 

raised in Question 9, the Board could 

consider alternative definitions of 

capital, for example, the risk-based 

capital numerator, such that 

Subordinated Debt is included as capital 

for purposes of the CCULR framework. 

However, the Board notes that the riskbased capital numerator also includes 

deductions that are not included in the 

definition of net worth. 

Question 9: What are the advantages 

and disadvantages of using the net 

worth ratio as the measure of capital 

adequacy under the CCULR? Should the 

Board consider alternative measures for 

the CCULR? Instead of the existing net 

worth definition, the proposed rule 

could use the risk-based capital ratio 

numerator from the 2015 Final Rule. 

The Board could also consider drafting 

a new numerator for purposes of the 

CCULR. For example, the Board could 

use net worth as the basic framework for 

the CCULR numerator, but then make 

additional deductions. 

D. Calibration of the CCULR 

Under the proposal, a qualifying 

complex credit union may opt into the 

CCULR framework if it meets the 

minimum CCULR at the time of opting 

into the CCULR framework. A 

qualifying complex credit union opting 

into the CCULR framework that 

maintains the minimum ratio or higher 

would be considered well capitalized. 

Commenters to the ANPR, 

recommended a wide range for the 

minimum amount of capital necessary 

for the CCULR framework. Some 

commenters stated the CCULR should 

be no greater than eight percent. One 

commenter supported eight percent by 

referring to a 2020 Federal Deposit 

Insurance Corporation (FDIC) survey. 

The commenter stated that the FDIC’s 

2020 study of the CBLR found that 

under the nine percent leverage ratio, 

only three percent of banks would see 

their capital buffers shrink by taking the 

CBLR option. The commenter stated 

that for credit unions, a comparable 

measure of capital relief would be 

accomplished with a leverage ratio set 

between eight and 8.5 percent. Other 

commenters, including a banking trade 

organization, said nine percent should 

be the minimum (the CBLR is set at nine 

percent). One commenter recommended 

11 percent, which is 400 basis points 

above the well capitalized leverage ratio 

(the CBLR is set 400 basis points above 

the other banking agencies’ wellcapitalized leverage ratio). A commenter 

also recommended a reduced calibration 

due to accelerated asset growth in the 

last year. 

In proposing 10 percent as the fully 

phased-in well-capitalized ratio 

requirement for qualifying complex 

credit unions, the Board considered 

several factors. The proposed calibration 

of the CCULR, in conjunction with the 

qualifying criteria, seeks to strike a 

balance among several objectives, 

including maintaining strong capital 

levels in the credit union system, 

ensuring safety and soundness, and 

providing appropriate regulatory burden 

relief to as many credit unions as 

possible. The CCULR framework is 

designed to generally require credit 

unions to hold more capital than would 

be required for a credit union under the 

2015 Final Rule. The Board also 

considered aggregate levels of capital 

among complex credit unions. The 

CCULR framework would not result in 

a reduction of the minimum amount of 

capital held by complex credit unions 

and would likely result in an overall 

increase in minimum amount of 

required capital held by complex credit 

unions. Additional data on capital 

levels under the proposed rule are 

discussed below. 

The Board also considered 

comparability to the other banking 

agencies’ CBLR framework, which 

established a CBLR of nine percent (that 

is, if an insured bank has a CBLR of nine 

percent it is considered well 

capitalized). As discussed previously, 

the EGRRCPA mandates a higher capital 

requirement to qualify for the CBLR 

framework than the five percent 

leverage ratio required for wellcapitalized status under the other 

banking agencies’ capital regulations.71

Specifically, the EGRRCPA requires that 

the CBLR be not less than eight percent 

and not more than 10 percent for 

qualifying community banks.72 This 

statutory requirement calibrates the 

CBLR to maintain the overall amount of 

capital currently held by qualifying 

community banking organizations.73

The NCUA is not subject to the statutory 

requirement of not less than eight 

percent and not more than 10 percent; 

however, the Board considers the 

congressional directive as an important 

reference point in considering a 

comparable CCULR framework. 

The 8 to 10 percent range established 

by Congress for the CBLR is 300 to 500 

basis points higher than the five percent 

leverage ratio required for wellcapitalized status under the other 

banking agencies’ PCA framework. 

Insured banks and credit unions, 

however, have different minimum 

requirements under their PCA 

frameworks. Insured banks must 

maintain a leverage ratio of five percent 

to be considered well capitalized, 

whereas insured credit unions are 

statutorily required to have a seven 

percent net worth ratio to be considered 

well capitalized. Therefore, a similar 

300 to 500 basis points range would 

equate to a CCULR of 10 to 12 percent 

for credit unions. 

The Board notes that one of the 

underlying reasons for the higher 

statutory net worth requirement may no 

longer be as relevant given changes in 

the credit union industry since CUMAA 

was enacted over 20 years ago. When 

CUMAA was enacted in 1998, Congress 

determined that a higher net worth ratio 

was appropriate because credit unions 

cannot quickly issue capital stock to 

raise their net worth as soon as a 

financial need arises.74 Instead, credit 

unions must rely on retained earnings to 

build net worth, which necessarily takes 

time. In addition, according to the 2001 

Treasury Report, issued pursuant to 

CUMAA on the NCUA’s compliance 

with the statute, Congress established a 

capital level two percentage points 

higher because one percent of a credit 

union’s capital is dedicated to the 

NCUSIF and another one percent of a 

typical credit union’s capital is 

dedicated to its corporate credit 

union.75 In 1998, most credit unions 

had at least .5 percent of their assets in 

corporate credit unions.76 That is no 

longer true. Today, a significant amount 

of complex credit unions have less than 

0.25 percent of their capital invested in 

corporate credit unions.77 Furthermore, 

the aggregate total capital complex 

credit unions have dedicated to 

corporate credit unions, through 

nonperpetual capital and perpetual 

contributed capital, is just under 0.04 

percent of complex credit union assets. 

Due to the reduction of concentration in 

corporate credit union capital, the Board 


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initially considered a potential ratio for 

the CCULR of 9 to 11 percent. 

When considering the appropriate 

calibration for the proposed CCULR, the 

Board intended to strike a balance 

between strong capital levels and 

providing appropriate regulatory burden 

relief. To that end, the Board analyzed 

the potential impact in terms of safety 

and soundness and burden reduction for 

potential CCULRs of 9 and 10 percent. 

• The Board estimates that as, of 

December 31, 2020, the majority of 

complex credit unions would constitute 

qualifying complex credit unions and 

would meet a proposed CCULR well 

capitalized standard of nine percent. 

Based on reported data, approximately 

73 percent of complex credit unions 

would qualify to use the CCULR 

framework and be well capitalized 

under a nine percent calibration. Of the 

649 complex credit unions, 472 have net 

worth greater than nine percent as of 

December 31, 2020, and would be well 

capitalized under a nine percent CCULR 

standard. Of those 472 credit unions, it 

is estimated that two credit unions 

would not meet the proposed qualifying 

criteria, and thus would not be eligible 

to opt into the CCULR. The total 

minimum capital required for these 470 

credit unions under the 2015 Final Rule 

to be well capitalized is estimated at $82 

billion. Under the proposed CCULR, if 

all estimated 470 credit unions opted 

into the CCULR and held the minimum 

nine percent to be well capitalized, the 

total minimum net worth required 

would be estimated at $104.6 billion, an 

increased capital requirement of $22 

billion. 

• Based on reported data as of 

December 31, 2020, approximately 48 

percent of complex credit unions would 

qualify to use the CCULR framework 

and be well capitalized under a 10 

percent calibration. Of the 649 complex 

credit unions, 313 have net worth 

greater than 10 percent as of December 

31, 2020, and would be well capitalized 

under a 10 percent CCULR standard. Of 

those 313 credit unions, it is estimated 

that one credit union would not meet 

the proposed qualifying criteria, and 

thus would not be eligible to opt into 

the CCULR framework. The total 

minimum capital required for those 312 

credit unions under the 2015 Final Rule 

to be well capitalized is estimated at 

$57.5 billion. Under the proposed 

CCULR, if all estimated 312 credit 

unions opted into the CCULR and held 

the minimum 10 percent net worth 

required to be well capitalized, the total 

minimum net worth required would be 

estimated at $81.7 billion, and increased 

capital requirement of $24 billion. 

A nine percent CCULR would allow 

more credit unions to opt into the 

CCULR framework but could incentivize 

some qualifying complex credit unions 

to hold less regulatory capital than they 

do today. In contrast, a 10 percent wellcapitalized standard would ensure 

strong capital levels and more certainty 

that qualifying complex credit unions 

are holding greater levels of capital than 

under the 2015 Final Rule. The Board 

has proposed a 10 percent wellcapitalized threshold for the CCULR 

framework. A 10 percent wellcapitalized standard for the CCULR 

would be 300 basis points above the 

well-capitalized threshold for the net 

worth ratio, and 400 basis points above 

a six percent well-capitalized standard 

for the net worth ratio when considering 

credit unions decreased holdings in 

corporate credit unions. In addition, a 

10 percent well-capitalized threshold 

for the CCULR would be 100 basis 

points higher than the nine percent 

threshold established by the other 

banking agencies for the CBLR. As 

discussed previously, the total 

minimum capital required to be well 

capitalized under the 2015 Final Rule is 

$57.5 billion for credit unions that also 

meet the CCULR qualifying criteria and 

would be well capitalized under a 10 

percent calibration for the CCULR. If all 

those credit unions meeting the 

qualifying criteria opted into the CCULR 

and held the minimum 10 percent net 

worth required to be well capitalized, 

the total minimum net worth required 

would be estimated at $81.6 billion. 

This figure is approximately $24.2 

billion in excess of the risk-based 

capital requirement under the 2015 

Final Rule. The Board believes that the 

proposed 10 percent CCULR 

requirement strikes the right balance 

between maintaining strong capital 

levels and providing a simpler option to 

comply with risk-based capital 

requirements. 

Question 10: The Board invites 

comment on the proposed CCULR 

calibration. What are the advantages and 

disadvantages to the Board considering 

a CCULR of 8, 9 or 10 percent? Should 

the Board consider further 

modifications to its methodology in 

calibrating the CCULR? What other 

factors should the Board consider in 

calibrating the CCULR and why? The 

Board requests that commenters include 

a discussion of how the proposed 

CCULR level should be affected by 

potential changes to other aspects of the 

proposed framework, such as the 

definition of CCULR and the definition 

of a qualifying complex credit union. 

Question 11: One factor in the Board’s 

calibration of the CCULR is the recent 

trend in credit unions investing in fewer 

corporate credit union capital 

instruments. The Board is soliciting 

comment on whether the trend is likely 

to continue or whether it is likely that 

the trend is temporary and in response 

to the 2007–2009 recession. 

E. Opting Into the CCULR Framework 

Under the proposal, a qualifying 

complex credit union with a CCULR of 

10 percent or greater, subject to the 

transition provisions, may opt into the 

CCULR framework at the end of each 

calendar quarter. Similar to the other 

banking agencies’ CBLR framework, a 

qualifying complex credit union may 

only opt into the CCULR framework if 

it would be well capitalized. Requiring 

credit unions to be at least be well 

capitalized when they opt into the 

framework would ensure that complex 

credit unions that do not meet the 

minimum CCULR are reporting capital 

under the 2015 Final Rule, which is a 

more risk-sensitive measure of capital 

adequacy. A qualifying complex credit 

union choosing to opt into the CCULR 

would indicate its decision by 

completing a CCULR reporting schedule 

in its Call Report. 

Question 12: The Board invites 

comment on the proposed procedure a 

qualifying complex credit union would 

use to opt into the CCULR framework. 

What are commenters’ views on the 

frequency with which a qualifying 

complex credit union may opt into the 

CCULR framework? What other 

alternatives should the Board consider 

for purposes of qualifying complex 

credit unions’ opt in elections to use 

and report the CCULR and why? 

F. Voluntarily Opting Out of the CCULR 

Framework 

Under the proposal, after a qualifying 

complex credit union has adopted the 

CCULR framework, it may voluntarily 

opt out of the framework by providing 

written notice to the appropriate 

Regional Director or the Director of the 

Office of National Examinations and 

Supervision (ONES). The notice must be 

provided at least 30 days before the end 

of the calendar quarter that the credit 

union will begin reporting its risk-based 

capital ratio. 

The notice must include several 

items: 

• A statement of intent explaining 

why the qualifying complex credit 

union is opting out of the CCULR 

framework. 

• A copy of board meeting minutes 

showing that the credit union’s board of 

directors was notified of the opt out 

election. 


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78Supra note 3. 

• The calendar quarter that the 

qualifying complex credit union will 

begin calculating its risk-based capital 

ratio. The earliest a complex credit 

union may begin calculating its riskbased capital ratio is the calendar 

quarter that the credit union submits its 

notification. 

• A completed Call Report schedule 

as if the complex credit union had 

calculated its risk-based capital ratio the 

prior quarter. For example, if a credit 

union seeks to begin using a risk-based 

capital ratio in the second quarter, it 

would have to provide notice to the 

appropriate Regional Director or the 

Director of the ONES by June 1st and 

would have to include a Call Report 

with data as of March 31st. 

Under the other banking agencies’ 

CBLR framework, qualifying complex 

credit unions that have opted into the 

CBLR may opt out of the framework at 

any time. In addition, commenters to 

the ANPR generally favored allowing 

credit unions to liberally opt into and 

out of the CCULR framework. The Board 

believes, however, that qualifying 

complex credit unions should not opt 

out of the CCULR framework at any time 

because, in contrast to qualifying 

community banking organizations, 

qualifying complex credit unions are 

not currently calculating risk-based 

capital under the 2015 Final Rule. 

The Board notes that qualifying 

community banking organizations had 

been complying with their revised riskbased capital requirements for several 

years when the CBLR was 

implemented.78 Banking organizations 

had systems and processes in place to 

implement risk-based capital, staff had 

acquired experience calculating their 

capital ratios under risk-based capital, 

and qualifying complex banking 

organizations had been examined for 

compliance with risk-based capital 

standards. In contrast, complex credit 

unions will be subject to the risk-based 

capital ratio requirement established in 

the 2015 Final Rule for the first time 

when they are eligible to opt into the 

CCULR framework. It is likely that a 

qualifying complex credit union opting 

out of the CCULR framework would not 

have any experience calculating a riskbased capital ratio under the 2015 Final 

Rule. 

The Board does not believe it is 

prudent to allow qualifying complex 

credit unions opting out of the CCULR 

framework the same flexibility as 

provided to qualifying community 

banking organizations under the CBLR. 

Instead, the Board believes a qualifying 

complex credit union opting out of the 

CCULR framework should notify the 

NCUA of its intentions to begin 

calculating a risk-based capital ratio. 

Following notification to the NCUA, the 

NCUA may, through the supervisory 

process, monitor whether the credit 

union has acquired the necessary 

systems and processes to be capable of 

calculating and reporting its risk-based 

capital ratio accurately. 

Question 13: The Board invites 

comment on the proposed procedure a 

complex credit union would use to opt 

out of the CCULR framework. What are 

commenters’ views on the frequency 

with which qualifying complex credit 

unions may opt out of the CCULR 

framework? Do qualifying complex 

credit unions anticipate frequent 

switching between the CCULR 

framework and the risk-based capital 

requirements, and if so, why? What are 

the operational or other challenges 

associated with switching between 

frameworks? 

G. Compliance With the Proposed 

Criteria To Be a Qualifying Complex 

Credit Union 

Under the proposal, after a qualifying 

complex credit union has adopted the 

CCULR framework and then no longer 

meets the proposed qualifying criteria, it 

would be required, within a limited 

grace period of two calendar quarters, 

either to once again meet the qualifying 

criteria or comply with the risk-based 

capital ratio requirements. The grace 

period would begin at the end of the 

calendar quarter in which the credit 

union ceases to satisfy the criteria to be 

a qualifying complex credit union and 

would end after two consecutive 

calendar quarters. For example, if the 

complex credit union exceeded one of 

the qualifying criteria after December 

31st (and still does not meet the criteria 

as of the end of that quarter), the grace 

period for such a credit union would 

begin at the quarter ending March 31st 

and would end at the quarter ending 

September 30th. The complex credit 

union could continue to use the CCULR 

framework as of June 30th, but would 

need to fully comply with the risk-based 

capital ratio (including the associated 

reporting requirements) as of September 

30th, unless at that time the qualifying 

complex credit once again met the 

qualifying criteria of the CCULR 

framework. The Board believes that this 

limited grace period is appropriate to 

mitigate potential volatility in capital 

and associated regulatory reporting 

requirements based on temporary 

changes in a credit union’s risk profile 

from quarter to quarter, while capturing 

more permanent changes in risk profile. 

During the grace period, the credit 

union continues to be treated as a 

qualifying complex credit union and 

must continue calculating and reporting 

its CCULR, unless it has opted out of 

using the CCULR framework. 

Additionally, during the grace period, 

the qualifying complex credit union 

continues to be considered to have met 

the capital ratio requirements for the 

well-capitalized capital category. 

However, if the qualifying complex 

credit union has a CCULR of less than 

seven percent, it would not be 

considered well capitalized. Instead, its 

capital classification would be 

determined by its net worth ratio. For 

additional discussion on the treatment 

of a qualifying complex credit union 

when its CCULR falls below 10 percent, 

see Section H—Treatment of a 

Qualifying Complex Credit Union That 

Falls Below the CCULR Requirement. 

The two-quarter grace period is 

similar to the other banking agencies’ 

CBLR framework. However, unlike the 

CBLR framework, under the proposed 

rule, a qualifying complex credit union 

that is likely to not meet the 

requirements to be a qualifying complex 

credit union by the end of the grace 

period must submit written notification 

to the appropriate Regional Director or 

the Director of the ONES. The 

notification must be submitted at least 

30 days before the end of the grace 

period and state that the credit union 

may cease to meet the requirements to 

be a qualifying complex credit union. 

The Board believes it is necessary to 

receive notice in case the complex 

credit union begins calculating a riskbased capital ratio. As discussed 

previously, qualifying complex credit 

unions initially opting into the CCULR 

would not likely have calculated a riskbased capital ratio under the 2015 Final 

Rule. Therefore, the notice would 

provide the NCUA the option, through 

the supervisory process, to monitor 

whether the appropriate systems and 

processes are being developed to 

calculate a risk-based capital ratio. 

The Board acknowledges that a credit 

union may believe it is reasonably likely 

to meet the qualifying criteria, and not 

submit a notice, and then be subject to 

risk-based capital requirements at the 

end of the quarter for failure to comply 

with qualifying criteria. The Board is 

providing credit unions flexibility with 

notice requirements as a form of burden 

reduction. It would be unnecessary for 

every credit union to file notice during 

the grace period, as some credit unions 

will be certain of their compliance with 

the qualifying criteria. For such credit 

unions, completing the required 

notification would be an unnecessary 


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79Supra note 12. 

burden. The Board believes that it 

would be rare for a credit union to not 

provide the notice when required. The 

notice would be submitted only 30 days 

before the end of the grace period and 

a credit union that is being prudently 

managed should be able to accurately 

predict whether it would be likely to 

meet the qualifying criteria. The Board 

believes that if a credit union does not 

provide the required notice, it raises 

supervisory concerns and the credit 

union may be subject to a lower 

management rating as a result. 

The notification would be similar to 

the notification required for credit 

unions voluntarily opting out of the 

CCULR framework. First, the 

notification must provide the reason for 

the potential disqualification. The 

notification would also be required to 

include a copy of the board meeting 

minutes showing that the credit union’s 

board of directors was notified that the 

credit union might cease to meet the 

qualifying complex credit union 

requirements. Finally, the notification 

also would be required to include a Call 

Report schedule completed as if the 

credit union calculated its risk-based 

capital ratio the previous calendar 

quarter. 

Under the CBLR Final Rule, a 

qualifying community banking 

organization that ceases to meet the 

qualifying criteria as a result of a 

business combination is not provided a 

grace period. The proposed rule would 

include a similar limitation. Therefore, 

under the proposed rule a qualifying 

complex credit union that has opted 

into the CCULR framework and that 

ceases to meet the qualifying criteria as 

a result of a business combination 

would receive no grace period and 

would be required to revert to a riskbased capital framework immediately. 

The Board believes this approach is 

appropriate, as complex credit unions 

should consider the regulatory capital 

implications of a planned business 

combination and be prepared to comply 

with the applicable requirements. 

Therefore, a qualifying complex credit 

union that would not meet the 

qualifying criteria as a result of a 

business combination must fully 

comply with the 2015 Final Rule for the 

regulatory reporting period during 

which the transaction is completed. 

Question 14: The Board invites 

comment on the proposed treatment for 

a complex credit union that no longer 

meets the definition of a qualifying 

complex credit union after opting into 

the CCULR framework. Specifically, 

what are the advantages and 

disadvantages of the proposed grace 

period? What other alternatives should 

the Board consider with respect to a 

complex credit union that no longer 

meets the definition of a qualifying 

complex credit union and why? Should 

the Board consider requiring complex 

credit unions that no longer meet the 

qualifying criteria to begin to 

immediately calculate their assets 

according to the risk-based capital ratio? 

Is notification that a credit union will 

not meet the qualifying criteria 

necessary? Should the Board consider a 

grace period for previously qualified 

credit unions that have opted into the 

CCULR framework if after a business 

combination the credit union no longer 

qualified as of the next reporting 

period? Should the Board consider 

alternative notification requirements or 

consider not requiring any notification 

at all? 

H. Treatment of a Qualifying Complex 

Credit Union That Falls Below the 

CCULR Requirement 

As discussed previously, under the 

proposal, a qualifying complex credit 

union that has opted into the CCULR 

framework and has a CCULR of 10 

percent or greater, subject to the 

transition provisions, would be 

considered well capitalized. A 

qualifying complex credit union’s 

CCULR may deteriorate due to a decline 

in its level of retained earnings, growth 

in its total assets, or a combination of 

both. In such a case, a credit union may 

choose to stop using the CCULR 

framework and instead become subject 

to the risk-based capital ratio. However, 

the Board recognizes that some 

qualifying complex credit unions may 

find it unduly burdensome to begin 

complying with the more complex riskbased capital ratio reporting 

requirements at the same time that the 

credit union is experiencing a decline in 

its CCULR. 

Under the proposed rule, a minimum 

CCULR (10 percent after the transition 

period) is one of the qualifying criteria. 

Therefore, if a qualifying complex credit 

union has a CCULR that falls below the 

minimum requirement, it would receive 

the same grace period of two calendar 

quarters, as applicable when a credit 

union ceases to meet the other 

qualifying criteria. After the two-quarter 

grace period, the qualifying complex 

credit union would either have to once 

again meet the minimum CCULR ratio 

or comply with the risk-based capital 

ratio requirements. During the grace 

period, the credit union would be 

deemed to have met the well-capitalized 

capital ratio requirements for PCA 

purposes, provided that its net worth 

ratio remains seven percent or greater. 

If a credit union’s net worth ratio falls 

below seven percent, it will not be 

considered to have met the capital ratio 

requirements for the well-capitalized 

capital category and its capital 

classification is determined by its net 

worth ratio. A credit union that becomes 

less than well capitalized during the 

two-quarter grace period would not be 

required to begin calculating its capital 

under the 2015 Final Rule immediately. 

Instead, the credit union would still be 

eligible for the full two-quarter grace 

period; however, it would be subject to 

any applicable PCA requirements for its 

capital category. 

Under the other banking agencies’ 

CBLR framework, an electing banking 

organization with a leverage ratio of 

eight percent or less is not eligible for 

the grace period and must comply with 

the generally applicable rule, that is, for 

the quarter in which the banking 

organization reports a leverage ratio of 

eight percent or less. An electing 

banking organization experiencing or 

anticipating such an event would be 

expected to notify its primary federal 

supervisory agency, which would 

respond as appropriate to the 

circumstances of the banking 

organization.79 The Board believes that 

it would be unduly burdensome to 

require complex credit unions to 

immediately begin calculating their 

capital under the 2015 Final Rule. 

As discussed previously, credit 

unions have not previously been subject 

to the 2015 Final Rule. The Board 

believes it is reasonable to provide 

complex credit unions the full twoquarter grace period regardless of their 

CCULR as the 2015 Final Rule would be 

a new system of capital adequacy and 

would require an adjustment for the 

complex credit union. The Board does 

not believe permitting two quarters to 

comply with the qualifying criteria or to 

begin calculating capital under the 2015 

Final Rule presents unreasonable risk to 

the NCUSIF. 

Question 15: What are the advantages 

and disadvantages of permitting a twoquarter grace period? Should the Board 

consider including the CCULR in the 

PCA framework similar to the other 

banking agencies’ CBLR proposed rule? 

To what extent does the calibration of 

the CCULR relate to the Board’s choice 

between including the CCULR into the 

PCA framework versus relying on a 

grace period when a credit union’s 

CCULR falls below 10 percent? 

I. Transition Provision 

In light of strains in economic 

conditions related to the COVID–19 


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80See, e.g., 86 FR 15397 (Mar. 23, 2021). 

81Coronavirus Aid, Relief, and Economic 

Security Act, Public Law 116–136, 134 Stat. 281. 82 12 U.S.C. 1757a(c)(1)(B). 

pandemic and stress in U.S. financial 

markets, the NCUA has taken a number 

of actions intended to: (i) Restore market 

functioning and support the flow of 

credit to households, businesses, and 

Communities; and (ii) increase 

flexibility and tailor regulations. 

Among those actions, the NCUA has 

communicated a number of rules and 

supervisory guidance designed to 

mitigate the economic consequences of 

the COVID–19 pandemic, facilitate the 

safe and effective operations of credit 

unions, and protect credit union 

members.80 Credit unions have played 

an instrumental role in the nation’s 

financial response to the COVID–19 

pandemic, and many have experienced 

significant balance sheet growth because 

of the COVID–19 pandemic and the 

policy response to the event. 

The unprecedented and significant 

balance sheet growth is largely a result 

of individual member response to 

actions taken by monetary and fiscal 

authorities. At the start of the COVID– 

19 pandemic, consumer spending 

decreased as individual states or major 

metropolitan areas ordered millions of 

Americans to stay home. Additionally, 

market volatility pushed savers with 

money in financial markets to safer 

assets, including insured shares. Fiscal 

stimulus applied additional upward 

pressure on credit union total assets. 

The Board is aware that the 

unprecedented balance sheet growth has 

resulted in declining net worth ratios for 

most complex credit unions. To help 

mitigate the impact of this 

unprecedented balance sheet growth, 

the Board is proposing a two-year 

transition provision to delay the 

introduction of a 10 percent CCULR. 

This two-year phase would permit 

complex credit unions time to increase 

their net worth ratios. 

Under the proposed rule, from 

January 1, 2022, to December 31, 2022, 

a complex credit union may opt into the 

CCULR framework if it has a net worth 

ratio of nine percent or greater. 

Therefore, a qualifying complex credit 

union that opts into the CCULR 

framework and that maintains a nine 

percent CCULR would be considered 

well capitalized. Beginning January 1, 

2023, a complex credit union that has 

opted into the CCULR framework must 

have a CCULR of 9.5 percent or greater 

to meet the eligibility criteria. Finally, 

beginning January 1, 2024, a complex 

credit union must have a CCULR of 10 

percent or greater to be eligible to 

determine their capital adequacy under 

the CCULR framework. Once an eligible 

credit union opts into the CCULR 

framework it would be eligible to use 

the two-quarter grace period, as 

discussed in section G. Compliance 

With the Proposed Criteria To Be a 

Qualifying Complex Credit Union. 

Therefore, if a credit union has a CCULR 

of nine percent when it opts into the 

CCULR framework on March 31, 2022, 

but does not have a CCULR of 9.5 

percent on March 31, 2023, the credit 

union would have until September 30th 

to either have a CCULR of 9.5 percent 

or determine their capital adequacy 

under the risk-based capital framework. 

As discussed previously, the 

temporary changes to the CBLR 

framework implemented through the 

CARES Act expired December 31, 

2021.81 Therefore, the temporary 

reduction in the CBLR to eight percent 

(and 8.5 percent in calendar year 2021) 

will not be in effect when the 2015 Final 

Rule becomes effective. The Board, 

however, believes that due to credit 

unions’ unique structure and 

dependence on retained earnings to 

accumulate capital, additional time to 

accumulate capital will be beneficial to 

complex credit unions. The Board 

believes that the CCULR framework is 

beneficial to complex credit unions due 

to the reduced compliance costs for 

managing and documenting risk-based 

capital standards, and to the NCUSIF as 

complex credit unions that opt into the 

CCULR framework will be required to 

hold higher capital levels under the 

CCULR framework than the risk-based 

capital framework. The Board does not 

want complex credit unions that would 

have otherwise been eligible to opt into 

a CCULR framework calibrated at 10 

percent to be temporarily ineligible due 

to unexpected asset growth following 

the COVID–19 pandemic. The Board 

believes two years is sufficient time for 

complex credit unions that want to opt 

into the CCULR framework to build the 

necessary capital. 

Question 16: What are the advantages 

and disadvantages of the transition 

provision starting at nine percent and 

permitting a transition period to a 

CCULR of 10 percent? Should the Board 

consider a transition period longer or 

shorter than two years? If suggesting a 

longer transition period, such as four 

years, discuss the merits of a longer 

phase-in and why the additional time 

over two years would be needed. Please 

provide specific data. 

J. Reservation of Authority 

In general, a complex credit union 

that meets the eligibility criteria may 

opt into the CCULR framework. 

However, there may be limited 

instances in which the CCULR 

framework would be inappropriate and 

not require sufficient capital to 

adequately protect the NCUSIF. To 

address such situations, the proposed 

rule includes a reservation of authority. 

Under the reservation of authority, the 

Board can require a complex credit 

union that has opted into the CCULR 

framework to use the risk-based capital 

framework to calculate its capital 

adequacy if the Board determines that 

the complex credit union’s capital 

requirements are not commensurate 

with its credit or other risks. When 

making any such determination, the 

Board would consider all relevant 

factors affecting the complex credit 

union’s safety and soundness. 

The Board expects to apply the 

reservation of authority only in limited 

circumstances. Under the reservation of 

authority, credit unions would be 

entitled to a two-quarter grace period 

before being required to comply with 

the risk-based capital framework. The 

other banking agencies also have 

reserved the authority to disallow the 

use of the CBLR framework by a 

depository institution or depository 

institution holding company, based on 

the risk profile of the banking 

organization. 

Question 17: The Board invites 

general comment on the reservation of 

authority in the proposed rule. Should 

the Board consider a reservation of 

authority that applies to the risk-based 

capital rule? Should the Board consider 

a general waiver provision or consider 

including a statement that assets can be 

provided a more conservative risk 

weight than provided in the proposed 

rule? Should the Board consider 

adopting notice and response 

procedures to be used in determining 

whether the reservation of authority 

should be used? 

K. Effect of the CCULR on Other 

Regulations 

1. Member Business Loan Cap 

Section 107A of the FCUA generally 

limits the aggregate amount of member 

business loans (MBLs) that an insured 

credit union may make, subject to 

exceptions for some categories of loans, 

such as loans granted by a corporate 

credit union to another credit union.82

In addition, the FCUA exempts certain 

credit unions from compliance with the 

aggregate MBL limit. Specifically, an 

insured credit union chartered for the 

purpose of making MBLs, or that has a 

history of making MBLs to its members, 


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83 12 U.S.C. 1757a(b)(1). 

84 12 U.S.C. 1575a(b)(2). 

85 12 U.S.C. 1757a(a). 

86This definition does not expressly cover two 

elements that were added to the definition of net 

worth in section 216(o)(2) for PCA purposes in a 

2011 enactment: (1) Amounts that were previously 

retained earnings of any other credit union with 

which the insured credit union has combined; and 

(2) assistance that the Board has provided under 

Section 208. Public Law 111–382, 124 Stat. 4135 

(Jan. 4, 2011). In the 2016 MBL final rule, the Board 

included these elements in net worth for purposes 

of the MBL limitation by defining net worth in the 

MBL regulation through a cross-reference to the 

current part 702 definition of net worth, which 

includes all the elements in section 216(o)(2). The 

2015 Final Rule amended the definition of net 

worth in part 702 effective January 1, 2022, but did 

not add or remove any of the components of net 

worth in the current regulation. 

87Prior to amendments that the Board adopted in 

the 2016, the MBL regulation limited MBLs to 12.25 

percent of an insured credit union’s total assets— 

1.75 times the seven percent net worth ratio. 88 80 FR 37898, 37909 (July 1, 2015). 89 81 FR 13530, 13548 (Mar. 14, 2016). 90The Board notes that the amount of capital a 

complex credit union needs to be well capitalized 

under the 2015 Final Rule for PCA purposes is a 

different calculation than the amount of net worth 

required to be well capitalized for purposes of the 

MBL cap. The reason is the 2015 Final Rule permits 

complex credit unions to include several forms of 

capital for purposes of determining its PCA status 

that do not meet the statutory definition of net 

worth. The MBL cap, however, is limited by statute 

to net worth. 

91Therefore, the current language in part 723 

remains valid, and the Board is not proposing any 

changes to part 723 at this time. 

as determined by the Board, is not 

subject to the aggregate MBL limit.83

Also, an insured credit union that serves 

predominantly low-income members, as 

defined by the Board, or is a community 

development financial institution, as 

defined in 12 U.S.C. 4702, is also not 

subject to the aggregate MBL limit.84

An insured credit union that is 

subject to the aggregate MBL limit may 

not make an MBL that would result in 

the total amount of outstanding MBLs at 

the credit union being more than the 

lesser of 1.75 times the actual net worth 

of the credit union or 1.75 times the 

minimum net worth required for a 

credit union to be well capitalized 

under section 216(c)(1)(A) of the 

FCUA.85 Section 107A defines net 

worth for purposes of that section, 

providing that it includes the retained 

earnings balance, as determined under 

GAAP. Net worth under this section 

also includes, for credit unions that 

serve predominantly low-income 

members (which the Board defines as 

low-income designated credit unions), 

secondary capital accounts that are 

uninsured and subordinate to all other 

claims against the credit union, 

including the claims of creditors, 

shareholders, and the NCUSIF.86

For credit unions that are not complex 

and therefore are not subject to a riskbased net worth requirement under 

section 216(d) of the FCUA, MBLs are 

limited to 1.75 times the net worth 

required for the credit union to meet the 

seven percent net worth ratio under 

section 216(c)(1)(A)(i) (assuming the 

credit union’s actual net worth is greater 

than the minimum required to be well 

capitalized). To determine its maximum 

allowable outstanding balance of MBLs, 

a credit union multiplies 1.75 by seven 

percent of its total assets. 

Until 2016, the Board calculated the 

MBL limitation in the same manner for 

complex credit unions that are subject 

to a risk-based net worth requirement 

under section 216(d) without 

considering any greater amount of net 

worth that a complex credit union might 

need to hold to be well capitalized 

under a risk-based net worth 

requirement.87 However, in the 2015 

proposed rule on MBLs, the Board 

proposed to amend the MBL regulation 

to incorporate section 107A more 

faithfully and noted that complex credit 

unions could have a different limitation 

caused by the need to hold more net 

worth under a risk-based requirement.88

The preamble to the 2016 final rule on 

MBLs and commercial loans analyzed 

this issue in response to comments on 

the rule and explained that under the 

2015 Final Rule on risk-based capital, 

the MBL limitation would be calculated 

in the following manner. The preamble 

to the 2016 final rule stated that where 

actual net worth is greater than the 

minimum to be well capitalized, the 

limit on MBLs is 1.75 times the greater 

of the following calculations: (i) The 

minimum amount of capital (in dollars) 

required by the net worth ratio, which 

is seven percent times total assets; and 

(ii) the minimum amount of capital (in 

dollars) required by the risk based 

capital ratio, which is 10 percent times 

total risk-weighted assets. Then, the 

credit union must solve for the 

minimum amount of net worth needed 

after accounting for other forms of 

qualifying capital allowed under the 

2015 Final Rule.89

Therefore, a complex credit union 

subject to a risk-based capital 

requirement under the 2015 Final Rule 

would have to calculate the minimum 

amount of net worth required by both its 

net worth ratio and risk-based capital 

requirement. First, the net worth ratio 

requires a complex credit union to hold 

net worth (in dollars) equal to seven 

percent of its total assets. Second, for 

purposes of computing the MBL cap,90

the risk-based capital ratio requires a 

complex credit union to hold net worth 

(in dollars) equal to 10 percent of the 

credit union’s risk-weighted assets, as 

calculated under § 702.104. The 

complex credit union would then 

compare the two net worth amounts as 

calculated in the preceding discussion. 

The credit union would take the larger 

of the two net worth amounts, which is 

the minimum amount of net worth 

necessary to be well capitalized under 

either the net worth ratio or the riskbased capital ratio, and compare that to 

actual net worth. The lesser of these two 

net worth amounts is used to compute 

the complex credit union’s MBL cap, 

which would be 1.75 times the lesser of 

these two net worth amounts. While the 

2015 Final Rule is not yet effective, the 

agency currently implements this 

approach for the small number of 

complex credit unions that are required 

to hold more net worth under the 

current risk-based net worth 

requirement than the net worth ratio. 

The Board continues to find that this 

approach reflects the correct reading of 

sections 107A and 216 and re-affirms 

this interpretation over any prior 

interpretation that disregarded the riskbased net worth requirement for this 

purpose.91 For complex credit unions, 

the amount to be well capitalized under 

section 216(c)(1)(A) is seven percent of 

total assets (the net worth ratio) or the 

amount required by the risk-based net 

worth requirement (which could be 

either the risk-based capital ratio under 

the 2015 Final Rule or the proposed 

CCULR framework). A complex credit 

union must satisfy both of these 

requirements to be well capitalized 

under section 216(c)(1)(A), which 

means that, in section 107A’s terms, the 

minimum net worth required to be well 

capitalized is the higher of the amount 

required by the net worth ratio or the 

risk-based net worth requirement. The 

Board finds this is a clear, plain 

language reading of both provisions. 

Section 107A(a) points to section 

216(c)(1)(A) to determine the minimum 

net worth required, and in turn, section 

216(c)(1)(A) includes both the seven 

percent net worth ratio and the net 

worth required by any applicable riskbased net worth requirement, for 

complex credit unions. Reading section 

107A(a) to exclude the net worth 

required for complex credit unions 

under section 216(c)(1)(A)(ii) would 

ignore a key component of the plain 

language of section 216(c)(1)(A) and 

inappropriately treat it as surplusage. 

The Board also finds that even if 

sections 107A and 216(c)(1)(A) were 

considered ambiguous or unclear, it 

would interpret them in the same way. 

For instance, the Board observes two 

key textual indicators that Congress did 


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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 45841 

92S. Rep. No. 105–193 (May 21, 1998), at 5, 10, 

29. 93 12 CFR 702.101(b)(2) (effective Jan. 1, 2022). 

not intend to limit this calculation to 

the seven percent net worth ratio. First, 

section 107A was enacted in the same 

legislation as section 216. Thus, 

Congress was aware that section 

216(c)(1)(A) set a seven percent net 

worth ratio to be well capitalized. Yet in 

section 107A(a), rather than specifying 

that the MBL limitation is determined 

by the amount of net worth required to 

achieve a seven percent net worth ratio, 

Congress provided more broadly that 

the limitation is determined by 

reference to the minimum net worth 

required under section 216(c)(1)(A). 

Second, Congress could have limited 

this calculation to the seven percent net 

worth ratio by providing that the MBL 

limitation is determined by reference 

only to the minimum net worth required 

under section 216(c)(1)(A)(i), which 

would have excluded the risk-based net 

worth requirement. Instead, section 

107A points to section 216(c)(1)(A), 

which encompasses both applicable net 

worth requirements for complex credit 

unions. 

The Board acknowledges that the 

Senate Report associated with the 

legislation that enacted sections 107A 

and 216 refers to the MBL limitation as 

being based on the seven percent net 

worth ratio in a parenthetical statement. 

A statement by an individual Senator 

also refers to the limitation as being 

determined by the seven percent net 

worth ratio.92 But this discussion in the 

Senate Report is brief and does not 

touch upon the risk-based net worth 

requirement or explain how the Senate 

believed the MBL limitation should 

work for complex credit unions, which 

are subject to additional net worth 

requirements. In any event, this general 

discussion does not expressly contradict 

the language and structure of sections 

107A and 216, which the Board finds to 

be better indicators of the meaning and 

purpose of these provisions. 

Applying this approach to the 

proposed CCULR framework, the Board 

proposes that for qualifying complex 

credit unions opting into the CCULR 

framework, such credit unions may 

calculate a different limitation on MBLs 

from what they do currently under the 

seven percent net worth ratio. This is 

because, as discussed previously in the 

Legal Authority section, the CCULR is 

considered a risk-based net worth 

requirement, and thus falls under 

section 216(c)(1)(A)(ii) as a measure of 

the minimum net worth required to be 

well capitalized. Accordingly, under the 

proposed rule, a qualifying complex 

credit union that opts into the CCULR 

would determine its MBL limitation by 

reference to the amount of net worth 

required to be well capitalized under 

the CCULR. Complex credit unions that 

do not qualify or do not opt into the 

CCULR would determine their MBL 

limitation by reference to the 10 percent 

risk-based capital ratio, as described in 

the 2016 MBL final rule, quoted 

previously. In either scenario, if a 

complex credit union has actual net 

worth below those measures, its actual 

net worth would determine its MBL 

limitation. 

2. Capital Adequacy 

Under the 2015 Final Rule, a complex 

credit union must have a process for 

assessing its overall capital adequacy in 

relation to its risk profile and a 

comprehensive written strategy for 

maintaining an appropriate level of 

capital.93 While a qualifying complex 

credit union opting into the CCULR 

framework, is required to have a 

comprehensive written strategy for 

maintaining an appropriate level of 

capital, such strategy may be 

straightforward and minimally state 

how the credit union intends to comply 

with the CCULR framework, including 

minimum capital requirements and 

qualifying criteria. In contrast, complex 

credit unions that do not opt into the 

CCULR framework will be required to 

have a more detailed written strategy. 

The NCUA intends to review the written 

strategies during the supervisory 

process. 

L. Illustrative Reporting Forms To 

Support the CCULR 

The NCUA intends to separately seek 

comment on the proposed changes to 

the Call Report for complex, qualifying 

credit unions that elect to use the 

CCULR framework. Chart 1, provided 

below, is an example of what the 

CCULR election form may look like in 

the Call report. Details supporting lines 

2 through 6 can be found in section B 

of this proposed rule. 


lotter on DSK11XQN23PROD with PROPOSALS2
45842 Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 

This form provides an indication of 

the potential reporting format and 

potential reporting burden relative to 

the regulatory requirements associated 

with electing to use the CCULR 

framework. 

Similarly, in support of the offbalance sheet exposures qualifying 

criteria, Chart 2 provides an example of 

what an off-balance sheet exposures Call 

Report form may look like. Details 

supporting this schedule are in section 

B and M of this proposed rule. 


lotter on DSK11XQN23PROD with PROPOSALS2EP16AU21.000</GPH> EP16AU21.001</GPH>

Chart I Complex Credit Union Leverage Ratio form 

SCHEDULE FC-R 

Complex Credit Union Leverage Ratio (CCULR) 

Input is required if your credit union is electing to opt into the Complex Credit Union Leverage Ratio (CCU LR) 

Election Election 

1 Is your credit union opting into the Complex Credn Union Leverage 

· Ratio for the current quarter? (See Instructions for qualifications) (1= Yes, 0 = No) 

Qualifications Amount 

2. CCULR Ratio (Account 998) ......................................................... . 

3. Total Assets (Account 010) .................................. . 

Other Qualif~ng Criteria (see Instructions) 

4. Off-Balance sheet exposures are 25% or less of Total Assets 

5. Trading Assets and Trading liabilities are 5% or less of Total assets 

6. Goodwill and Other Intangible Assets are 2% or less of Total Assets 

Chart 2-0.ff-Balance Sheet Exposures Form 

Off-Balance Sheet Exposures 

Total Unfunded Commitments for all loan types 

..!!! Total Unconditionally Cancelable Unfunded Commitments for all loan types 

2 Conditionally Cancelable Unfunded Commitments: "iii 1 ..... C 

·a. 0 A. Unfunded Commitment- Commercial loans ('O :;::; u ·c B. Unfunded Commitment- Consumer Loans -Secured & Real Estate "C 

QJ ~ C Unfunded Commitment- Consumer Loans - Unsecured "' "C ('O 

..c 

..,. ~ Loans transferred with limited recourse, or other seller-provided credit enhancements ::J 

-~ "' 0 2 A. Loans Transferred Limited Recourse- Commercial loans 

0 a. 

X B. Loans Transferred Limited Recourse- Consumer Loans - QJ 

~ ..... 

QJ 3 Federal Home Loan Bank under the MPF program QJ ::J ..c "' 0 "' 4 Financial Standby Letter of Credits (813A2) QJ a. u X C 5 Forward Agreements that are not derivative contracts QJ ('O 

..... 

QJ "iii Sold Credit Protection through QJ ..c ..c .,!. 6 A. Guarantees "' QJ -

0 u B. Credit Derivatives C 

..!!! 

('O 7 Off-balance-Sheet Securitization Exposures ..c 

ti= 8 Securities Borrowing or Lending transactions 

0 9 Off-balance sheet exposure of repurchase transactions <( 

10 All other off-balance sheet exposures not specifically listed, but meet the definition of Commitments 

Account 

CCLR1 

Account 

CCLR2 

CCLR7 

CCLRS 

CCLR9 

Column A 

Face or 

Notional 

Amount 
Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 45843 

94 84 FR 68781, 68783 (Dec. 17, 2019). 

95Off-balance sheet items are defined as items 

such as commitments, contingent items, guarantees, 

certain repo-style transactions, financial standby 

letters of credit, and forward agreements that are 

not included on the statement of financial 

condition, but are normally reported in the 

financial statement footnotes. 12 CFR 702.2 

(effective Jan. 1, 2022). 

96Off-balance sheet exposure means: (1) For loans 

transferred under the Federal Home Loan Bank 

mortgage partnership finance program, the 

outstanding loan balance as of the reporting date, 

net of any related valuation allowance. (2) For all 

other loans transferred with limited recourse or 

other seller-provided credit enhancements and that 

qualify for true sales accounting, the maximum 

contractual amount the credit union is exposed to 

according to the agreement, net of any related 

valuation allowance. (3) For unfunded 

commitments, the remaining unfunded portion of 

the contractual agreement. 12 CFR 702.2 (effective 

Jan. 1, 2022). 

97The only item included in the current 

definition of off-balance sheet item that would not 

be provided an explicit exposure amount would be 

contingent items. However, as discussed below, the 

Board is proposing to amend the definition of offbalance sheet item and would no longer include 

contingent items. 

This form provides an indication of 

the potential reporting format and 

reporting burden relative to the 

regulatory requirements associated with 

the proposed off-balance sheet 

exposures for the CCULR framework 

and the risk-based capital framework 

under the 2015 Final Rule. 

M. Amendments to the 2015 Final Rule 

The Board stated its intent to 

holistically and comprehensively 

reevaluate the NCUA’s capital standards 

for credit unions in the 2019 Final Rule. 

A principal component of this review is 

the proposed CCULR framework. The 

Board also stated it would consider 

whether to make more substantive 

revisions to the 2015 Final Rule.94 The 

Board has completed this analysis and 

is proposing several changes to the 2015 

Final Rule. Each change is discussed 

below. 

1. Off-Balance Sheet Exposure Risk 

Weights 

The 2015 Final Rule states that the 

risk-weighted amounts for all offbalance sheet items 95 are determined by 

multiplying the off-balance sheet 

exposure amount 96 by the appropriate 

credit conversion factor and the 

assigned risk weight. However, the 

definition of off-balance sheet items is 

not aligned with the definition of offbalance sheet exposure. Under the 2015 

Final Rule, only commitments, loans 

transferred with limited recourse, and 

loans transferred under the FHLB 

mortgage partnership finance program 

are provided explicit exposure amounts. 

The rule is silent on the appropriate 

treatment for the remaining items 

included in the definition of off-balance 

sheet items (contingent items, 

guarantees, certain repo-style 

transactions, financial standby letters of 

credit, and forward agreements). In 

addition, the 2015 Final Rule does not 

include a credit conversion factor or risk 

weight for the off-balance sheet items 

that are not provided a specific 

exposure amount in the definition of 

off-balance sheet exposure. 

The proposed rule would make 

several changes to clarify the treatment 

of off-balance sheet items. First, as 

discussed previously, the proposed rule 

would amend the definition of offbalance sheet exposures. This definition 

is used as one of the CCULR eligibility 

criteria and is proposed to be amended 

to more closely align with the other 

banking agencies’ CBLR framework. As 

a consequence of amending the 

definition of off-balance sheet exposure 

for the CCULR framework, the proposed 

off-balance sheet exposure definition 

would also more closely align with the 

existing definition of off-balance sheet 

items.97 Therefore, under the proposed 

rule, several items currently defined as 

an off-balance sheet item, but not 

included in the current definition of offbalance sheet exposure, would be 

provided an exposure amount. This 

change reduces ambiguity in the 2015 

Final Rule. In addition, in the proposed 

rule, each item included in the 

definition of off-balance sheet exposure 

would be provided an explicit credit 

conversion factor and risk weight for 

purposes of the risk-based capital rule. 

Each proposed change to the risk-based 

capital rule is discussed in detail below. 

The proposed rule would state that 

unconditionally cancellable 

commitments have a zero percent credit 

conversion factor. Therefore, any 

unconditionally cancellable 

commitment would be excluded from a 

credit union’s risk-based capital 

calculation. Under the 2015 Final Rule, 

these exposures would receive a 

minimum of a 10 percent credit 

conversion factor and could receive up 

to a 50 percent credit conversion factor. 

The Board believes that many of credit 

unions’ commitments would qualify as 

unconditionally cancellable and that 

credit unions are currently subject to a 

more conservative treatment for 

unfunded commitments than banking 

organizations. Therefore, the Board 

believes providing a zero percent 

conversion factor will not only make the 

2015 Final Rule more comparable to the 

other banking agencies’ 2013 capital 

rule but will also provide a significant 

burden reduction for credit unions 

calculating their capital adequacy under 

the 2015 Final Rule. 

The proposed rule would provide that 

financial standby letters of credit are 

given a 100 percent credit conversion 

factor. The 2015 Final Rule does not 

provide a credit conversion factor for 

financial standby letters of credit. 

Including an explicit 100 percent 

conversion factor would provide parity 

between the other banking agencies and 

the NCUA. The risk weight would be 

100 percent. 

For forward agreements that are not 

derivative contracts, the proposed rule 

would provide for a 100 percent credit 

conversion factor. The 2015 Final Rule 

does not provide a credit conversion 

factor for forward agreements that are 

not derivative contracts. Including an 

explicit 100 percent conversion factor 

would provide parity between the other 

banking agencies and the NCUA. The 

risk weight would be 100 percent. 

For sold credit protection through 

guarantees and credit derivatives, the 

proposed rule would provide for a 100 

percent credit conversion factor. The 

2015 Final Rule does not provide a 

credit conversion factor for sold credit 

protection through guarantees or credit 

derivatives. The proposed rule would 

provide different risk weights for 

guarantees and credit derivatives. 

Guarantees would receive a 100 percent 

risk weight. For credit derivatives, the 

risk weight would be determined 

through the applicable provisions of 

FDIC’s capital rules. A credit union 

offering credit protection through a 

credit derivative would risk weight the 

exposure according to 12 CFR 324.34 

(for derivatives that are not cleared) or 

324.35 (for derivatives that are cleared 

exposures). 

The Board understands the proposed 

treatment of credit derivatives is 

complex and compliance with these 

requirements increases the regulatory 

burden for credit unions that offer credit 

protection through credit derivatives. 

However, credit derivatives are complex 

instruments. Furthermore, credit 

derivatives are not a permissible activity 

for FCUs and the Board believes that 

state-chartered credit unions should 

only offer credit derivatives if the credit 

union has the appropriate resources and 

capabilities to manage the complexity 

associated with them. The Board 

believes any credit union that has 

offered credit protection through credit 

derivatives should also be capable of 

complying with the complexity in the 

FDIC’s capital rules. Therefore, the 

Board believes it is appropriate to 

reference the other banking agencies’ 

2013 capital rules when determining the 


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45844 Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 

98 12 CFR 702.104(c)(2)(v)(B)(8) (effective Jan. 1, 

2022). 

99 12 CFR 702.104(c)(2)(x) (effective Jan. 1, 2022). 

100See 12 CFR 324.2. Financial collateral means 

collateral: (1) In the form of: (i) Cash on deposit 

with the FDIC-supervised institution (including 

cash held for the FDIC-supervised institution by a 

third-party custodian or trustee); (ii) Gold bullion; 

(iii) Long-term debt securities that are not 

resecuritization exposures and that are investment 

grade; (iv) Short-term debt instruments that are not 

resecuritization exposures and that are investment 

grade; (v) Equity securities that are publicly traded; 

(vi) Convertible bonds that are publicly traded; or 

(vii) Money market fund shares and other mutual 

fund shares if a price for the shares is publicly 

quoted daily; and (2) In which the FDIC-supervised 

institution has a perfected, first-priority security 

interest or, outside of the United States, the legal 

equivalent thereof (with the exception of cash on 

deposit; and notwithstanding the prior security 

interest of any custodial agent or any priority 

security interest granted to a CCP in connection 

with collateral posted to that CCP). 101Repurchase transactions would mean either a 

transaction in which a credit union agrees to sell 

a security to a counterparty and to repurchase the 

same or an identical security from that counterparty 

at a specified future date and at a specified price 

or a transaction in which an investor agrees to 

purchase a security from a counterparty and to 

resell the same or an identical security to that 

counterparty at a specified future date and at a 

specified price. 

102 12 CFR 324.12(a)(2)(iii). 

103 12 CFR 324.33(b)(4)(ii). 

104The proposed rule would also revise the 

definition of off-balance sheet items. The proposed 

definition of off-balance sheet items would include 

off-balance sheet exposures and the off-balance 

sheet exposure amount of repurchase transactions. 

This change is necessary to ensure repurchase 

transactions are not included as part of the offbalance sheet criteria for eligibility in the CCULR 

framework. 

105 12 CFR 702.2 (effective Jan. 1, 2022). 

appropriate risk weights for credit 

derivatives. 

For off-balance sheet securitization 

exposures, the credit conversion factor 

would be 100 percent. The 2015 Final 

Rule does not currently provide a credit 

conversion factor for the off-balance 

sheet portion of securitization 

exposures. The risk weight would be 

determined as if the exposure is an onbalance sheet securitization exposure. 

Under the 2015 Final Rule, the risk 

weight for securitization exposures is 

dependent upon whether the exposure 

is a subordinated or non-subordinated 

tranche. Non-subordinated tranches can 

receive a 100 percent risk weight (credit 

unions also have the option to use the 

gross up approach).98 In contrast, a 

subordinated tranche would receive a 

1,250 percent risk weight (credit unions 

also have the option to use the gross-up 

approach).99

For securities borrowing or lending 

transactions, the proposed credit 

conversion factor would be 100 percent. 

The 2015 Final Rule does not provide a 

credit conversion factor for securities 

borrowing or lending transactions. 

Including an explicit 100 percent credit 

conversion factor would provide parity 

between the other banking agencies and 

the NCUA. Unlike the other banking 

agencies’ rules, the proposed rule would 

include a risk weight of 100 percent for 

these transactions. The Board is aware 

this may be a more conservative risk 

weight than for securities borrowing and 

lending transactions under the other 

banking agencies’ 2013 capital rule. 

The Board is proposing a 100 percent 

risk weight for simplicity. However, a 

credit union may recognize the credit 

risk mitigation benefits of financial 

collateral by risk weighting the 

collateralized portion of the exposure 

under the applicable provisions of 12 

CFR 324.35 or 324.37. Any collateral 

recognized would have to meet the 

definition of financial collateral under 

the other banking agencies 2013 capital 

rules.100 The Board solicits comments 

on whether referencing the other 

banking agencies’ risk mitigation 

provisions introduces undue 

complexity. The Board understands that 

some credit unions engaged in securities 

lending and borrowing transactions 

would benefit from a lower risk weight, 

as provided by the other banking 

agencies’ rules; however, the Board 

believes most credit unions do not 

engage in a substantial amount of 

securities lending and borrowing 

activities and therefore would benefit 

from a simple, although conservative, 

100 percent risk weight. 

The proposed rule would also include 

a specific credit conversion factor and 

risk weight for the off-balance sheet 

exposure amount of repurchase 

transactions.101 Under the proposed 

rule, the off-balance sheet exposure 

amount for a repurchase transaction 

would equal all of the positions the 

credit union has sold or bought subject 

to repurchase or resale, which equals 

the sum of the current fair values of all 

such positions. The off-balance sheet 

exposure amounts of repurchase 

transactions are not provided a credit 

conversion factor under the 2015 Final 

Rule. The proposed rule would provide 

a 100 percent risk weight for the offbalance sheet exposure amounts of 

repurchase transactions. A credit union 

may recognize the credit risk mitigation 

benefits of financial collateral, as 

defined by 12 CFR 324.2, by risk 

weighting the collateralized portion of 

the exposure under the applicable 

provisions of 12 CFR 324.35 or 324.37. 

The Board notes that repurchase 

transactions are not included in the 

definition of off-balance sheet exposure. 

This exclusion of repurchase 

transactions from the definition of offbalance sheet exposure is because the 

other banking agencies did not include 

repurchase transactions in their related 

measure of CBLR and the definition of 

off-balance sheet exposure is used for 

purposes of the CCULR eligibility 

criteria.102

Even though, for purposes of the 

CCULR framework, repurchase 

transactions are excluded from the offbalance sheet criterion, the Board 

believes that the off-balance sheet 

portion of repurchase transactions 

should be risk-weighted under the riskbased capital ratio. First, repurchase 

transactions are included in the current 

definition of off-balance sheet items. 

Second, the other banking agencies riskweight the off-balance sheet portion of 

repurchase transactions in their riskbased capital framework.103

The Board, however, does not believe 

that repurchase transactions are a 

material exposure for credit unions. As 

of December 31, 2020, there are only 31 

complex credit unions with repurchase 

transactions on their balance sheets. 

Therefore, the proposed rule would 

include the off-balance sheet portion of 

repurchase transactions for purposes of 

risk-based capital, even though such 

transactions are not included as part of 

the off-balance sheet eligibility criteria 

under the CCULR framework.104

Finally, the proposed rule would 

include a ‘‘catchall’’ category. Under the 

proposed rule, all other off-balance 

sheet exposures not explicitly provided 

a credit conversion factor or risk weight 

that meet the definition of a 

commitment would be given a credit 

conversion factor of 100 percent and a 

risk weight of 100 percent. The Board 

believes a catchall category is necessary 

given that the definition of commitment 

is broad. Commitments include any 

legally binding arrangement that 

obligates the credit union to extend 

credit, purchase or sell assets, enter into 

a borrowing agreement, or enter into a 

financial transaction.105 To ensure all 

off-balance sheet exposures that met the 

definition of commitment are provided 

a credit conversion factor and risk 

weight, the proposed rule would 

include a new catchall category for such 

exposures. 

2. Asset Securitizations Issued by 

Complex Credit Unions 

The 2019 Supplemental Rule 

included asset securitizations as one of 

the reasons the Board sought a holistic 

reevaluation of the 2015 Final Rule. The 

Board has further considered asset 

securitizations issued by credit unions 

and has decided to propose to amend 

the 2015 Final Rule to explicitly address 

credit union issued securitizations. 


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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 45845 

106Under the other banking agencies’ 2013 capital 

rules, eligible clean-up call means a clean-up call 

that: (1) Is exercisable solely at the discretion of the 

originating institution or servicer; (2) is not 

structured to avoid allocating losses to 

securitization exposures held by investors or 

otherwise structured to provide credit enhancement 

to the securitization; and (3)(i) for a traditional 

securitization, is only exercisable when 10 percent 

or less of the principal amount of the underlying 

exposures or securitization exposures (determined 

as of the inception of the securitization) is 

outstanding; or (ii) for a synthetic securitization, is 

only exercisable when 10 percent or less of the 

principal amount of the reference portfolio of 

underlying exposures (determined as of the 

inception of the securitization) is outstanding. 

107Under the other banking agencies’ 2013 capital 

rule, a synthetic securitization means a transaction 

in which: (1) All or a portion of the credit risk of 

one or more underlying exposures is retained or 

transferred to one or more third parties through the 

use of one or more credit derivatives or guarantees 

(other than a guarantee that transfers only the credit 

risk of an individual retail exposure); (2) The credit 

risk associated with the underlying exposures has 

been separated into at least two tranches reflecting 

different levels of seniority; (3) Performance of the 

securitization exposures depends upon the 

performance of the underlying exposures; and (4) 

All or substantially all of the underlying exposures 

are financial exposures (such as loans, 

commitments, credit derivatives, guarantees, 

receivables, asset-backed securities, mortgagebacked securities, other debt securities, or equity 

securities). See, 12 CFR 324.2. 

108See, 12 CFR 324.22(a)(4) and 12 CFR 

324.42(a)(1). 

109See, 12 CFR 324.42(a)(1). 

The proposed rule would require 

credit unions that issue securitizations 

to use the other banking agencies’ 2013 

capital rules when determining whether 

assets transferred in connection with a 

securitization are excluded from riskbased capital. The Board has reviewed 

these standards and finds they would be 

appropriate as applied to credit union 

securitizations, with the minor 

differences noted below. Specifically, 

under the proposed rule, a credit union 

must follow the requirements of the 

applicable provisions of 12 CFR 324.41 

when it transfers exposures in 

connection with a securitization. A 

credit union may only exclude the 

transferred exposures from the 

calculation of its risk-weighted assets if 

each condition in 12 CFR 324.41 is 

satisfied. The conditions for traditional 

securitizations in 12 CFR 324.41 are as 

follows (adapted for credit unions): 

(1) The exposures are not reported on 

the credit union’s consolidated balance 

sheet under GAAP; 

(2) The credit union has transferred to 

one or more third parties credit risk 

associated with the underlying 

exposures; 

(3) Any clean-up calls relating to the 

securitization are eligible clean-up calls 

(a defined term under the other banking 

agencies’ 2013 capital rules); 106 and 

(4) The securitization does not: 

(i) Include one or more underlying 

exposures in which the borrower is 

permitted to vary the drawn amount 

within an agreed limit under a line of 

credit; and 

(ii) Contain an early amortization 

provision. 

A credit union that meets the 

conditions, but retains any credit risk 

for the transferred exposures, must hold 

risk-based capital against the credit risk 

it retains in connection with the 

securitization. 

The other banking agencies’ 2013 rule 

includes conditions for both traditional 

securitizations and synthetic 

securitizations.107 The Board believes 

almost all securitizations issued by 

credit unions would be traditional 

securitizations and subject to the 

conditions in 12 CFR 324.41(a). The 

Board does not believe that credit 

unions are likely to engage in synthetic 

securitizations, however, if a credit 

union issues a synthetic securitization, 

it would be subject to the conditions in 

12 CFR 324.41(b). 

The Board also notes that 12 CFR 

324.41(c) includes explicit due 

diligence requirements for banking 

organizations’ investments in 

securitizations. The Board is not 

proposing to adopt these requirements 

at this time. The proposed rule only 

references 12 CFR 324.41 to incorporate 

the factors a credit union must consider 

when excluding assets transferred in 

connection with a securitization from 

risk-weighted assets. The Board intends 

to use its supervisory authority to 

monitor securitizations for safety and 

soundness purposes and is not currently 

proposing to adopt any new regulatory 

requirements for such transactions. 

The other banking agencies’ 2013 

capital rule has an explicit treatment for 

any gain-on-sale in connection with a 

securitization exposure and any creditenhancing interest only strips (CEIOs) 

retained by a banking organization that 

do not qualify as a gain-on-sale. Any 

gain-on-sale in connection with a 

securitization exposure is deducted 

from a banking organization’s common 

equity tier 1 capital.108 CEIOs that do 

not qualify as a gain-on-sale are given a 

1,250 percent risk weight.109 The other 

banking agencies provided punitive 

treatments for these exposures because 

of historical supervisory concerns with 

the subjectivity involved in valuations 

of gains-on-sale and CEIOs. 

Furthermore, although the treatments 

for gains-on-sale and CEIOs can increase 

an originating banking organization’s 

risk-based capital requirement following 

a securitization, the other banking 

agencies believe that such anomalies are 

rare where a securitization transfers 

significant credit risk to third parties. 

The 2015 Final Rule does not include 

specific treatments for gain-on-sales or 

CEIOs because, as discussed previously, 

in 2015 credit unions had not issued 

any securitizations. Under the 2015 

Final Rule, however, most CEIOs would 

still receive a 1,250 percent risk weight 

because they constitute a subordinated 

tranche. However, the 2015 Final Rule 

permits a credit union to use the grossup approach as an alternative. The 

Board believes that credit union-issued 

securitizations should be given a similar 

capital treatment under the 2015 Final 

Rule as under the other banking 

agencies’ risk-based capital rule. 

Therefore, the proposed rule would 

include a specific risk weight for certain 

exposures associated with securitization 

activities. While the Board believes the 

capital treatment for credit union-issued 

securitizations should be similar to 

bank-issued securitizations, for 

simplicity, the proposed rule is slightly 

different than the other banking 

agencies’ 2013 risk-based capital rule. 

Under the proposed rule, the gain-onsale amount from a securitization 

transaction, generally the CEIO, will be 

included the numerator in calculating a 

credit union’s net worth. This is a 

different approach than the other 

banking agencies’ rule, which excludes 

gains-on-sale in calculating a bank’s 

common equity tier 1 capital. Instead, 

the Board has chosen to address the 

risks associated with a gain-on-sale 

amount by requiring that a 1,250 

percent risk weighting be applied to 

retained non-security beneficial 

interests. The Board believes the 

proposed approach is simpler and that 

it provides a more conservative risk 

weight overall than the other banking 

agencies’ approach. The Board believes 

this approach is warranted given the 

limited securitizations issued by credit 

unions at this time. 

Under the proposed rule, a nonsecurity beneficial interest is defined as 

the residual equity interest in the 

special purpose entity that represents a 

right to receive possible future 

payments after specified payment 

amounts are made to third-party 

investors in the securitized receivables. 

Therefore, under the proposed rule, if a 

credit union has a non-security 

beneficial interest, such as a CEIO or 

cash collateral account, it cannot be 

risk-weighted with the gross-up 

approach and, instead, would be given 

a 1,250 risk weight. The Board believes 

this treatment is similar to the treatment 

provided by the other banking agencies 

in their 2013 risk-based capital rule. 


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45846 Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 

110 12 CFR 702.2 (effective Jan. 1, 2022). 

111 84 FR 35234 (July 22, 2019). 

112 12 CFR 324.22(d). 

113The terms mortgage servicing rights and MSAs 

are used interchangeably. 

114 85 FR 86867 (Dec. 31, 2020). 

115Report to Congress on the Effect of Capital 

Rules on Mortgage Servicing Assets, Report to the 

Congress on the Effect of Capital Rules on Mortgage 

Servicing Assets, June 2016, available at https://

www.federalreserve.gov/publications/other-reports/ 

files/effect-capital-rules-mortgage-servicing-assets201606.pdf. 

The Board notes that subordinate 

tranches, either retained by the 

securitization sponsor or offered to 

investors as securities, that are also 

senior in payment priority to the nonsecurity beneficial interest, are allowed 

to be risk weighted using the gross-up 

approach. 

Question 18: What are the advantages 

and disadvantages of relying on the 

other banking agencies’ risk-based 

capital rule for determining whether a 

credit union has transferred the credit 

risk associated with a securitization? 

Should credit union-issued 

securitizations be subject to the same 

capital treatment as bank-issued 

securitizations? Should there be an 

option for complex credit unions to use 

the gross-up approach for risk weighting 

non-security beneficial interest of a 

securitization? If so, please provide 

examples where the gross-up approach 

would sufficiently capture the risks of a 

non-security beneficial interest of a 

securitization. 

3. Mortgage Servicing Assets 

The Board is proposing to amend 

§ 702.104(b), risk-based capital 

numerator, to deduct mortgage servicing 

assets that exceed 25 percent of the sum 

of the capital elements in 

§ 702.104(b)(1), less deductions required 

under § 702.104(b)(2)(i) through (iv) of 

this section. Under the 2015 Final Rule, 

MSAs are assets, maintained in 

accordance with GAAP, resulting from 

contracts to service loans secured by 

real estate (that have been securitized or 

owned by others) for which the benefits 

of servicing are expected to more than 

adequately compensate the servicer for 

performing the servicing.110

To determine if a complex credit 

union would be subject to the MSA 

deduction from the risk-based capital 

numerator in this proposal, the complex 

credit union would first need to 

calculate the risk-based capital 

numerator before the MSA deduction. 

This calculation is in the current rule 

and requires that the complex credit 

union add all the capital elements of the 

risk-based capital numerator and 

subtract all risk-based capital numerator 

deductions, not including the MSA 

deduction. The complex credit union 

would then determine if its MSA 

exposure exceeds 25 percent of the 

previous calculation. If its MSAs do not 

exceed 25 percent, then the previous 

calculation is the risk-based capital 

numerator. If its MSAs exceed 25 

percent, the complex credit union will 

need to deduct the amount of MSAs that 

exceed 25 percent of the previous 

calculation. All MSA exposures that are 

not deducted from the risk-based capital 

numerator are risk weighted at 250 

percent. 

The current rule does not include a 

deduction to the risk-based capital 

numerator for MSAs. The Board chose 

not to include a deduction for MSA 

exposures because, when the 2015 Final 

Rule was issued, the other banking 

agencies’ risk-based capital rule 

included a complex deduction for MSAs 

that included other items that were not 

comparable to the credit union 

structure. In 2015, the other banking 

agencies made numerator adjustment 

based on the collective exposure to 

MSAs, deferred tax assets arising from 

temporary differences that could not be 

realized through net operating loss 

carrybacks, and significant investments 

in capital of nonconsolidated financial 

institutions in the form of common 

stock. As the other banking agencies’ 

2015 approach was not comparable to 

the credit union capital structure and 

added significant complexity to their 

rule, the Board did not include a similar 

deduction to the 2015 Final Rule. 

The Board is now proposing a 

deduction to the risk-based capital 

numerator for MSAs that exceed 25 

percent of the risk-based capital 

numerator for two primary reasons. 

First, this change will make the NCUA’s 

risk-based capital calculation more 

consistent with the other banking 

agencies’ revised risk-based capital rules 

as the other banking agencies simplified 

their MSA calculation post-issuance of 

the 2015 Final Rule.111 Under the other 

banking agencies’ revised risk-based 

capital rule, banking organizations 

deduct MSAs that exceed 25 percent of 

the banking organization’s common 

equity tier 1 capital.112 The Board 

believes the simplification of the other 

banking agencies’ approach easily 

allows the NCUA to be consistent with 

the other banking agencies’ risk-based 

capital rule. Also, the Board believes it 

would be important to implement 

prudential conditions around MSAs if 

the Board adopts the recent proposed 

rule to amend parts 703 and 721 to 

allow FCUs to purchase mortgage 

servicing rights 113 from other FICUs.114

If adopted, this rule could increase MSA 

holdings for complex credit unions. But 

even if the Board does not adopt the 

proposed rule on mortgage servicing 

rights, the other considerations in this 

section support the proposed 

amendment to the 2015 Final Rule. 

The Board believes that by including 

a deduction to the risk-based capital 

numerator for MSAs in risk-based 

capital, complex credit unions will be 

encouraged to avoid excessive 

exposures in MSAs relative the other 

risks on their balance sheets. As 

mentioned in the preamble of the 2015 

Final Rule, the Board believes the risks 

of MSAs contribute to a high level of 

uncertainty regarding the ability of 

credit unions to realize value from these 

assets. Therefore, the Board believes it 

is appropriate to add the proposed riskbased numerator deduction to address 

the potential of complex credit unions 

purchasing MSAs from other FICUs. 

The Board does not believe the 

proposed treatment would have an 

immediate effect on complex credit 

unions. As of December 31, 2020, the 

largest concentration in MSAs held by 

complex credit unions was just under 

15 percent of the credit union’s net 

worth. While net worth and the riskbased capital numerator are different 

calculations, the Board believes the two 

calculations are similar enough to state, 

with a high degree of certainty, there are 

no complex credit unions that would be 

required to deduct MSAs from the riskbased capital numerator were risk-based 

capital currently in effect. 

Finally, the Board is aware that 

complex credit unions may believe that 

deducting exposures of MSAs over 25 

percent of their risk-based capital 

numerator is punitive. However, the 

Board notes that both the Board and 

other banking agencies have stated that 

MSAs have a relatively high level of 

uncertainty regarding the ability to both 

value and realize value from these 

assets.115 The Board also believes 

including the proposed MSA deduction 

from the risk-based capital numerator is 

prudential for potential balance sheets 

complex credit union may have in the 

future. 

Question 19: What are the advantages 

and disadvantages of deducting MSAs 

from the risk-based capital numerator? 

Should the Board consider a higher or 

lower deduction threshold? Why or why 

not? 

4. Supranational Organizations and 

Multilateral Development Banks 

The Board is proposing to amend the 

risk-based capital rule to assign a risk 


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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 45847 

116 12 CFR 702.104(c)(2)(v)(C) (effective Jan. 1, 

2022). 

117Public Law 116–136 (Mar. 27, 2020). 

118Public Law 116–136, 134 Stat. 281 (Mar. 27, 

2020). 

119 85 FR 23212 (Apr. 27, 2020). 

120 85 FR 23212 (Apr. 27, 2020). 

121The 2015 Final Rule defines a derivative 

contract as ‘‘a financial contract whose value is 

derived from the values of one or more underlying 

assets, reference rates, or indices of asset values or 

reference rates. Derivative contracts include interest 

rate derivative contracts, exchange rate derivative 

contracts, equity derivative contracts, commodity 

derivative contracts, and credit derivative contracts. 

Derivative contracts also include unsettled 

securities, commodities, and foreign exchange 

transactions with a contractual settlement or 

delivery lag that is longer than the lesser of the 

market standard for the particular instrument or 

five business days.’’ 12 CFR 702.2 (effective Jan. 1, 

2022). 

122The 2015 Final Rule states a derivative 

clearing organization is ‘‘as defined by the 

Commodity Futures Trading Commission in 17 CFR 

1.3(d).’’ The proposed rule would state that a 

derivative clearing organization ‘‘as defined by the 

Commodity Futures Trading Commission (CFTC) in 

17 CFR 1.3.’’ Essentially the proposed rule would 

remove the ‘‘(d)’’. Similarly, the more specific 

reference in the 2015 Final Rule would be updated 

with the more general reference included in the 

recent derivative rule. 

123 79 FR 11184, 11198 (Feb. 27, 2014). 

weighting of zero percent to an 

obligation of the Bank for International 

Settlements, the European Central Bank, 

the European Commission, the 

International Monetary Fund, the 

European Stability Mechanism, the 

European Financial Stability Facility, 

and multilateral development banks 

(MDBs). The 2015 Final Rule did not 

specifically discuss MDBs, which would 

have a risk weight of 100 percent under 

the catchall category for all other assets 

not specifically assigned a risk 

weight.116 Assigning a risk-weight of 

zero percent is consistent with the other 

banking agencies’ risk-based capital rule 

and the Board believes the zero percent 

risk weight is appropriate due to the 

generally high-credit quality of the 

issuers. This proposed change to the 

risk-based capital risk weighting was 

also requested in a comment letter in 

the ANPR. As part of this change, the 

Board would add a definition listing 

MDBs and criteria for non-listed 

multilateral lending institutions or 

regional development banks to be 

included in the MDB category. The 

MDBs listed in the definition are: 

• International Bank for 

Reconstruction and Development; 

• Multilateral Investment Guarantee 

Agency; 

• International Finance Corporation; 

• Inter-American Development Bank; 

• Asian Development Bank; 

• African Development Bank; 

• European Bank for Reconstruction 

and Development; 

• European Investment Bank; 

• European Investment Fund; 

• Nordic Investment Bank; 

• Caribbean Development Bank; 

• Islamic Development Bank; and 

• Council of Europe Development 

Bank. 

• Multilateral lending institution or 

regional development bank in which the 

U.S. government is a shareholder or 

contributing member are also included 

in the definition of MDBs. 

Furthermore, the Board notes that 

MDBs are not permissible investments 

for FCUs under the general investment 

authorities. However, FCUs may invest 

in MDBs under § 701.19 and under 

§ 721.3(b), subject to some conditions. 

Question 20: Are there any 

supranational entities that should be 

included in the zero percent risk weight 

category? Specifically, the Board is 

requesting whether this proposed 

change sufficiently aligns NCUA’s riskweightings with the other banking 

agencies’ risk weights for supranational 

organizations and MDBs. 

5. Paycheck Protection Program Loans 

As discussed previously in 

connection with the other banking 

agencies’ CBLR regulation, the CARES 

Act was enacted in 2020 to provide aid 

to the U.S. economy during the COVID– 

19 pandemic.117 The CARES Act 

authorized the Small Business 

Administration (SBA) to create a loan 

guarantee program, the Paycheck 

Protection Program (PPP), to help 

certain affected businesses meet payroll 

needs and utilities (including employee 

salaries, sick leave, other paid leave, 

and health insurance expenses) as a 

result of the COVID–19 pandemic. 

Provided credit union lenders comply 

with the applicable lender obligations 

set forth in the SBA’s interim final rule, 

the SBA fully guaranteed loans issued 

under the PPP. Most FICUs were eligible 

to make PPP loans to members. Under 

the CARES Act, PPP loans must receive 

a zero percent risk weighting under the 

NCUA’s risk-based capital 

requirements.118 The NCUA issued a 

2020 interim final rule to explicitly state 

that PPP loans under the risk-based net 

worth requirement receive a zero 

percent risk-weight.119 The 2020 interim 

final rule stated that the NCUA’s riskbased capital regulations would be 

amended in the future. The Board is 

now proposing to update the 2015 Final 

Rule to reflect that PPP loans receive a 

zero percent risk weight. 

6. Updates to Derivative-Related 

Definitions 

The Board recently amended its rule 

on derivatives to modernize the rule and 

make it more principles-based, while 

retaining key safety and soundness 

components.120 The rulemaking 

amended several defined terms. A few 

of those defined terms are also included 

in the 2015 Final Rule. For consistency, 

the proposed rule would update those 

definitions that are also included in the 

2015 Final Rule. First, under the 

proposed rule, the term derivative 

would be defined as ‘‘a financial 

contract that derives its value from the 

value and performance of some other 

underlying financial instrument or 

variable, such as an index or interest 

rate.’’ 121 Second the proposed rule 

would make minor changes to the 

definitions of a derivative clearing 

organization and swap dealer by 

including a more general reference to 

the Commodity Futures Trading 

Commission (CFTC)’s regulations (for 

both definitions, the 2015 Final Rule 

references the definitions used by the 

CFTC).122

7. Definitions of Consumer Loan and 

Current 

The Board is proposing to amend the 

definitions for Consumer Loan and 

Current in § 702.2. The Board is 

proposing these changes as a 

clarification to the 2015 Final Rule. The 

2015 Final Rule does not include leases 

in the definition in Consumer Loan, 

despite the fact that the 2014 Risk-Based 

Capital NPR stated ‘‘[c]onsumer loans 

(unsecured credit card loans, lines of 

credit, automobile loans, and leases) are 

generally highly desired credit union 

assets and a key element of providing 

basic financial services.’’ 123 The Board 

is providing this proposed change for 

clarity. Without this proposed change 

the treatment of consumer leases is 

unclear and, therefore, may be risk 

weighted in the catchall category of 100 

percent. The change makes clear that 

consumer leases receive a 75 percent 

risk weight. Due to the proposed change 

in the definition of a consumer loan, the 

definition of current will also be 

amended for consistency and would 

include the term leases. 

N. Technical Amendments 

The proposed rule would also include 

two technical amendments to 12 CFR 

part 703. Both amendments would make 

minor corrections related to the 2015 

Final Rule. 

O. Illustrative Reporting Forms for RiskBased Capital 

In January 2018, the Board issued a 

Request for Comment (RFI) seeking 

comments on all proposed changes to 

the Call Report form 5300, the Profile 


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45848 Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 

124https://www.ncua.gov/regulation-supervision/ 

examination-modernization-initiatives/call-reportmodernization. 

125https://www.ncua.gov/regulation-supervision/ 

regulatory-compliance-resources/risk-based-capitalrule-resources. 

form 4501A, and the accompanying 

instructions. The proposed forms and 

instructions are available on the 

NCUA’s Call Report Modernization web 

page.124 The proposed Call Report form 

included six risk-based capital 

schedules (FC–T–1 through FC–T–6) 

designed to collect information 

consistent with the 2015 Final Riskbased Capital Rule. The Board also 

provided other risk-based capital tools 

detailed on the Risk-based Capital Rule 

Resources Page on the NCUA’s 

website.125

The Board is illustrating as part of this 

proposal the draft forms that may be 

used as the risk-based capital Call 

Report schedules. Any new Call Report 

forms to support risk-based capital will 

be accompanied with detailed 

instructions. The NCUA intends to 

separately seek comment on the 

proposed changes to the Call Report for 

complex credit unions that use the riskbased capital framework. The examples 

below illustrate what the risk-based 

capital form for the numerator and 

denominator may look like. The 

illustration consists of three sections: 

Part I—Numerator, Part II— 

Denominator for on-balance sheet 

assets, and Part III—Denominator for 

off-balance sheet exposures and 

derivatives. 

The illustration of the capital 

elements for the risk-based capital 

numerator are consistent with the 2015 

Final rule in § 702.104(b)(1) with the 

addition of the proposed MSA 

deduction as proposed in the 

Amendments to the 2015 Final Rule, 

section M. 

The illustration for Part II— 

Denominator form for on-balance sheet 

assets may auto-populate the totals from 

other schedules in the Call Report (see 

table below for ‘‘Totals from Schedules’’ 

column with greyed out boxes). The 

Board will also provide a detailed 

instruction guide consistent with the 

2015 Final Rule § 702.104(c)(2) for risk 

weighting the on-balance sheet assets 

into their respective risk weight 

categories. An empty box underneath 

each risk-weight category indicates a 

possible asset amount for each line item 

in accordance with the 2015 Final Rule. 


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Chart 3 Part I - Capital elements of the risk-based capital numerator 

Risk-Based Capital Form Part I - Numerator 

EQUITY 

Undivided earnings .................................................................................... . 

Regular reserves ......................................................................................... . 

Appropriations for non-conforming investments ................................ .. 

Other reserves ............................................................................................. . 

Equity acquired in merger ......................................................................... . 

Net income ................................................................................................... . 

Total Equity ............................................................................................ . 

ADDITIONS 

Allowance for Credit Losses ....................................................................... . 

Subordinated Debt in accordance with §702.407 .................................... . 

Section 208 Assistance included in net worth as defined in §702.2 .. . 

Total Additions ..................................................................................... . 

DEDUCTIONS 

NCUSIF capitalization deposit .................................................................. . 

Goodwill ........................................................................................................ . 

Less: Excluded Goodwill ......................................................................... . 

Other intangible assets .............................................................................. . 

Less: Excluded intangible assets .......................................................... . 

Identified losses not reflected in the risk-based capital numerator. 

Total Deductions .................................................................................. . 

TOTAL RISK-BASED CAPITAL BEFORE MSA DEDUCTION 

Less: MSA balance exceeding 25% of RBC Numerator .............................. . 

TOTAL RISK-BASED CAPITAL NUMERATOR ....................................................... . 

TOTALS 
Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 45849 

The Board is proposing to improve 

the clarity and completeness of offbalance sheet and derivative exposures 

with the Part III—Denominator form 

example below. Similar to Part II, a 

detailed instruction guide consistent 

with the 2015 Final Rule § 702.104(4) 

and § 702.105 will supplement the 

schedule for risk weighting the offbalance sheet and derivative exposures 

into their respective risk weight 

categories. Both the Credit Conversion 

Factor (CCF) and the Credit Equivalent 

Amount (CEA) assist in calculating the 

amount to be risk weighted. 


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Chart 4 Part II - Risk weight asset form for on-balance sheet assets 

Risk-Weight Asset Form -Part II Denominator Risk Weight Category and Asset Allocations 

1 2 3 4 10 Alt RW Totalsfrom Adj'sto r--+---+---------+---+----1 

On-Balance Sheet Items Schedules Totals 0% 20% 50% 75% 100% 150% 250% 300% 400% 1250% Other 

--------------- Cash, Cash Equivalents, Deposits in Finc'l lnsts or Reserve Banks 

INVESTMENTS 

Securities ............................................................................................ .. 

Other Investments ............................................................................ .. 

Allowance for Credit Losses & AFS Gain/(Loss)(Securities) ...... . 

Total Investments ...................................... . 

LOANS 

First Lien Residential Real Estate Loans ........................................ . 

Junior-Lien Residential Real Estate Loans .................................... .. 

Consumer Loans ................................................................................ .. 

Commercial Loans ............................................................................. . 

Loans held for sale ........................................................................... .. 

Allowance for Credit Losses (Loans) .............................................. . 

Total Loans ................................................ . 

OTHER ASSETS .. ,,, .. , .. ,, .. , .. ,, .... ,, .. , .. ,, .. , .. , .. ,, .. , .. ,, .. , .. ,, .. , .. ,, .. , .. , .. ,, .. , .. ,, .. , .. ,, .. , 

TOTAL ON-BALANCE ASSETS by RISK WEIGHT ...................................... .. 

TOTAL RISK-WEIGHTED ASSETS- ON BALANCE SHEET ........................ .. 

Chart 5 Part III - Risk weight form for off-balance sheet exposures and derivatives 

Risk-Weight Asset Form -Part Ill Denominator 

Off-Balance Sheet and Derivative Exposures 

Total Conditionally Cancelable Unfunded Commitments: 

A. Unfunded Commitment- Commercial loans .............................. . 

B. Unfunded Commitment- Consumer loans -Secured & RE ...... .. 

C. Unfunded Commitment-Consumer loans- Unsecured .......... .. 

Federal Home loan Bank under the MPF program .............................. . 

Al I other off-balance sheet exposures (see instructions) ................ .. 

Over-the-counter de ri vati ves ................................................................. . 

Centrally cleared derivatives .................................................................. . 

TOTAL OFF-BALANCE SHEET AND DERIVATIVE EXPOSURES ...................... .. 

TOTAL RISK-WEIGHTED ASSETS- OFF BAL AND DERIVATIVE EXPOSURES 

Face or 

Notional Adj's to Credit Equivalent Risk Weight Allocations 

Amount Totals CCF CEA 0% 2% 4% 20% 50% 75% 100% Other 
45850 Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 

126 5 U.S.C. 601 et seq. 

127 5 U.S.C. 603(a). 

128 64 FR 43255 (Aug. 4, 1999). 

IV. Regulatory Procedures 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 126

requires the NCUA to prepare an 

analysis to describe any significant 

economic impact a regulation may have 

on a substantial number of small entities 

(primarily those under $100 million in 

assets).127 This proposed rule would 

affect only credit unions with over $500 

million in assets, which are subject to 

the 2015 Final Rule and the 2018 

Supplemental Rule when they go into 

effect in January 2022. As a result, credit 

unions with $100 million or less in total 

assets would not be affected by this 

proposed rule. Accordingly, the NCUA 

certifies that this proposed rule would 

not have a significant economic impact 

on substantial number of 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 amends an existing burden. For 

purposes of the PRA, a paperwork 

burden may take the form of a reporting, 

disclosure or recordkeeping 

requirement, each referred to as an 

information collection. The proposed 

changes to part 702 may revise existing 

information collection requirements to 

the Call Report. Should changes be 

made to the Call Report, they will be 

addressed in a separate Federal Register 

notice. The revisions to the Call Report 

will be submitted for approval by the 

Office of Information and Regulatory 

Affairs at the Office of Management and 

Budget prior to their effective date. 

C. Executive Order 13132 on Federalism 

Executive Order 13132 encourages 

independent regulatory agencies to 

consider the impact of their actions on 

state and local interests.128 The NCUA, 

an independent regulatory agency, as 

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

complies with the executive order to 

adhere to fundamental federalism 

principles. The proposed rule will apply 

to all federally insured natural-person 

credit unions, including federally 

insured, state-chartered natural-person 

credit unions. Accordingly, it may have, 

to some degree, a direct effect on the 

states, on the relationship between the 

National Government and the states, or 

on the distribution of power and 

responsibilities among the various 

levels of government. The Board 

believes this impact is minor, and it is 

an unavoidable consequence of carrying 

out the statutory mandate to adopt a 

system of PCA to apply to all federally 

insured, natural-person credit unions. 

Throughout the rulemaking process, 

however, NCUA has consulted with 

representatives of state regulators 

regarding the impact of the proposed 

rule. 

D. Assessment of Federal Regulations 

and Policies on Families 

The NCUA has determined that this 

proposed rule would not affect family 

well-being within the meaning of 

section 654 of the Treasury and General 

Government Appropriations Act, 1999, 

Public Law 105–277, 112 Stat. 2681 

(1998). 

List of Subjects 

12 CFR Part 702 

Credit unions, Reporting and 

recordkeeping requirements. 

12 CFR Part 703 

Credit unions, Investments, Reporting 

and recordkeeping requirements. 

By the National Credit Union 

Administration Board on July 22, 2021. 

Melane Conyers-Ausbrooks, 

Secretary of the Board. 

For the reasons stated in the 

preamble, the NCUA proposes to amend 

12 CFR parts 702 and 703, as follows: 

PART 702—CAPITAL ADEQUACY 

■ 1. The authority for part 702 

continues to read as follows: 

Authority: 12 U.S.C. 1766(a), 1790d. 

■ 2. In § 702.2, revise the definitions of 

‘‘Consumer Loan’’, ‘‘Current’’, 

‘‘Derivative contract’’, ‘‘Derivatives 

Clearing Organization’’, ‘‘Off-balance 

sheet exposure’’, ‘‘Off-balance sheet 

items’’, and ‘‘Swap dealer’’ and add 

definitions of ‘‘CCULR’’, ‘‘Credit 

derivative’’, ‘‘Forward agreement’’, 

‘‘Multilateral development bank’’, 

‘‘Non-security beneficial interest’’ 

‘‘Repurchase transaction,’’ ‘‘Trading 

assets’’, ‘‘Trading liabilities’’, and 

‘‘Unconditionally cancelable’’, in 

alphabetical order, to read as follows: 

§ 702.2 Definitions. 

* * * * * 

CCULR means the complex credit 

union leverage ratio. It is calculated in 

the same manner as the net worth ratio 

under § 702.2. 

* * * * * 

Consumer loan means a loan or lease 

for household, family, or other personal 

expenditures, including any loans or 

leases that, at origination, are wholly or 

substantially secured by vehicles 

generally manufactured for personal, 

family, or household use regardless of 

the purpose of the loan or lease. 

Consumer loan excludes commercial 

loans, loans to CUSOs, first- and juniorlien residential real estate loans, and 

loans for the purchase of one or more 

vehicles to be part of a fleet of vehicles. 

* * * * * 

Credit derivative means a financial 

contract executed under standard 

industry credit derivative 

documentation that allows one party 

(the protection purchaser) to transfer the 

credit risk of one or more exposures 

(reference exposure(s)) to another party 

(the protection provider) for a certain 

period of time. 

* * * * * 

Current means, with respect to any 

loan or lease, that the loan or lease is 

less than 90 days past due, not placed 

on non-accrual status, and not 

restructured. 

* * * * * 

Derivative contract means a financial 

contract that derives its value from the 

value and performance of some other 

underlying financial instrument or 

variable, such as an index or interest 

rate. 

Derivatives Clearing Organization has 

the meaning as defined by the 

Commodity Futures Trading 

Commission (CFTC) in 17 CFR 1.3. 

* * * * * 

Forward agreement means a legally 

binding contractual obligation to 

purchase assets with certain drawdown 

at a specified future date, not including 

commitments to make residential 

mortgage loans or forward foreign 

exchange contracts. 

* * * * * 

Multilateral development bank (MDB) 

means the International Bank for 

Reconstruction and Development, the 

Multilateral Investment Guarantee 

Agency, the International Finance 

Corporation, the Inter-American 

Development Bank, the Asian 

Development Bank, the African 

Development Bank, the European Bank 

for Reconstruction and Development, 

the European Investment Bank, the 

European Investment Fund, the Nordic 

Investment Bank, the Caribbean 

Development Bank, the Islamic 

Development Bank, the Council of 

Europe Development Bank, and any 

other multilateral lending institution or 

regional development bank in which the 

U.S. government is a shareholder or 

contributing member. 

* * * * * 


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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 45851 

Non-security beneficial interest is 

defined as the residual equity interest in 

the Special Purpose Entity (SPE) that 

represents a right to receive possible 

future payments after specified payment 

amounts are made to third-party 

investors in the securitized receivables. 

For purposes of this definition, a SPE 

means a trust, bankruptcy remote entity 

or other special purpose entity which is 

wholly owned, directly or indirectly, by 

the credit union and which is formed 

for the purpose of, and engages in no 

material business other than, acting as 

an issuer or a depositor in a 

securitization. 

* * * * * 

Off-balance sheet exposure mean: 

(1) For unfunded commitments, 

excluding unconditionally cancellable 

commitments, the remaining unfunded 

portion of the contractual agreement. 

(2) For loans transferred with limited 

recourse, or other seller-provided credit 

enhancements, and that qualify for true 

sales accounting, the maximum 

contractual amount the credit union is 

exposed to according to the agreement, 

net of any related valuation allowance. 

(3) For loans transferred under the 

Federal Home Loan Bank (FHLB) 

mortgage partnership finance program, 

the outstanding loan balance as of the 

reporting date, net of any related 

valuation allowance. 

(4) For financial standby letters of 

credit, the total potential exposure of 

the credit union under the contractual 

agreement. 

(5) For forward agreements that are 

not derivative contracts, the future 

contractual obligation amount. 

(6) For sold credit protection through 

guarantees and credit derivatives, the 

total potential exposure of the credit 

union under the contractual agreement. 

(7) For off-balance sheet securitization 

exposures, the notional amount of the 

off-balance sheet credit exposure 

(including any credit enhancements, 

representations, or warranties that 

obligate a credit union to protect 

another party from losses arising from 

the credit risk of the underlying 

exposures) that arises from a 

securitization. 

(8) For securities borrowing or 

lending transactions, the amount of all 

securities borrowed or lent against 

collateral or on an uncollateralized 

basis. 

Off-balance sheet items mean offbalance sheet exposures and the offbalance sheet exposure amount of 

repurchase transactions. 

* * * * * 

Repurchase transactions mean either 

a transaction in which a credit union 

agrees to sell a security to a 

counterparty and to repurchase the 

same or an identical security from that 

counterparty at a specified future date 

and at a specified price or a transaction 

in which an investor agrees to purchase 

a security from a counterparty and to 

resell the same or an identical security 

to that counterparty at a specified future 

date and at a specified price. The offbalance sheet exposure amount for a 

repurchase transaction equals all of the 

positions the credit union has sold or 

bought subject to repurchase or resale, 

which equals the sum of the current fair 

values of all such positions. 

* * * * * 

Swap Dealer has the meaning as 

defined by the CFTC in 17 CFR 1.3. 

* * * * * 

Trading assets means securities or 

other assets acquired, not including 

loans originated by the credit union, for 

the purpose of selling in the near term 

or otherwise with the intent to resell in 

order to profit from short-term price 

movements. Trading assets would not 

include shares of a registered 

investment company or a collective 

investment fund used for liquidity 

purposes. 

Trading liabilities means the total 

liability for short positions of securities 

or other liabilities held for trading 

purposes. 

* * * * * 

Unconditionally cancelable means 

with respect to a commitment, that a 

credit union may, at any time, with or 

without cause, refuse to extend credit 

under the commitment (to the extent 

permitted under applicable law). 

* * * * * 

■ 3. In § 702.101, revise paragraph (a)(2) 

to read as follows: 

§ 702.101 Capital measures, capital 

adequacy, effective date of classification, 

and notice to NCUA. 

(a) * * * 

(2) If determined to be applicable 

under § 702.103, either the risk-based 

capital ratio under § 702.104(a) through 

(c) or the CCULR framework under 

§ 702.104(d). 

* * * * * 

■ 4. In § 702.102, revise paragraph 

(a)(1)(i) and (ii), and Table 1 to read as 

follows: 

§ 702.102 Capital classification. 

(a) * * * 

(1) * * * 

(i)(A) Net worth ratio. The credit 

union has a net worth ratio of 7.0 

percent or greater; and 

(B) Risk-based capital ratio. The 

credit union, if complex, has a riskbased capital ratio of 10 percent or 

greater; or 

(ii) Complex credit union leverage 

ratio. (A) The complex credit union is 

a qualifying complex credit union that 

has opted into the CCULR framework 

under § 702.104(d) and it has a CCULR 

of 10 percent or greater, subject to any 

applicable transition provisions in 

§ 702.104(d)(8); or 

(B) The complex credit union is a 

qualifying complex credit union that 

has opted into the CCULR framework 

under § 702.104(d), is in the grace 

period, as defined in § 702.104(d)(7), 

and has a CCULR of 7 percent or greater. 

* * * * * 

TABLE 1 TO § 702.102—CAPITAL CATERGORIES

Capital classification Net worth ratio Risk-based capital 

ratio, if applicable 

CCULR, if applicable And subject to following condition(s) 

. . . 

Well Capitalized ...... 7% or greater ....... And ... 10% or greater ..... Or ...... 10% or greater *.

Adequately Capitalized.6% or greater ....... And ... 8% or greater ....... Or ...... N/A ........................ And does not meet the criteria to be 

classified as well capitalized. 

Undercapitalized ..... 4% to 5.99% ......... Or ...... Less than 8% ....... Or ...... N/A 

Significantly Undercapitalized.2% to 3.99% ......... ........... N/A ........................ ........... N/A ........................ Or if ‘‘undercapitalized at <5% net 

worth and (a) fails to timely submit, 

(b) fails to materially implement, or 

(c) receives notice of the rejection 

of a net worth restoration plan. 


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45852 Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 

TABLE 1 TO § 702.102—CAPITAL CATERGORIES—Continued 

Capital classification Net worth ratio Risk-based capital 

ratio, if applicable 

CCULR, if applicable And subject to following condition(s) 

. . . 

Critically Undercapitalized.Less than 2% ....... ........... N/A ........................ ........... N/A 

* A qualifying complex credit union opting into the CCULR framework should refer to 12 CFR 702.104(d)(7) if its CCULR falls below 10 percent 

and 12 CFR 702.104(d)(8) if the transition provisions are applicable. 

* * * * * 

■ 5. Revise § 702.103 to read as follows: 

§ 702.103 Applicability of risk-based 

capital measures. 

For purposes of § 702.102, a credit 

union is defined as ‘‘complex’’ and a 

risk-based capital measure is applicable 

only if the credit union’s quarter-end 

total assets exceed five hundred million 

dollars ($500,000,000), as reflected in its 

most recent Call Report. A complex 

credit union may calculate its risk-based 

capital measure either by using the riskbased capital ratio under § 702.104(a) 

through (c), or, for a qualifying complex 

credit union opting into the CCULR 

framework, by using the CCULR 

framework under § 702.104(d). 

■ 6. In § 702.104: 

■ a. Revise the introductory text; 

■ b. Remove ‘‘; and’’ in paragraph 

(b)(2)(iii) and add in its place a 

semicolon, remove the period at the end 

of paragraph (b)(2)(iv) and add in its 

place ‘‘; and’’, and add paragraph 

(b)(2)(v); 

■ c. Add paragraphs (c)(2)(i)(B)(3) and 

(c)(2)(i)(D); 

■ d. Revise paragraphs (c)(2)(vii) and 

(x); 

■ e. Revise paragraph (c)(4) introductory 

text; 

■ f. Redesignate paragraphs (c)(4)(iii)(A) 

through (E) as (c)(4)(iii)(B) through (F) 

and add new paragraph (c)(4)(iii)(A); 

■ g. Add paragraphs (c)(4)(iv) through 

(x); and 

■ h. Add paragraphs (c)(6), (d), and (e). 

The revisions and additions read as 

follows: 

§ 702.104 Risk-based capital ratio. 

A complex credit union must 

calculate its risk-based capital measure 

in accordance with this section. A 

complex credit union may calculate its 

risk-based capital measure either by 

using the risk-based capital ratio under 

paragraphs (a) through (c) of this 

section, or, for a qualifying complex 

credit union opting into the CCULR 

framework, by using the CCULR 

framework under paragraph (d) of this 

section. 

* * * * * 

(b) * * * 

(2) * * * 

(v) Mortgage servicing assets that 

exceed 25 percent of the sum of the 

capital elements in paragraph (b)(1) of 

this section, less deductions required 

under paragraphs (b)(2)(i) thorough (iv) 

of this section. 

(c) * * * 

(2) * * * 

(i) * * * 

(B) * * * 

(3) An obligation of the Bank for 

International Settlements, the European 

Central Bank, the European 

Commission, the International Monetary 

Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, or an MDB. 

* * * * * 

(D) Covered loans issued under the 

Small Business Administration’s 

Paycheck Protection Program, 15 U.S.C. 

636(a)(36). 

* * * * * 

(vii) Category 7—250 percent risk 

weight. A credit union must assign a 

250 percent risk weight to the carrying 

value of mortgage servicing assets not 

deducted from the risk-based capital 

numerator pursuant to § 702.104(b). 

* * * * * 

(x) Category 10—1,250 percent risk 

weight. A credit union must assign a 

1,250 percent risk weight to the 

exposure amount of any subordinated 

tranche of any investment, with the 

option to use the gross-up approach in 

paragraph (c)(3)(iii)(A) of this section. 

However, a credit union may not use the 

gross-up approach for non-security 

beneficial interests. 

* * * * * 

(4) Risk weights for off-balance sheet 

items. The risk weighted amounts for all 

off-balance sheet items are determined 

by multiplying the off-balance sheet 

exposure amount by the appropriate 

CCF and the assigned risk weight as 

follows: 

* * * * * 

(iii) * * * 

(A) For a commitment that is 

unconditionally cancelable, a 0 percent 

CCF. 

* * * * * 

(iv) For financial standby letter of 

credits, a 100 percent CCF and a 100 

percent risk weight. 

(v) For forward agreements that are 

not derivative contracts, a 100 percent 

CCF and a 100 percent risk weight. 

(vi) For sold credit protection through 

guarantees and credit derivatives, a 100 

percent CCF and a 100 percent risk 

weight for guarantees; for credit 

derivatives the risk weight is 

determined by the applicable provisions 

of 12 CFR 324.34 or 324.35. 

(vii) For off-balance sheet 

securitization exposures, a 100 percent 

CCF, and the risk weight is determined 

as if the exposure is an on-balance sheet 

securitization exposure. 

(viii) For securities borrowing or 

lending transactions, a 100 percent CCF 

and a 100 percent risk weight. A credit 

union may recognize the credit risk 

mitigation benefits of financial 

collateral, as defined under 12 CFR 

324.2, by risk weighting the 

collateralized portion of the exposure 

under the applicable provisions of 12 

CFR 324.35 or 324.37. 

(ix) For the off-balance sheet portion 

of repurchase transactions, a 100 

percent CCF and a 100 percent risk 

weight. A credit union may recognize 

the credit risk mitigation benefits of 

financial collateral, as defined by 12 

CFR 324.2, by risk weighting the 

collateralized portion of the exposure 

under the applicable provisions of 12 

CFR 324.35 or 324.37. 

(x) For all other off-balance sheet 

exposures not explicitly provided a CCF 

or risk weight in this paragraph (c) that 

meet the definition of a commitment, a 

100 percent CCF and a 100 percent risk 

weight. 

* * * * * 

(6) Asset Securitizations Issued by 

Complex Credit Unions. A credit union 

must follow the requirements of the 

applicable provisions of 12 CFR 324.41 

when it transfers exposures in 

connection with a securitization. A 

credit union may only exclude the 

transferred exposures from the 

calculation of its risk-weighted assets if 

each condition in 12 CFR 324.41 is 

satisfied. A credit union that meets 

these conditions, but retains any credit 

risk for the transferred exposures, must 

hold risk-based capital against the credit 

risk it retains in connection with the 

securitization. 


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I I I I 
Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 45853 

(d) Complex Credit Union Leverage 

Ratio (CCULR) Framework. (1) General. 

A qualifying complex credit union that 

has opted into the CCULR framework 

under paragraph (d)(5) of this section is 

considered to have met the capital ratio 

requirements for the well capitalized 

capital category under § 702.102(a)(1) if 

it has a CCULR of 10 percent or greater, 

subject to the transition provisions in 

paragraph (d)(8) of this section. 

(2) Qualifying Complex Credit Union. 

For purposes of this part, a qualifying 

complex credit union means a complex 

credit union under § 702.103 that 

satisfies all of the following criteria: 

(i) Has a CCULR of 10 percent or 

greater, subject to the transition 

provisions in paragraph (d)(8) of this 

section; 

(ii) Has total off-balance sheet 

exposures of 25 percent or less of its 

total assets; 

(iii) Has the sum of total trading assets 

and total trading liabilities of 5 percent 

or less of its total assets; and 

(iv) Has the sum of total goodwill, 

including goodwill that meets the 

definition of excluded goodwill, and 

total other intangible assets, including 

intangible assets that meet the definition 

of excluded other intangible assets, of 2 

percent or less of its total assets. 

(3) Calculation of Qualifying Criteria. 

Each of the qualifying criteria in 

paragraph (d)(2) of this section is 

calculated based on data reported in the 

Call Report as of the end of the most 

recent calendar quarter. 

(4) Calculation of the CCULR. A 

qualifying complex credit union opting 

into the CCULR framework under this 

paragraph (d) calculates its CCULR in 

the same manner as its net worth ratio 

under § 702.2. 

(5) Opting into the CCULR 

Framework. (i) A qualifying complex 

credit union may opt into the CCULR 

framework by completing the applicable 

reporting requirements of its Call 

Report. 

(ii) A qualifying complex credit union 

can opt into the CCULR framework at 

the end of each calendar quarter. 

(6) Opting Out of the CCULR 

Framework. (i) A qualifying complex 

credit union may voluntarily opt out of 

the framework with prior written 

notification to the appropriate Regional 

Director or the Director of the Office of 

National Examinations and Supervision. 

(ii) The notification must be 

submitted at least 30 days before the 

end of the calendar quarter that the 

credit union will report its risk-based 

capital ratio under paragraphs (a) 

through (c) of this section. 

(iii) The notification must include: 

(A) A statement of intent explaining 

why the qualifying complex credit 

union is opting out of the CCULR 

framework. 

(B) A copy of board meeting minutes 

showing that the credit union’s board of 

directors was notified of the CCULR 

framework opt out election. 

(C) The calendar quarter that the 

qualifying complex credit union will 

begin calculating its risk-based capital 

ratio under paragraphs (a) through (c) of 

this section. The earliest a complex 

credit union may begin calculating a 

risk-based capital ratio is the calendar 

quarter it submits its notification. 

(D) A risk-based capital ratio 

calculation Call Report schedule that 

includes the required information for a 

complex credit union calculating its 

risk-based capital ratio under 

paragraphs (a) through (c) of this 

section. The data must be as of the end 

of the most recent calendar quarter. 

(7) Treatment when ceasing to meet 

the qualifying complex credit union 

requirements. (i) If a qualifying complex 

credit union that has opted into the 

CCULR framework ceases to meet the 

qualifying criteria in paragraph (d)(2) of 

this section, the credit union has two 

calendar quarters (grace period) either to 

satisfy the requirements to be a 

qualifying complex credit union or to 

calculate its risk-based capital ratio 

under paragraphs (a) through (c) of this 

section. 

(ii) The grace period begins at the end 

of the calendar quarter in which the 

credit union no longer satisfies the 

criteria to be a qualifying complex credit 

union. The grace period ends on the last 

day of the second consecutive calendar 

quarter following the beginning of the 

grace period. 

(iii) During the grace period, the 

credit union continues to be treated as 

a qualifying complex credit union for 

the purpose of this part and must 

continue calculating and reporting its 

CCULR, unless the qualifying complex 

credit union has opted out of using the 

CCULR framework under paragraph 

(d)(6) of this section. The qualifying 

complex credit union also continues to 

be considered to have met the capital 

ratio requirements for the well 

capitalized capital category under 

§ 702.102(a)(1). However, if the 

qualifying complex credit union has a 

CCULR of less than seven percent it will 

not be considered to have met the 

capital ratio requirements for the well 

capitalized capital category under 

§ 702.102(a)(1) and its capital 

classification is determined by its net 

worth ratio. 

(iv)(A) A qualifying complex credit 

union that is likely to not meet the 

requirements to be a qualifying complex 

credit union by the end of the grace 

period must submit written notification 

to the appropriate Regional Director or 

the Director of the Office of National 

Examinations and Supervision. The 

notification must be submitted at least 

30 days before the end of the grace 

period and state that the credit union 

may cease to meet the requirements to 

be a qualifying complex credit union. 

(B) The notification must provide the 

reason for the potential disqualification. 

(C) The notification must include a 

copy of the board meeting minutes 

showing that the credit union’s board of 

directors was notified that the credit 

union might cease to meet the 

qualifying complex credit union 

requirements. 

(D) The notification must include a 

risk-based capital ratio calculation Call 

Report schedule that includes the 

required information for a credit union 

calculating its risk-based capital ratio 

under paragraphs (a) through (c) of this 

section. The data must be as of the end 

of the most recent calendar quarter. 

(v) A qualifying complex credit union 

that ceases to meet the qualifying 

criteria in paragraph (d)(2) of this 

section as a result of a merger or 

acquisition has no grace period and 

must comply with the risk-based capital 

ratio under paragraphs (a) through (c) of 

this section in the quarter it ceases to be 

a qualifying complex credit union. 

(8) Transition Provisions. (i) From 

January 1, 2022, to December 31, 2022, 

a complex credit union that has opted 

into the CCULR framework under 

paragraph (d)(5) of this section, must 

have a CCULR of 9 percent or greater. 

(ii) From January 1, 2023, to 

December 31, 2023, a complex credit 

union that has opted into the CCULR 

framework under paragraph (d)(5) of 

this section, must have a CCULR of 9.5 

percent or greater. 

(iii) After January 1, 2024, a complex 

credit union that has opted into the 

CCULR framework under paragraph 

(d)(5) of this section, must have a 

CCULR of 10 percent or greater. 

(e) Reservation of Authority. The 

NCUA may require a complex credit 

union that otherwise would meet the 

definition of a qualifying complex credit 

union to comply with the risk-based 

capital ratio under paragraphs (a) 

through (c) of this section if the NCUA 

determines that the complex credit 

union’s capital requirements under 

paragraph (d) of this section are not 

commensurate with its risks. Any credit 

union required to comply with the riskbased capital ratio under this paragraph 

(e), would be permitted a minimum of 

a two-quarter grace period before being 


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45854 Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules 

subject to risk-based capital 

requirements. 

§ 702.111 [Amended] 

■ 7. In § 702.111, amend paragraph 

(c)(1)(i) by removing ‘‘risk-based capital 

ratio’’ and adding in its place ‘‘riskbased capital measure’’. 

PART 703—INVESTMENT AND 

DEPOSIT ACTIVITIES 

■ 8. The authority citation for part 703 

continues to read as follows: 

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

1757(15). 

§ 703.2 [Amended] 

■ 9. In § 703.2, amend the definition of 

‘‘Net worth’’ by removing ‘‘§ 702.2(f) ’’ 

and adding in its place ‘‘§ 702.2’’. 

§ 703.13 [Amended] 

■ 11. In § 703.13, revise paragraph 

(d)(3)(iii) by removing ‘‘net worth 

classification’’ and adding in its place 

‘‘capital classifications’’ and removing 

‘‘or, if subject to a risk-based net worth 

(RBNW) requirement under part 702 of 

this chapter, has remained ‘‘well 

capitalized’’ for the six (6) immediately 

preceding quarters after applying the 

applicable RBNW requirement’’. 

[FR Doc. 2021–15965 Filed 8–13–21; 8:45 am] 

BILLING CODE 7535–01–P 


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