Final Rule CCULR-RBC 86 FR 72784

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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations

Commission has promulgated to
implement the Federal Election
Campaign Act, 52 U.S.C. 30101 through
45 (‘‘FECA’’). The Commission is
promulgating these corrections without
advance notice or an opportunity for
comment because they fall under the
‘‘good cause’’ exemption of the
Administrative Procedure Act (‘‘APA’’).
5 U.S.C. 553(b)(B) The Commission
finds that notice and comment are
unnecessary here because these
corrections are merely typographical
and technical; they effect no substantive
changes to any rule. For the same
reason, these corrections fall within the
‘‘good cause’’ exception to the delayed
effective date provisions of the APA and
the Congressional Review Act. 5 U.S.C.
553(d)(3) and 808(2).
Moreover, because these corrections
are exempt from the notice and
comment procedure of the APA under 5
U.S.C. 553(b), the Commission is not
required to conduct a regulatory
flexibility analysis under 5 U.S.C. 603 or
604. See 5 U.S.C. 601(2) and 604(a). Nor
is the Commission required to submit
these revisions for congressional review
under FECA, the Presidential Election
Campaign Fund Act, 26 U.S.C. 9001
through 13, or the Presidential Primary
Matching Payment Account Act, 26
U.S.C. 9031 through 42. See 52 U.S.C.
30111(d)(1) and (4) (providing for
congressional review when Commission
‘‘prescribe[s]’’ a ‘‘rule of law’’); 26
U.S.C. 9009(c)(1) and (4), 9039(c)(1) and
(4) (same). Accordingly, these
corrections are effective upon
publication in the Federal Register.
Corrections to FECA Rules in Chapter
I of Title 11 of the Code of Federal
Regulations

citation for the definition of ‘‘personal
loans.’’ The correct definition is located
at § 116.11(a).
List of Subjects

Privacy.
11 CFR Part 104

[FR Doc. 2021–27885 Filed 12–22–21; 8:45 am]

Campaign funds, Political committees
and parties, Reporting and
recordkeeping requirements.

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B. Correction to 11 CFR 104.2

Campaign funds, Political committees
and parties.
For the reasons set out in the
preamble, the Federal Election
Commission amends 11 CFR chapter I
as follows:
PART 1—PRIVACY ACT
1. The authority citation for part 1
continues to read as follows:

C. Correction to 11 CFR 110.1
The Commission is revising paragraph
(b)(3)(ii)(C) of this section because it
erroneously refers to § 116.11(b) as the

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2. Amend § 1.2 by revising the
definition of ‘‘Commission’’ to read as
follows:

■

Definitions.

*

*
*
*
*
Commission means the Federal
Election Commission, its
Commissioners, and employees. The
Commission is located at 1050 First
Street NE, Washington, DC 20463. The
Commission’s website is www.fec.gov.
*
*
*
*
*
PART 104—REPORTS BY POLITICAL
COMMITTEES AND OTHER PERSONS
(52 U.S.C. 30104)
3. The authority citation for part 104
continues to read as follows:

■

Authority: 52 U.S.C. 30101(1), 30101(8),
30101(9), 30102(g) and (i), 30104, 30111(a)(8)
and (b), 30114, 30116, 36 U.S.C. 510.
[Amended]

4. Amend § 104.2(b) by adding
‘‘https://www.fec.gov/help-candidatesand-committees/forms/ or at’’ before the
words ‘‘the street address identified’’.
PART—110 CONTRIBUTION AND
EXPENDITURE LIMITATIONS AND
PROHIBITIONS
5. The authority citation for part 110
continues to read as follows:

■

Authority: 52 U.S.C. 30101(8), 30101(9),
30102(c)(2) and (g), 30104(i)(3), 30111(a)(8),
30116, 30118, 30120, 30121, 30122, 30123,
30124, and 36 U.S.C. 510.

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RIN 3133–AF12

Capital Adequacy: The Complex Credit
Union Leverage Ratio; Risk-Based
Capital
National Credit Union
Administration (NCUA).
ACTION: Final rule.
This final rule provides a
simplified measure of capital adequacy
for federally insured, natural-person
credit unions (credit unions) classified
as complex (those with total assets
greater than $500 million). Under the
final rule, a complex credit union that
maintains a minimum net worth ratio,
and that meets other qualifying criteria,
is eligible to opt into the complex credit
union leverage ratio (CCULR)
framework if they have a minimum net
worth ratio of nine percent. A complex
credit union that opts into the CCULR
framework need not calculate a riskbased capital ratio under the NCUA
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 maintains the minimum
net worth ratio is considered well
capitalized. The final rule also makes
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 offbalance sheet exposures, deducting
certain mortgage servicing assets from a
complex credit union’s risk-based
capital numerator, revising the
treatment of goodwill, and amending
other asset risk weights.
DATES: The final rule is effective January
1, 2022.
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) 548–2601 or Ariel
SUMMARY:

Authority: 5 U.S.C. 552a.

■

Most filers now utilize electronic
filing rather than paper forms to submit
reports to the Commission. Accordingly,
the Commission is revising this section
to add that forms may be obtained
electronically from the Commission’s
website as well as in paper format at the
updated street address identified in the
definition of ‘‘Commission’’ at § 1.2.

12 CFR Parts 702 and 703

AGENCY:

■

§ 104.2

BILLING CODE 6715–01–P

NATIONAL CREDIT UNION
ADMINISTRATION

11 CFR Part 110

A. Correction to 11 CFR 1.2
In 2018, the Commission relocated to
a new building with a different street
address. The Commission is updating
this section by removing references to
the relocation and the Commission’s
prior address.

[Amended]

6. Amend § 110.1(b)(3)(ii)(C) by
removing ‘‘116.11(b)’’ and adding in its
place ‘‘116.11(a)’’.

■

Dated: December 20, 2021.
On behalf of the Commission,
Ellen L. Weintraub,
Commissioner, Federal Election Commission.

11 CFR Part 1

§ 1.2

§ 110.1

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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
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
IV. Final 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 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. Amendments to the 2015 Final Rule
M. Technical Amendments
N. Other Comments Beyond the Scope of
the Proposed Rule
V. 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
E. Small Business Regulatory Enforcement
Fairness Act
F. Administrative Procedure Act

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I. Background
A. The NCUA’S Risk-Based Capital
Requirements
The NCUA ensures the safety and
soundness of federally insured credit
unions (FICUs) by examining and
supervising federally chartered credit
unions (FCUs); participating in the
examination and supervision of
federally insured, state-chartered credit
unions in coordination with state
regulators; and insuring members’
accounts at all FICUs up to the
statutorily prescribed limits.
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

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institution. Capital levels commensurate
with risk 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 provide
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. On October
29, 2015, as amended on October 18,
2018, the NCUA Board (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 highrisk 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 capitalizing
and replenishing losses to the NCUSIF.2
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, consistent with the
FCUA, and more comparable to the riskbased 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 2013.3
1 80 FR 66626 (Oct. 29, 2015). See also, 83 FR
55467 (Oct. 18, 2018).
2 See 12 U.S.C. 1782(c). The FCUA requires each
insured credit union to pay an insurance premium
equal to a percentage of the credit union’s insured
shares when the Board, subject to statutory
parameters, assesses a premium. 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 funds are available to pay share
insurance claims, to aid 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).
3 The Federal Reserve Board and OCC issued a
joint final rule on October 11, 2013 (78 FR 62018),

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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).4 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).5 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 enabled the Board to
holistically and comprehensively
evaluate the NCUA’s capital standards
for credit unions.6 Among the items
highlighted by the Board for possible
consideration during the delay were
adoption of a community bank leverage
ratio (CBLR) analogue, the treatment of
asset securitizations issued by credit
unions, finalization of the Subordinated
Debt rule and implementation of the
current expected credit loss (CECL)
standard.7
B. The Other Banking Agencies’ RiskBased Capital and CBLR Framework
As discussed in the proposed rule, the
other banking agencies adopted in 2013
a revised risk-based capital rule, which
was designed to strengthen their capital
requirements and improve risk
sensitivity.
In 2018, section 201 of the Economic
Growth, Regulatory Relief, and
Consumer Protection Act directed the
other banking agencies to propose a
simplified, alternative measure of
capital adequacy for certain federally
insured banks.8 On November 13, 2019,
the other banking agencies issued a final
rule implementing this statutory
directive (CBLR Final Rule).9
Under the CBLR Final Rule, the CBLR
framework is an option for depository
institutions and depository institution
holding companies that meet the
following criteria:
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.
4 83 FR 55467 (Nov. 6, 2018).
5 84 FR 68781 (Dec. 17, 2019).
6 Id. at 68782.
7 Id.
8 Public Law 115–174 (May 24, 2018). Section 201
is codified at 12 U.S.C. 5371 note.
9 84 FR 61776 (Nov. 13, 2019).

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(1) A CBLR greater than nine
percent; 10
(2) Total consolidated assets of less
than $10 billion; 11
(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).
In March 2020, the CBLR was
temporarily set to eight percent by
statute.12 Accordingly, effective the
second quarter of 2020, the CBLR
requirement was eight percent or
greater.13 In early 2021, the CBLR
requirement was increased to 8.5
percent or greater. During the grace
period, the minimum requirement is 7.5
percent.14 Effective January 1, 2022, the
CBLR requirement will return to nine
percent and the minimum requirement
during the grace period will return to
eight percent.

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C. The NCUA’s Advance Notice of
Proposed Rulemaking
At its January 14, 2021 meeting, the
Board issued an advance notice of
proposed rulemaking and solicited
comments on two approaches to
simplify the 2015 Final Rule.15 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.
Almost all commenters who favored the
CCULR framework noted that its
flexibility is attributable to the option
complex credit unions have in
calculating the more complex risk-based
10 Under 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 on January 1, 2022. See, 85 FR 22930
(Apr. 23, 2020).
11 See, 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.
12 Public Law 116–136.
13 See, 85 FR 22924 (Apr. 23, 2020).
14 See, 85 FR 22930 (Apr. 23, 2020). The grace
period is the two-calendar quarter period a
depository institution or depository institution
holding company has to satisfy the requirements to
be a qualifying institution or to calculate a riskbased capital ratio.
15 See, 86 FR 13498 (March 9, 2021).

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capital measure, which produces a more
precise, and generally lower, overall
capital requirement. A few commenters
also stated that a benefit of the CCULR
framework is its similarity to the capital
framework of the other banking
agencies.
II. Legal Authority
This final rule provides a simple
measure of capital adequacy for credit
unions classified as complex based on
the principles of the CBLR framework.
The CCULR relieves complex credit
unions that meet specified qualifying
criteria from having to calculate the
risk-based capital ratio.16 In exchange,
the credit union is required to maintain
a higher net worth ratio than is
otherwise required for the wellcapitalized classification. This trade-off
is akin to the decision qualifying
community banks make under the
CBLR. A qualifying complex credit
union that has a net worth ratio of nine
percent or greater is eligible to opt into
the CCULR framework.
The Board received no comments on
its legal authority to issue the final rule
and thus affirms its conclusions and
interpretations in the proposed rule.
The Board is issuing this final rule
pursuant to its authority under the
FCUA. 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.17 Section 207 of the FCUA is
a specific grant of authority over share
insurance coverage, conservatorships,
and liquidations.18 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.19 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 expressly grants
authority for the Board to develop
capital adequacy standards for credit
unions. In 1998, Congress enacted the
Credit Union Membership Access Act
(CUMAA).20 Section 301 of CUMAA
added section 216 to the FCUA,21 which
required the Board to adopt by
regulation a system of prompt corrective
action (PCA) to resolve the problems of
16 See Section IV.B. Qualifying Credit Unions for
more information on the qualifying criteria.
17 12 U.S.C. 1766(a).
18 12 U.S.C. 1787(b)(1).
19 12 U.S.C. 1789(a)(11).
20 Public Law 105–219, 112 Stat. 913 (1998).
21 12 U.S.C. 1790d.

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insured credit unions when the net
worth of credit unions declines below
certain levels.22 Section 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 Federal Deposit Insurance Act
(FDI Act).23 Section 216(b)(1)(B)
requires that the Board, in designing the
PCA system, also consider the
‘‘cooperative character of credit
unions’’.24 The Board initially
implemented the required system of
PCA in 2000,25 primarily in part 702. As
discussed previously, the Board 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.26 Section 216(o) generally
defines a credit union’s net worth as its
retained earnings balance as determined
under generally accepted accounting
principles (GAAP); 27 and a credit
union’s net worth ratio as the ratio of its
net worth to its total assets.28 As a credit
union’s net worth ratio declines, so does
22 The risk-based net worth requirement for credit
unions meeting the definition of complex was first
applied based on 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 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).
23 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 FCUA
requires the Board to adopt a PCA framework
comparable to the PCA framework in the FDI Act.
The FCUA, 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.’’
24 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. 12 U.S.C. 1790d(b)(1)(B).
25 12 CFR part 702; see also 65 FR 8584 (Feb. 18,
2000) and 65 FR 44950 (July 20, 2000).
26 12 U.S.C. 1790d(c).
27 12 U.S.C. 1790d(o)(2).
28 12 U.S.C. 1790d(o)(3).

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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
its classification among the five net
worth categories, thus subjecting it to an
expanding range of mandatory and
discretionary supervisory actions.29
Section 216(d)(1) of the FCUA
requires the NCUA’s system of PCA
include, besides the statutorily defined
net worth ratio requirement, ‘‘a riskbased net worth 30 requirement for
credit unions that are complex, as
defined by the Board.’’ 31 The FCUA
directs the NCUA to base its definition
of complex credit unions ‘‘on the
portfolios of assets and liabilities of
credit unions.’’ 32 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. Besides granting
the NCUA broad authority to determine
which credit unions are complex, and
thus subject to a risk-based net worth
requirement, the FCUA also grants the
NCUA broad authority to design a riskbased net worth requirement to apply to
such complex credit unions.33
Specifically, unlike the terms ‘‘net
worth’’ and ‘‘net worth ratio,’’ the term
‘‘risk-based net worth’’ is undefined 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 FCUA requirements.
The CCULR framework is comparable
to section 38 of the FDI Act, as
implemented by CBLR Final Rule.34 As
discussed previously, section 201 of the
Economic Growth, Regulatory Relief,
and Consumer Protection Act 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
29 12

U.S.C. 1790d(c)–(g); 12 CFR 702.204(a)–(b).
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 final rule
would have no substantive effect on the
requirements of the FCUA and is intended only to
reduce confusion for the reader.
31 12 U.S.C. 1790d(d)(1).
32 12 U.S.C. 1790d(d).
33 Id.
34 12 CFR part 3 (OCC), 12 CFR part 217 (Federal
Reserve Board), and 12 CFR part 324 (FDIC).

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insured banks.35 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.
Besides satisfying the comparability
requirement in section 216, the CCULR
framework also meets the requirements
in section 216 of the FCUA 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.36
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.37 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
35 12

U.S.C. 5371.
Board also briefly considered an additional
independent legal basis for the CCULR framework.
As discussed in the section III.D. Calibration of the
CCULR, the CCULR framework results in complex
credit unions generally holding more capital than
under the 2015 Final Rule. Because of the higher
capital requirements under the CCULR framework,
the Board also considered whether the framework
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. Considering the express statutory
authority to define complex and design a risk-based
net worth framework, however, the Board believes
this alternative basis, while valid, is unnecessary to
support the final rule.
37 When 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)).
36 The

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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
products and services provided by
credit unions.38 The complexity index
demonstrated that credit unions with
greater than $500 million in total assets
held more complex assets and liabilities
as a larger share of their total assets than
smaller credit unions.39
The Board, however, could also have
drafted a definition of complex that
looks at the individual portfolios of
credit unions with total assets greater
than $500 million rather than examining
the assets and liabilities of credit unions
in the aggregate. 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 have used the same qualifying
criteria as in the final rule as measures
of complexity. If a credit union would
otherwise meet the definition of a
qualifying credit union, it would be
considered not complex. Thus, it would
not be subject to risk-based capital, as
implemented by the 2015 Final Rule.
This alternative approach would have
created a functionally equivalent
requirement to the one set forth in this
final 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
noted previously, the FCUA does not
define the term ‘‘risk-based net worth
requirement’’ and sets forth only 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.
38 Supra

note 4 at 55470.

39 Id.

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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 factor 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 section 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 the risk-based
net worth requirement include riskadjusted assets as part of its
calculation.40 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.41 Thus,
if the Board determines that the CCULR
considers all material risks not
addressed by the six percent net worth
ratio, then the Board has satisfied the
statutory requirements for a risk-based
net worth ratio.42
40 Case 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.
41 By 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.
42 Similarly, the Board initially explored a nonrisk-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 riskbased 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

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The Board believes that either the
complex-based approach or the riskbased approach to designing the CCULR
framework are supported by the FCUA.
The Board, however, chose to draft the
final 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
The Board issued the proposed rule to
provide a simplified measure of capital
adequacy for complex credit unions at
its July 22, 2021, meeting.43 The
proposed rule provided for a 60-day
comment period that ended on October
15, 2021. The Board received 21
comments from credit unions, both state
and federal; credit union leagues and
trade associations; a banking trade
organization; individuals; and an
association of state credit union
supervisors. Many of the commenters
supported the goal of providing a
simplified, alternative measure of
capital adequacy for certain highly
capitalized complex credit unions. Most
commenters, however, expressed some
concerns about specific aspects of the
proposal. The final rule and a
discussion of the Board’s responses to
the comments are discussed in the
following sections.
IV. Final Rule
A. Overview of the CCULR Framework
The final rule provides a simplified
measure of capital adequacy for credit
unions classified as complex (credit
unions with total assets greater than
$500 million). Under the final rule, a
qualifying complex credit union that
meets the minimum CCULR, which is
equal to its net worth ratio, is eligible to
opt into the CCULR framework and is
considered well capitalized. The CCULR
framework is based on the principles of
the CBLR framework. As discussed
previously in this preamble, it relieves
complex credit unions that meet
specified qualifying criteria and have
opted into the CCULR framework from
having to calculate a risk-based capital
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 how the Board accounts for any
relevant risks that the six percent net worth ratio
does not adequately address.
43 86 FR 45825 (Aug. 16, 2021).

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ratio, as implemented by the 2015 Final
Rule. In exchange, the qualifying
complex credit union is 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 can
make under the CBLR.
Most commenters generally supported
the CCULR framework. Several
commenters noted that credit unions
could choose to comply with the current
risk-based capital rule or the CCULR.
One commenter stated that, with the
CCULR framework, the Board can
maximize synergy with the risk-based
capital rule, maintain flexibility, and
achieve greater consistency with sound
public policy and the FCUA. In contrast,
another commenter opposed the
optionality in the CCULR framework
and stated that allowing credit unions to
opt-in to the CCULR framework creates
two populations of credit unions based
on nothing but the compliance of
internal actors of the credit unions. The
Board believes that implementing a
CCULR framework furthers the goal of
the FCUA’s PCA requirements by
ensuring complex credit unions
continue to hold sufficient capital,
while minimizing the burden associated
with complying with the NCUA’s riskbased capital requirement. In response
to comments, however, the final rule
makes several material changes to the
CCULR framework. These changes
include: (1) Calibrating the CCULR at
nine percent instead of 10 and forgoing
any transition period; (2) removing the
written notification requirement for
exiting the CCULR framework after
opting in; (3) permitting a grace period
for credit unions that no longer meet the
qualifying criteria due to a supervisory
merger; and (4) amending the treatment
of goodwill in both the CCULR
framework and risk-based capital
framework. The Board has not amended
the effective date in response to the
comments; the final rule, along with the
2015 Final Rule, is effective on January
1, 2022. Several commenters stated that
this date should be delayed because the
effective date of risk-based capital is in
less than three months after the
comment period closed for the proposed
rule. Other commenters discussed the
need to comment on Call Report
changes. Commenters also stated that
the NCUA should factor in the effective
date of CECL, which will have a
significant impact on net worth and the
current economic conditions related to
COVID–19.
Commenters recommended different
alternative effective dates for the CCULR
framework. Several commenters

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recommended January 1, 2023. Other
commenters recommended six months
after publication of the final rule in the
Federal Register.
In contrast, one banking trade
organization recommended that the
Board first subject credit unions to the
risk-based capital standards before
implementing an opt-in to the CCULR
framework. This argument appeared to
be based primarily or solely on the fact
that banks complied with risk-based
capital before Congress enacted and the
other banking agencies implemented the
CBLR. The Board found no new
evidence or information that would
warrant it refraining from adopting the
CCULR framework now. As discussed in
the proposed rule and this final rule
preamble, a complex credit union which
opts into the CCULR framework will
generally increase the overall capital
requirement. The Board continues to
find that implementing the CCULR
framework alongside the 2015 Final
Rule will balance flexibility and choice
for complex credit unions with safety
and soundness and overall capital
adequacy.
The Board is not delaying the
implementation of either the CCULR
framework or the 2015 Final Rule. The
Board did not propose to delay the 2015
Final Rule and does not believe that
credit unions need additional time to
comply with either framework.44 The
Board acknowledges that January 1,
2022, is less than the standard effective
date of 30 days following the
publication of this final rule. There are,
however, several factors that persuade
the Board that credit unions will not be
disadvantaged. First, credit unions are
not required to comply with the CCULR
framework as it is an optional
framework to the 2015 Final Rule. Also,
credit unions do not have to select their
framework until the end of the first
quarter in 2022, which is a few months
after the publication of the final rule in
the Federal Register. The final rule does
not include any new calculations for
complex credit unions and relies on the
net worth ratio, an existing capital
measure that credit unions report each
quarter. Finally, the Board is not
persuaded that credit unions are
unprepared to choose between the
CCULR framework and the risk-based
capital framework due to Call Report
amendments. The proposed rule
included sample Call Report
illustrations. While the Board did not
seek specific comments in the proposed
44 Because the Board did not propose any change
to the 2015 Final Rule’s effective date, a change in
this final rule would not be within the scope of the
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rule on the Call Report changes, credit
unions knew of the potential changes
and no comments were received
expressing general confusion. The
agency also published a Notice and
Request for Comment on the proposed
Call Report changes on September 27,
2021.45 Thus, the Board believes a
January 1, 2022 effective date for the
CCULR framework is reasonable and not
disadvantageous to credit unions.
B. Qualifying Complex Credit Unions
Under the final rule, a qualifying
complex credit union is defined as a
complex credit union under 12 CFR
702.103 that meets the following criteria
(qualifying criteria), each as described
further as follows:
(1) Has a CCULR (net worth ratio) of 9
percent or greater; 46
(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 5 percent or less of
its total assets; and
(4) Has the sum of total goodwill and total
other intangible assets of 2 percent or less of
its total assets.

The Board believes 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 will continue
to evaluate the qualifying criteria over
time to ensure it continues to be
appropriate.
1. CCULR of Nine Percent or Greater
The final rule requires a complex
credit union to have a CCULR of at least
nine percent to be classified as a
qualifying complex credit union. Given
this change from 10 percent in the
proposal, the Board is not adopting the
proposed transition provision, which
would have set the CCULR at 9 percent
initially, then increased it to 10 percent
by January 1, 2024. For a discussion of
the relevant comments, see Section D.
Calibration.
2. Off-Balance Sheet Exposures
The Board did not receive substantial
comment on the proposed off-balance
sheet exposure criterion. One
commenter requested further guidance
on this criterion. Another credit union
said this criterion is better addressed
through the examination process. The
proposed rule provided substantial
detail on the eight off-balance sheet
exposures. The Board also disagrees that
45 86

FR 53351 (Sept. 27, 2021).
an additional discussion on why the Board
set the ratio to nine percent, see Section D.
Calibration of the CCULR.
46 For

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this criterion is better addressed through
the supervisory process; rather, the
Board believes the off-balance sheet
criterion is essential in determining the
appropriateness of the CCULR
framework for a specific credit union. If
a complex credit union has substantial
off-balance sheet exposures, the Board
believes the more precise risk-based
capital framework is necessary to
determine its capital adequacy.
Under the final rule, a qualifying
complex credit union is 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. Thus, it does not require
a qualifying complex credit union to
hold capital against its off-balance 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.47
The other banking agencies’ CBLR
framework also excludes banking
organizations with significant offbalance 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. Thus, to make
the CCULR framework more comparable
to the CBLR and to improve on the
effectiveness of the 2015 Final Rule, the
final rule amends the NCUA’s definition
of off-balance sheet exposures. The
amendments to the definition of offbalance sheet exposure apply to both
the CCULR framework and the riskbased capital framework.48
Under the CCULR framework, offbalance sheet exposures 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
47 The amendments to § 702.104, Risk-Based
Capital Ratio, include credit conversion factors and
risk-weights for off-balance sheet exposures.
48 The final rule also includes risk weights for
each new exposure in the definition of off-balance
sheet exposure. See, Section L. Amendments to the
2015 Final Rule.

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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 offbalance 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.

Each element of the off-balance sheet
definition is discussed in detail in the
proposed rule.
3. Trading Assets and Liabilities
Commenters raised no objections to
the proposed criterion related to trading
assets and labilities. Thus, the Board is
finalizing this provision as proposed.
Under the final rule, a qualifying
complex credit union is 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. This criterion,
including related definitions, is
discussed in detail in the proposed rule.
4. Goodwill and Other Intangible Assets
Under the proposal, a qualifying
complex credit union was required to
have the sum of total goodwill and other
intangible assets of two percent or less
of its total assets. As proposed,
qualifying complex credit unions were
required to include excluded goodwill
and excluded other intangible assets in
this calculation.49 Five commenters
objected to the inclusion of a criterion
related to goodwill and intangible
assets. One commenter stated that
previous accounting changes resulted in
increased amounts of goodwill related

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49 Excluded

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. 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, 2015.12 CFR 702.2 (effective Jan. 1,
2022).

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to supervisory mergers. This commenter
stated that credit unions that support
the NCUA and the NCUSIF by assisting
in supervisory mergers should not be
penalized by subsequent restrictions on
the holding of supervisory goodwill.50
Several commenters requested that
supervisory goodwill and elective
goodwill should be treated differently.
Another commenter stated that only
impaired goodwill should be deducted.
Another commenter preferred that the
goodwill criterion be removed but stated
that, at the very least, the Board should
not include excluded goodwill and
excluded other intangible assets.
Finally, one commenter stated that
goodwill is not an eligibility criterion
for the CBLR. The Board notes that
goodwill is deducted from insured
banks’ numerator for purposes of the
CBLR. Other commenters generally
supported the inclusion of goodwill as
a criterion.
In response to the comments received,
the Board has revised the treatment of
goodwill in the final rule. The final rule
will not include excluded goodwill and
excluded other intangible assets as part
of the calculation for the two percent
eligibility requirement. As a result of
these changes, a complex credit union
need not include excluded goodwill or
excluded other intangible assets for
purposes of calculating the two percent
goodwill qualifying criterion under the
CCULR framework. Related to this
change, the 2015 Final Rule has been
amended to permanently grandfather
excluded goodwill and excluded other
intangible assets. Thus, under the 2015
Final Rule, a complex credit union will
not deduct excluded goodwill or
excluded other intangible assets from its
risk-based capital numerator after the
sunset date of January 1, 2029. For
additional information on this change,
see Section L. Amendments to the 2015
Final Rule.
The Board made these changes in
response to commenters’ concerns about
equity related to subsequent changes to
the treatment of supervisory goodwill.
Certain commenters expressed concern
about unforeseen capital implications
related to goodwill acquired as part of
a supervisory merger or combination
before December 28, 2015. In this case,
the Board agrees that credit unions that
assisted in previous supervisory mergers
and combinations should not be unduly
penalized by subsequent restrictions on
excluded goodwill. Thus, the Board will
not require credit unions to include
such exposures when calculating the
50 Supervisory goodwill is goodwill originating
from a supervisory merger or combination, as
defined in the 2015 Final Rule.

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two percent threshold under the CCULR
framework.
The Board, however, still believes a
qualifying criterion related to goodwill
and other intangible assets should be
included in the final rule. The Board
also recognizes that 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 one capital.51 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 criterion, a
qualifying credit union could violate the
principles of the CBLR framework by
using the CCULR despite substantial
goodwill and intangible assets. 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.
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, as of June 30, 2021, it is
estimated that the two percent threshold
would not exclude any complex credit
unions from the CCULR framework.
Thus, the Board believes a two percent
threshold balances regulatory relief for
most qualifying complex credit unions
with 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.
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 Board did not include this
qualifying criterion in the proposed
rule. Several commenters supported this
position. Commenters reiterated the
51 See

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Board’s justification in the proposed
rule. For example, commenters noted
that credit unions’ stringent portfolioshaping rules mitigate many of the risks
associated with larger institutions in the
banking sector. Also, credit unions with
$10 billion or more in assets are
generally required to conduct capital
planning, and credit unions with $15
billion or more in assets are generally
required to conduct stress testing.52
One commenter objected to the
inclusion of all qualifying credit unions
by noting that Congress limited the asset
size threshold for a qualifying
community bank to less than $10 billion
in assets. The commenter presented no
new information or considerations
beyond those the Board addressed in the
proposed rule. The Board disagrees and,
for the reasons discussed in the
proposed rule preamble, continues to
believe the CCULR is an appropriate
capital framework for all complex credit
unions as the FCUA limits the types of
assets an FCU can hold compared to
banking organizations. The Board also
finds that the legislative cap on
eligibility for the CBLR does not require
the Board to impose the same cap on the
CCULR framework, which is tailored to
the requirements of the FCUA and the
risks associated with complex credit
unions. Thus, the Board is finalizing
this provision as proposed.
Other Qualifying Criteria
In the proposed rule, the Board asked
whether the final rule should include
other qualifying criteria. Several
commenters stated they did not support
expanding the qualifying criteria to
include certain categories discussed in
the proposed rule, including
‘‘heightened risk’’ asset categories,
investments in CUSOs, or
concentrations of mortgage servicing
assets (MSAs). Several commenters
stated that the other banking agencies
do not have similar qualifying criteria.
One banking trade organization stated
that the CCULR framework should only
be made available to those credit unions
that do not originate or hold a
significant amount of member business
loans.
The Board is not adding any
additional qualifying criteria with a
CCULR of nine percent. The Board
believes that a CCULR of nine percent
is appropriate because most complex
credit unions would be required to hold
more capital under the CCULR
framework than under the risk-based
capital framework. This would be true
even if a complex credit union’s
portfolio included greater than average

amount of assets with higher risk
weights under the 2015 Final Rule, such
as concentrations in junior-lien
mortgages and commercial loans,
investments in CUSOs, or
concentrations of MSAs. The Board
considered adding qualifying criteria to
account for adopting the CCULR at 9
percent instead of 10 percent but does
not believe it is necessary now as credit
unions do not hold less capital under
the CCULR framework than the riskbased capital framework.
The Board may consider future
qualifying criteria as it gains experience
in supervising complex credit unions
under the CCULR framework or if the
risk-profile of credit union assets
change. For example, if the credit union
industry begins to hold larger
concentrations of high-risk assets,
including junior lien mortgages,
commercial loans, MSAs, corporate
credit unions investments, or CUSO
investments, then the Board may
reconsider whether additional
qualifying criteria are necessary. If an
individual credit union holds
significant concentrations of these
assets, then the Board may exercise its
reservation of authority to require the
credit union to calculate its capital
adequacy under the risk-based capital
framework.53
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 (for example 9.32
percent).54
The Board proposed 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. Thus, complex
credit unions are not required to
calculate a unique ratio for purposes of
opting into the CCULR framework. Also,
complex credit unions are already
familiar with the net worth ratio, which
reduces compliance costs compared to a
unique ratio designed for the CCULR
framework.
Several commenters supported using
the net worth ratio for the CCULR for
the reasons stated in the proposed rule.
But three commenters recommended
that the Board create a new measure of
capital for the CCULR framework.
Specifically, commenters recommended
the inclusion of subordinated debt for
credit unions that are not low-income

designated credit unions. Alternatively,
commenters also recommended the
inclusion of other types of capital shares
akin to the perpetual contributed capital
shares issued by corporate credit
unions. An association of credit union
supervisors stated that subordinated
debt should be included because during
times of economic dislocation, even
healthy institutions may not be able to
accelerate their capital replenishment.
This commenter further stated that
allowing for additional sources of
capital such as subordinated debt
strengthens the credit union system and
protects the NCUSIF. One commenter
stated that goodwill should be deducted
from net worth for purposes of CCULR.
The Board considered an alternative
measure of capital in the proposed rule
that included subordinated debt parallel
to the risk-based capital ratio numerator
from the 2015 Final Rule.55 The Board
has not adopted a new measure of
capital in the final rule. First, the Board
believes that the numerator to the 2015
Final Rule is a more conservative
measure of capital compared to the
numerator in the net worth ratio.
Second, as the proposed rule preamble
stated, a new measure of capital would
likely include several deductions,
including deductions for the NCUSIF
capitalization deposit, goodwill, other
intangible assets, and identified losses
and would be more complicated to
calculate than the net worth ratio.
Regarding commenters’
characterization of subordinated debt as
a useful tool to build capital when a
credit union is experiencing a capital
hardship, the Board acknowledges the
benefits of issuing subordinated debt,
but also notes that subordinated debt
can be an expensive form of capital,
both in the terms of the cost of issuing
it and in terms of necessary rate of
return to investors. Also, it may not be
readily available during times of stress.
D. Calibration of the CCULR
The proposed rule would have
allowed a qualifying complex credit
union to opt into the CCULR framework
if it met the minimum CCULR at the
time of opting into the CCULR
framework. The proposed rule initially
set the CCULR at 9 percent and
transitioned to 10 percent over two
years. Almost all commenters objected
to calibrating the CCULR ratio at 10
percent, and instead recommended a 9
percent measure in conformance with
the ratio used for the CBLR. Other
commenters were concerned that fewer
credit unions could take advantage of
the CCULR framework if it is set at 10

53 See,
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percent. Some commenters stated that a
nine percent CCULR would provide
greater regulatory relief. Several
commenters generally discussed that
higher capital may restrict credit union
growth and mean less resources to
invest in products and services that
benefit the member-owners. One
commenter stated that a 10 percent
calibration could restrict credit unions’
ability to expand access to the
underserved and underbanked. One
commenter discussed that accelerated
asset growth as a result of COVID–19
should favor a lower CCULR. Another
commenter recommended that the
Board set CCULR at less than nine
percent and recommended a ratio closer
to eight percent.
In contrast, one credit union
commenter supported a CCULR of 10
percent. One banking trade organization
generally supported sufficient capital
requirements.
The Board understands the
commenters’ concerns about a 10
percent CCULR, due in part to the
recent downward pressure on credit
union net worth ratios from the rapid
growth in assets during 2020 and 2021.
The Board also understands that a
higher capital requirement may restrict
credit union ability to invest in member
products and services. As the proposed
rule explained, the Board initially
considered setting the CCULR between
9 and 11 percent and presented analysis
on the potential impact in terms of
safety and soundness and burden
reduction for potential CCULRs at 9 and
10 percent.
In recognition of this fact, and in
response to the comments received, the
Board has adopted a CCULR of nine
percent and is forgoing the transition
provision. The Board finds that this
calibration of the CCULR will provide
appropriate regulatory burden relief and
serve as further incentive for complex
credit unions to opt into the CCULR
with the benefit of maintaining strong
capital levels in the credit union system
and ensuring safety and soundness.
Guided by the goals stated in the
proposed rule’s calibration discussion—
maintaining strong capital levels in the
credit union system, ensuring safety and
soundness, and providing appropriate
regulatory relief to as many credit
unions as possible—the Board
considered several factors in adopting a
CCULR of nine percent.
First, the Board considered aggregate
levels of capital among complex credit
unions. The CCULR framework does not
result in a reduction of the minimum
required amount of capital held by
complex credit unions and results in an
overall increase in the minimum

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amount of required capital held by
complex credit unions. Based on
reported data as of June 30, 2021,
approximately 70 percent of complex
credit unions qualify to use the CCULR
framework and would be well
capitalized under a 9 percent
calibration. This was a significant
decrease in the number of eligible credit
unions at 9 percent when compared to
pre-pandemic net worth ratios, when
approximately 90 percent would have
been eligible. Of the total 680 complex
credit unions as of June 30, 2021, 473
have a net worth ratio greater than nine
percent and would be well capitalized
under a nine percent CCULR standard.
Of those 473 credit unions, the Board
estimates that all of them meet the
qualifying criteria, and are thus eligible
to opt into the CCULR framework.
Under the CCULR, if all 473 credit
unions opted into the CCULR and held
the minimum nine percent net worth
ratio required to be well capitalized, the
total minimum net worth required is
estimated at $111.8 billion, an increased
capital requirement of $24.3 billion over
the minimum required under the 2015
Final Rule. The Board is not aware of
any qualifying complex credit unions
that would reduce their capital
requirement with a CCULR of nine
percent as compared to the 2015 Final
Rule.
The Board also considered the extent
of the burden relief provided by the
CCULR framework. The Board believes
a CCULR of 9 percent is preferable to a
CCULR of 10 percent as it permits an
additional 173 complex credit unions
(473 eligible at 9 percent versus 300 at
10 percent) to opt-into the CCULR
framework, which supports the Board’s
goal of reducing regulatory burden for as
many complex credit unions as
possible.
Next, the Board considered that the 8
to 10 percent range established by
Congress for the CBLR is 300 to 500
basis points higher than the 5 percent
leverage ratio required for wellcapitalized status under the other
banking agencies’ PCA framework.56 As
detailed in the proposed rule preamble,
the Board reviewed the basis for the 7
percent net worth ratio for insured
credit unions and considered a range
between 9 and 11 percent for the
CCULR. The Board’s analysis
established that setting the CCULR 300
basis points higher than the seven
percent net worth ratio while the other
banking agencies have set the CBLR 400
basis points higher than the comparable
leverage requirements for insured banks
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would be appropriate because of
changes in credit union investments in
corporate credit unions since Congress
established the seven percent net worth
ratio in 1998. But the proposed rule did
not conclude that a 9 percent CCULR
would be inappropriate and specifically
analyzed the merits of 9 and 10 percent
in the calibration discussion.
Upon reconsideration, the Board is
adopting a nine percent CCULR based
on its effect on capital levels and burden
reduction, rather than calibrating
CCULR based on the analysis of the
seven percent net worth ratio and
relative difference between the CBLR
and the leverage ratio for insured banks.
The Board acknowledges, however, that
setting CCULR at nine percent is only
200 basis points above the statutory
well-capitalized threshold for the net
worth ratio absent consideration of the
reduced corporate credit union
investments. The Board also recognizes
it is less than the 400 basis point
differential established by the other
banking agencies in setting the CBLR
when compared to the leverage ratio.
The Board, however, believes a CCULR
of nine percent is prudent and does not
present undue safety and soundness
risk. A primary reason that other
banking agencies chose a CBLR of nine
percent was to ensure qualifying
community banks generally maintain
their current level of capital. As
discussed previously, a CCULR of nine
percent increases the total minimum net
worth required to $111.8 billion, an
increased capital requirement of $24.3
billion over the minimum required
under the 2015 Final Rule. The Board
also notes that the analysis in the
proposed rule comparing bank and
credit union net worth and leverage
ratios was not a decisive factor but one
of several factors forming the overall
proposal, which included a nine percent
CCULR in the range of consideration.
Also, as a separate point that confirms
the Board’s approach and conclusion,
the other banking agencies also
designed the CBLR framework to reduce
the likelihood that a banking
organization would not hold less capital
under the CBLR framework than under
the risk-based capital framework. The
Board estimates that no qualifying
complex credit union would reduce its
capital requirement with a CCULR of
nine percent as compared to the 2015
Final Rule. Thus, the Board does not
believe a reduced CCULR of nine
percent will result in the potential for
regulatory arbitrage between the two
frameworks.
Finally, as noted in the proposed rule
preamble, the Board specifically
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banking agencies’ CBLR framework
when designing the CCULR framework.
The other banking agencies established
a CBLR of nine percent—that is, if an
insured bank has a CBLR of nine
percent and meets other requirements, it
is considered well capitalized. Adopting
the CCULR at nine percent will make
the two frameworks generally consistent
in the actual level of capital required.
In sum, the Board believes a CCULR
of nine percent is prudent and does not
present undue safety and soundness
risk. This calibration is also within the
range of consideration from the
proposed rule and meets the goal of
reducing regulatory burden when
appropriate. Also, a CCULR of nine
percent is comparable to the calibration
of the CBLR. Thus, based on a
reconsideration of the perspective on
the calibration level relative to the CBLR
and credit union net worth
requirements, and a further analysis of
net worth levels at 9 and 10 percent net
worth ratios, the Board finds that
adopting a 9 percent CCULR provides
adequate protection for the NCUSIF.
The Board intends to continue to
monitor the impact of CCULR and RBC
on credit unions and the NCUSIF going
forward.

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E. Opting Into the CCULR Framework
Most commenters supported a credit
union’s ability to opt into CCULR at the
end of each calendar quarter. A few
credit unions also requested that they be
permitted to freely switch between the
risk-based capital framework and
CCULR framework and the NCUA not to
limit how frequently a credit union opts
into the CCULR framework. The Board
has made no changes to the opt-in
procedures. Under the final rule, a
qualifying complex credit union with a
CCULR of nine percent or greater may
opt into the CCULR framework at the
end of each calendar quarter. 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.
F. Voluntarily Opting Out of the CCULR
Framework
Under the proposal, after a qualifying
complex credit union opted into 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.
Most commenters on the opt-out
procedures stated that prior notice to
NCUA should not be required and
qualifying credit unions should be able

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to perform the required analysis and
switch between the two options with
the same ease as banking organizations.
One commenter stated it is reasonable to
expect that any complex credit union
would not choose to opt-out of the
CCULR framework without first
performing a preliminary risk-based
ratio calculation. The commenter wrote
that if there is any possibility a credit
union would skip performing such
calculation, that possibility is not a
justification for subjecting all complex
credit unions to a notification
requirement. Another commenter stated
if the Board is concerned that qualifying
complex credit unions are not prepared
to implement risk-based capital, an
alternative may be for the agency to only
require advance notice in the first year
of CCULR’s implementation.
The Board has removed the written
notice requirement for opting out of the
CCULR framework. Under the other
banking agencies’ CBLR framework,
qualifying banks that have opted into
the CBLR may opt out of the framework
at any time. The Board agrees with
commenters and has aligned the final
rule with the CBLR. The Board has
reconsidered its position for several
reasons. First, the Board believes that
switching between CCULR and riskbased capital would be an infrequent
activity and, potentially, of little benefit
to the credit union. For any credit union
that raises potential concerns, the
NCUA can review its capital adequacy,
including its choice of capital
framework, through the normal
supervisory process. And, the notice
requirement in the proposed rule only
provided the NCUA 61 days prior notice
as compared to the timeframe notice
would be provided through the Call
Report under the final rule. The Board
does not believe this 61-day period
justifies subjecting all credit unions to
the proposed notification. There is also
no general requirement for credit unions
to submit a Call Report schedule with
risk-based capital before the first
reporting period of March 2022, or
whenever a credit union becomes
complex and must calculate risk-based
capital. The Board believes if it can
manage the transition of newly complex
credit unions to the risk-based capital
framework without notification,
notification is unnecessary for credit
unions switching from the CCULR
framework.
The Board also notes that, although a
credit union may choose to use the
CCULR framework, a credit union that
frequently switched between CCULR
and risk-based capital may raise
supervisory concerns.

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G. Compliance With the Criteria To Be
a Qualifying Complex Credit Union
Under the proposed CCULR
framework, complex credit unions have
a two-calendar quarter grace period if
they no longer meet one of the
qualifying criteria to either begin
calculating a risk-based capital ratio or
to meet all the CCULR eligibility
criteria. Commenters who discussed the
grace period generally supported it and
did not support creating a separate
prompt corrective action framework for
CCULR. One commenter objected to the
required notice if the credit union is not
likely to remain eligible for the CCULR
framework. One commenter suggested a
three-year grace period for a credit
union that fails to comply with an
eligibility requirement due to a merger,
rather than immediately subjecting the
credit union to the risk-based capital
requirements. As discussed in the
following paragraphs, the Board has
made two changes to the proposed grace
period in response to commenters.
Under the final rule, after a qualifying
complex credit union has adopted the
CCULR framework and then no longer
meets the qualifying criteria, it is
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 begins 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 ends after two consecutive
calendar quarters. For example, if the
complex credit union ceases to satisfy
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 this 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 and 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 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 the risk
profile.
During the grace period, the credit
union continues to be treated as a
qualifying complex credit union and

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must continue calculating and reporting
its CCULR, unless it has opted out of
using the CCULR framework. Also, the
qualifying complex credit union
continues to be considered to have met
the capital ratio requirements for the
well-capitalized capital category during
the grace period. If the qualifying
complex credit union has a CCULR of
less than seven percent, however, it is
not considered to be well capitalized.
Instead, its capital classification is
determined by its net worth ratio. For
additional discussion on the treatment
of a qualifying complex credit union
when its CCULR falls below nine
percent, see Section H—Treatment of a
Qualifying Complex Credit Union That
Falls Below the CCULR Requirement.
The two-quarter grace period is akin
to the other banking agencies’ CBLR
framework. The proposed rule differed
from the CBLR framework because a
qualifying complex credit union that
may fail to meet the requirements to be
a qualifying complex credit union by
the end of the grace period was required
to submit written notification to the
appropriate Regional Director or the
Director of Office of National
Examinations and Supervision.
Consistent with the reasons discussed
for credit unions voluntarily opting out
of the CCULR framework, the Board has
decided to remove the notification
requirements in the final rule. The
Board no longer believes notification is
necessary and will monitor compliance
and a credit union’s adoption of riskbased capital through the supervisory
process.
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
included a similar limitation. One
commenter suggested a three-year grace
period for a credit union that fails to
comply with an eligibility requirement
due to a merger, rather than
immediately subjecting the credit union
to the risk-based capital requirements.
In general, the Board believes credit
unions that no longer meet the CCULR
eligibility requirements due to a merger
do not need a grace period, as complex
credit unions should consider the
regulatory capital implications of a
planned business combination and be
prepared to comply with the applicable
requirements.
The Board, however, believes that
supervisory mergers should be an
exception to this general policy. As
defined in the 2015 Final Rule, a
supervisory merger or combination is a
transaction that involved the following:

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(1) An assisted merger or purchase and
assumption where funds from the NCUSIF
were provided to the continuing credit
union;
(2) A merger or purchase and assumption
classified by the NCUA as an ‘‘emergency
merger’’ where the acquired credit union is
either insolvent or ‘‘in danger of insolvency’’
as defined under appendix B to part 701; or
(3) A merger or purchase and assumption
that included the NCUA’s or the appropriate
state official’s identification and selection of
the continuing credit union.57

The Board believes it is reasonable to
provide a limited grace period for this
select group of mergers because
continuing credit unions in supervisory
mergers may not have the benefit of
time to plan for the capital implications
of a merger. As a result, continuing
credit unions may need additional time
to meet the CCULR eligibility criteria
following a supervisory merger. The
Board believes a limited, two-quarter
grace period is reasonable.
H. Treatment of a Qualifying Complex
Credit Union That Falls Below the
CCULR Requirement
A qualifying complex credit union
that has opted into the CCULR
framework and has a CCULR of nine
percent or greater is 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 this case, a
credit union may choose to stop using
the CCULR framework and instead
become subject to the risk-based capital
requirement. The Board recognizes,
however, that some qualifying complex
credit unions may find it unduly
burdensome to begin complying with
the more complex risk-based capital
requirements while the credit union is
experiencing a decline in its CCULR.
Under the proposed rule, a minimum
CCULR is one of the qualifying criteria.
Thus, 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. The Board received
no comments on this provision and is
finalizing it as proposed.
Thus, under the final rule a credit
union is permitted a two-quarter grace
period when its CCULR falls below the
minimum requirement. After the twoquarter grace period, the qualifying
complex credit union must either once
again meet the minimum CCULR ratio
or comply with the risk-based capital
requirements. During the grace period,
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the credit union is deemed to have met
the well-capitalized capital ratio
requirements for PCA purposes,
provided its net worth ratio remains at
seven percent or greater.
If a credit union’s net worth ratio falls
below seven percent, it is not
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.
I. Transition Provision
The Board proposed a two-year
transition provision to delay the
introduction of a 10 percent CCULR. All
commenters who discussed the
transition period favored a longer
transition, and most recommended four
years. Commenters generally discussed
uncertainty due to COVID–19,
upcoming CECL implementation, and
the need for additional time to build
capital. A few commenters who
recommended a nine percent CCULR
also recommended setting CCULR at
eight percent during the transition
period. One commenter recommended
the agency commit to future retargeting
of a fully phased in CCULR once
additional data is collected during the
transition period.
Because the Board is finalizing the
CCULR at 9 percent instead of 10, it is
not adopting the transition provision.
As proposed, the transition provision
would have applied if the permanent
CCULR were 10 percent. Thus, the
change in the CCULR in the final rule
makes the transition provision
unnecessary and of no effect.
The Board is not adopting a transition
provision with an initial CCULR of eight
percent, as several commenters
suggested, for two reasons. First, the
Board does not believe there is
sufficient logical outgrowth from the
proposal to adopt a CCULR of eight
percent. Separately from the transition
provision, the proposed rule posed a
question on calibrating the CCULR at
eight percent but did not otherwise
discuss it or provide a basis to support
this level of capital being sufficient to
protect the NCUSIF. Second, the Board
does not believe a CCULR of eight
percent is necessary to ensure most
complex credit unions are eligible to opt
into the CCULR framework. As
previously mentioned, an estimated 70
percent of complex credit unions will be
eligible to opt into the CCULR
framework on January 1, 2022.
J. Reservation of Authority
The proposed rule included a
reservation of authority for the Board to
require a credit union to use the risk-

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based capital framework in specific
cases. As detailed in this section, the
final rule adopts this provision as
proposed. Most commenters who
discussed the reservation of authority
did not object to it. A few noted it was
analogous to the reservation of authority
for the other banking agencies under the
CBLR. Several commenters
recommended the Board provide greater
detail on how this process will work,
who at NCUA makes the decision, and
what information would be provided to
the credit union. Three commenters also
requested an appeal process. Two
commenters objected to the reservation
of authority. One commenter
characterized the provision as providing
NCUA with ‘‘subjective judgment’’ to
establish minimum capital levels which
should be left out of any minimum
capital threshold. The final rule adopts
the reservation of authority as proposed.
Additional information is discussed in
the following paragraphs in response to
commenters.
In general, a complex credit union
that meets the eligibility criteria may
opt into the CCULR framework. There
may be limited instances, however,
whereby the CCULR framework would
be inappropriate and not require
sufficient capital to adequately protect
the NCUSIF. To address such situations,
the final rule includes a reservation of
authority that can be exercised by the
Board. 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 deciding, the Board
would consider all relevant factors
affecting the complex credit union’s
safety and soundness. Also, the Board
expects to provide a credit union
potentially subject to use of the
reservation of authority with an
opportunity to present evidence on why
the CCULR framework is appropriate for
that institution.
The Board expects to apply the
reservation of authority only in limited
circumstances. Under the reservation of
authority, credit unions are entitled to a
two-quarter grace period before being
required to comply with the risk-based
capital framework. No appeal process is
being provided, however, because under
this final rule, the Board would exercise
the reservation of authority.

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K. Effect of the CCULR on Other
Regulations
1. Member Business Loan Cap
The Board did not receive any
comments on the proposed member
business loans (MBL) analysis and thus,
affirms its conclusions and
interpretations in the proposed rule.
Section 107A of the FCUA generally
limits the aggregate amount of 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.58 In addition, the FCUA exempts
certain credit unions from complying
with the aggregate MBL limit.
Specifically, an insured credit union
chartered to make MBLs, or has a
history of making MBLs to its members,
as determined by the Board, is not
subject to the aggregate MBL limit.59
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.60
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.61 Section 107A defines net
worth for purposes of that section,
providing that it includes the retained
earnings balance, as determined under
GAAP. Under this section, for credit
unions that serve predominantly lowincome members, net worth also
includes 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.62
58 12

U.S.C. 1757a(c)(1)(B).
U.S.C. 1757a(b)(1).
60 12 U.S.C. 1575a(b)(2).
61 12 U.S.C. 1757a(a).
62 This 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
59 12

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For credit unions that are not complex
and thus are not subject to a risk-based
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.63 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 the risk-based
requirement.64 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. When 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 7 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.65
Thus, 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
not add or remove any of the components of net
worth in the current regulation.
63 Before 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.
64 80 FR 37898, 37909 (July 1, 2015).
65 81 FR 13530, 13548 (Mar. 14, 2016).

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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,66 the riskbased 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 12 CFR 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 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.67 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 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
66 The 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.
67 Thus, the current language in part 723 remains
valid, and the Board is not currently adopting any
changes to part 723.

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minimum net worth required for
complex credit unions, and in turn,
section 216(c)(1)(A) includes both the
seven percent net worth ratio and the
net worth required by any applicable
risk-based net worth requirement.
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)
contrary to principles of statutory
interpretation.
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
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), Congress chose not to
specify that the MBL limitation is
determined by the amount of net worth
required to achieve a seven percent net
worth ratio. Instead, 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 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.68 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
68 S.

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.69 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, this 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.
One commenter expressed concern
about the subjective nature of this
provision, and whether the agency has
the statutory authority to adopt the
provision if it would require individual
credit unions to hold capital above
those required by the rule or the FCUA.
The Board disagrees. As discussed in
the 2015 Final Rule, the NCUA has a
long-established policy that FICUs
should hold capital commensurate with
the level and nature of the risks to
which they are exposed. In some cases,
this may entail holding capital above

Rep. No. 105–193 (May 21, 1998), at 5, 10,
69 12

29.

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be better indicators of the meaning and
purpose of these provisions.
Applying this approach to the CCULR
framework, qualifying complex credit
unions opting into the CCULR
framework would calculate a different
limitation on MBLs from their current
calculation 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
final rule, a qualifying complex credit
union that opts into the CCULR
determines 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 framework determine their MBL
limitation by reference to the 10 percent
risk-based capital ratio, as described in
the 2016 MBL final rule. In either
scenario, if a complex credit union has
actual net worth below those measures,
its actual net worth would determine its
MBL limitation.

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the minimum requirements, depending
on the nature of the credit union’s
activities and risk profile. The FCUA
grants NCUA broad authority to take
action to ensure the safety and
soundness of credit unions and the
NCUSIF and to carry out the powers
granted to the Board. Requiring credit
unions to maintain capital adequacy is
part of ensuring safety and soundness
and is not a new concept. This
provision is focused on the credit
union’s own process and strategy for
assessing and maintaining its overall
capital adequacy in relation to its risk
profile and does not affect credit unions’
PCA capital category. The provision is
only intended to support the assessment
of capital adequacy in the supervisory
process, for example when assigning
CAMELS and risk ratings.70
L. 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 CCULR framework. The Board also
stated it would consider whether to
make more substantive revisions to the
2015 Final Rule.71 The Board has
completed this analysis and is including
several changes to the 2015 Final Rule.
Each change is discussed in the
following sections. The proposed
changes are generally adopted as final
without change.

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1. Off-Balance Sheet Exposure Risk
Weights
The 2015 Final Rule states that the
risk-weighted amounts for all offbalance sheet items 72 are determined by
multiplying the off-balance sheet
exposure amount 73 by the appropriate
credit conversion factor and the
70 86 FR 59282 (Oct. 27, 2021). The final rule
updating the CAMEL system to CAMELS becomes
effective April 1, 2022.
71 84 FR 68781, 68783 (Dec. 17, 2019).
72 Off-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).
73 Off-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; and (3) For unfunded
commitments, the remaining unfunded portion of
the contractual agreement. 12 CFR 702.2 (effective
Jan. 1, 2022).

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assigned risk weight. But the definition
of off-balance sheet items is not aligned
with the definition of off-balance 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, for example 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 final rule makes several changes
to clarify the treatment of off-balance
sheet items. First, as discussed
previously, the final rule amends the
definition of off-balance sheet
exposures. This definition is used as
one of the CCULR eligibility criteria and
is 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 off-balance sheet
exposure definition also more closely
aligns with the existing definition of offbalance sheet items.74 Thus, several
items currently defined as an offbalance sheet item, but not included in
the current definition of off-balance
sheet exposure, are now provided an
exposure amount. This change reduces
ambiguity in the 2015 Final Rule.
Further, each item included in the
definition of off-balance sheet exposure
in the final rule is provided an explicit
credit conversion factor and risk weight
for purposes of the risk-based capital
rule. The Board did not receive any
comments on the proposed off-balance
sheet risk weights and is adopting them
as final without change. Each change to
the risk-based capital rule is discussed
in detail in the following paragraphs.
The final rule states that
unconditionally cancellable
commitments have a zero percent credit
conversion factor. Thus, any
unconditionally cancellable
commitment is excluded from a credit
union’s risk-based capital calculation.
74 The only item included in the current
definition of off-balance sheet item that is not
provided an explicit exposure amount is contingent
items. As discussed subsequently in this preamble,
however, the Board is amending the definition of
off-balance sheet item and no longer includes
contingent items.

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Under the 2015 Final Rule, these
exposures 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 qualify as unconditionally
cancellable and that credit unions are
currently subject to a more conservative
treatment for unfunded commitments
than banking organizations. Thus, 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 2015 Final Rule does not provide
a credit conversion factor for financial
standby letters of credit. Including an
explicit 100 percent conversion factor
provides parity between the other
banking agencies and the NCUA. The
final rule provides 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 forward
agreements that are not derivative
contracts. Including an explicit 100
percent conversion factor provides
parity between the other banking
agencies and the NCUA. For forward
agreements that are not derivative
contracts, the final rule provides 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 final rule provides
different risk weights for guarantees and
credit derivatives. Guarantees would
receive a 100 percent risk weight. For
credit derivatives, the risk weight is
determined through the applicable
provisions of the FDIC’s capital rules. A
credit union offering credit protection
through a credit derivative risk weights
the exposure according to 12 CFR
324.34 (for derivatives that are not
cleared) or 12 CFR 324.35 (for
derivatives that are cleared exposures).
For sold credit protection through
guarantees and credit derivatives, the
final rule provides for a 100 percent
credit conversion factor.
The Board understands the 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. But credit
derivatives are complex instruments.
And, credit derivatives are not a
permissible activity for FCUs, and the
Board believes that state-chartered
credit unions should only offer credit

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derivatives if the credit union has the
appropriate resources and capabilities to
manage the associated complexity. 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. Thus, the Board
believes it is appropriate to reference
the other banking agencies’ 2013 capital
rules when determining the appropriate
risk weights for credit derivatives.75
For off-balance sheet securitization
exposures, the credit conversion factor
is 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 is
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 again have the option to use the
gross up approach).76 In contrast, a
subordinated tranche receives a 1,250
percent risk weight. Credit unions also
have the option to use the gross-up
approach.77
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 provides parity
between the other banking agencies and
the NCUA. Unlike the other banking
agencies’ rules, the final rule includes 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. For
securities borrowing or lending
transactions, the credit conversion
factor is 100 percent.
The final rule includes a 100 percent
risk weight for simplicity. A credit
union, however, 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 must meet the definition of
75 The Board is adopting these references for
consistency and believes they are appropriate, but
the Board will review these references in the future
if the FDIC makes changes and will consider any
adjustments as necessary.
76 12 CFR 702.104(c)(2)(v)(B)(8) (effective Jan. 1,
2022).
77 12 CFR 702.104(c)(2)(x) (effective Jan. 1, 2022).

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financial collateral under the other
banking agencies 2013 capital rules.78
The final rule also includes a specific
credit conversion factor and risk weight
for the off-balance sheet exposure
amount of repurchase transactions.79
Under the final rule, the off-balance
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. The off-balance
sheet exposure amounts of repurchase
transactions are not provided a credit
conversion factor under the 2015 Final
Rule. The final rule provides a 100
percent risk weight for the off-balance
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 324.37.80
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
78 See 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).
79 Repurchase transactions means 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.
80 The Board is adopting references to the FDIC’s
regulations for consistency and believes that these
references are appropriate, but the Board will
review these references in the future if the FDIC
makes changes and will consider any adjustments
as necessary.

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purposes of the CCULR eligibility
criteria.81
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.82
The Board, however, does not believe
that repurchase transactions are a
material exposure for credit unions. As
of June 30, 2021, there are 26 complex
credit unions with repurchase
transactions on their balance sheets.
Thus, the final rule includes the offbalance sheet portion of repurchase
transactions for purposes of risk-based
capital, even though such transactions
are not included as part of the offbalance sheet eligibility criteria under
the CCULR framework.83
Finally, the final rule includes a
‘‘catchall’’ category. Under the final
rule, all other off-balance sheet
exposures not explicitly provided a
credit conversion factor or risk weight
that meet the definition of a
commitment are 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.84 To ensure all offbalance sheet exposures that met the
definition of commitment are provided
a credit conversion factor and risk
weight, the final rule includes 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
81 12

CFR 324.12(a)(2)(iii).
CFR 324.33(b)(4)(ii).
83 The final rule also revises the definition of offbalance sheet items. The definition of off-balance
sheet items includes 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 off-balance sheet criteria for eligibility
in the CCULR framework.
84 12 CFR 702.2 (effective Jan. 1, 2022).
82 12

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securitizations issued by credit unions
and has decided to amend the 2015
Final Rule to explicitly address credit
union issued securitizations.
The proposed rule required 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 reviewed these
standards and found they would be
appropriate as applied to credit union
securitizations, with the minor
differences noted below. Specifically,
under the final 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); 85 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.86 The Board believes

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85 Under

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.
86 Under the other banking agencies’ 2013 capital
rule, a synthetic securitization means a transaction

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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 is 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
currently adopting these requirements.
The final 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 adopting 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.87 CEIOs that do not
qualify as a gain-on-sale are given a
1,250 percent risk weight.88 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. And though
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
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.
87 See, 12 CFR 324.22(a)(4) and 12 CFR
324.42(a)(1).
88 See, 12 CFR 324.42(a)(1).

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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, but the 2015 Final Rule permits
a credit union to use the gross-up
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.
Thus, the final rule includes 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 akin to bankissued securitizations, the final rule is
slightly different than the other banking
agencies’ 2013 risk-based capital rule for
simplicity. Under the final rule, the
gain-on-sale amount from a
securitization transaction, generally the
CEIO, will be included in 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.
One commenter specifically
supported the securitization framework,
which generally references the capital
rule of the other banking agencies.
Another commenter questioned why the
Board did not adopt the entirety of the
other banking agencies’ framework and
recommended granting complex credit
unions the option to use the gross-up
approach for risk weighting nonsecurity beneficial interest of a
securitization. The commenter stated
that this would ensure that credit
unions have at least the same flexibility
as non-advanced approaches banks. The
other banking agencies do not permit
the use of the gross-up approach for a
securitization gain-on-sale, and require
the full deduction of the gain-on-sale
from the tier 1 capital numerator.89
Further, the Board believes its approach
is simpler and provides a more
conservative overall risk weight. The
Board believes this approach is
warranted given the limited
89 12

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securitizations issued by credit unions
at this time.
Under the final rule, a non-security
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. Thus, under the final 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 akin to the treatment
provided by the other banking agencies
in their 2013 risk-based capital rule.
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, can be riskweighted using the gross-up approach.
The Board also notes that although
the final rule is currently adopting the
FDIC’s approach to securitization
through a cross reference, as with other
FDIC provisions referenced elsewhere in
this final rule, the Board will review the
FDIC’s treatment of securitizations in
the future if it makes changes and will
consider any adjustments as necessary.
3. Mortgage Servicing Assets
The Board proposed to amend 12 CFR
702.104(b), risk-based capital
numerator, to deduct mortgage servicing
assets that exceed 25 percent of the sum
of the capital elements in 12 CFR
702.104(b)(1), less deductions required
under 12 CFR 702.104(b)(2)(i) through
(iv) of this section. A few commenters
did not support the proposed deduction
of MSAs. One commenter noted that
CCULR lacks a comparable restriction
and the risk-based capital rule is
primarily designed for credit risk and
not operational or market risk.
The Board is not making changes in
response to the commenters.
The Board is including a deduction to
the risk-based capital numerator for
MSAs that exceed 25 percent of the riskbased 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.90 Under the other
banking agencies’ revised risk-based
capital rule, banking organizations
deduct MSAs that exceed 25 percent of
90 84

FR 35234 (July 22, 2019).

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the banking organization’s common
equity tier 1 capital.91 The Board
believes the simplification of the other
banking agencies’ approach allows the
NCUA to be consistent with the other
banking agencies’ risk-based capital
rule. Also, the Board believes it is
important to implement prudential
conditions around MSAs as the Board is
considering a final rule to amend parts
703 and 721 to allow FCUs to purchase
mortgage servicing rights 92 from other
FICUs.93 This rule may potentially
increase MSA holdings for complex
credit unions.
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 to the other
risks on their balance sheets. As
mentioned in the preamble of the 2015
Final Rule, the risks of MSAs contribute
to a high level of uncertainty regarding
the ability of credit unions to realize
value from these assets. Thus, the Board
believes it is appropriate to add the riskbased numerator deduction to address
the potential of complex credit unions
purchasing MSAs from other FICUs.
The treatment would not have an
immediate effect on complex credit
unions. As of June 30, 2021, the largest
concentration in MSAs held by complex
credit unions was just under 12 percent
of the credit union’s net worth. While
net worth and the risk-based capital
numerator are different calculations, the
two calculations are similar enough to
state, with a high degree of certainty,
there are no complex credit unions as of
June 30, 2021, that would be required to
deduct MSAs from the risk-based
capital numerator.
Finally, the Board is aware that some
commenters believe deducting
exposures of MSAs over 25 percent of
their risk-based capital numerator is
punitive. The Board notes 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.94 The Board also believes
including the MSA deduction from the
risk-based capital numerator is prudent
91 12

CFR 324.22(d).
terms mortgage servicing rights and MSAs
are used interchangeably.
93 85 FR 86867 (Dec. 31, 2020).
94 Report 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.
92 The

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for potential balance sheets complex
credit union may have in the future.
To determine if a complex credit
union would be subject to the MSA
deduction from the risk-based capital
numerator, the complex credit union
first needs to calculate the risk-based
capital numerator before the MSA
deduction. This calculation is in the
2015 Final Rule and requires 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,
the previous calculation is the riskbased capital numerator. If its MSAs
exceed 25 percent, the complex credit
union will need to deduct the amount
of MSAs that exceed 25 percent from
the previous calculation. All MSA
exposures that are not deducted from
the risk-based capital numerator are
risk-weighted in the risk-based capital
denominator at 250 percent.
4. Supranational Organizations and
Multilateral Development Banks
The Board proposed amending the
risk-based capital rule to assign a risk
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.95
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. A few commenters specifically
supported the zero percent risk weight
for supranational entities, and none
opposed it. The Board is finalizing this
provision without change. The Board
notes that MDBs are not permissible
investments for FCUs under the general
investment authorities but may be
permissible for federally insured, statechartered credit unions under state
investment authorities. But FCUs may
invest in MDBs under 12 CFR 701.19
95 12 CFR 702.104(c)(2)(v)(C) (effective Jan. 1,
2022).

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and 721.3(b), subject to some
conditions.
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 COVID–
19.96 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 as a result of
COVID–19, including employee salaries,
sick leave, other paid leave, and health
insurance expenses. 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.97
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 riskweight.98 The 2020 interim final rule
stated the NCUA’s risk-based capital
regulations would be amended in the
future. The Board proposed to update
the 2015 Final Rule to reflect that PPP
loans receive a zero percent risk weight.
No comments were received on this
proposed change and the Board is now
finalizing it as proposed.

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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.99 The rulemaking
amended several defined terms that are
also included in the 2015 Final Rule.
For consistency, the proposed rule
updated those definitions that are also
included in the 2015 Final Rule. The
Board received no comments on these
changes and is now finalizing it without
additional change. First, under the final
rule, the term derivative is 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
96 Public
97 Public

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

2020)
98 85 FR 23212 (Apr. 27, 2020).
99 86 FR 28241 (May 26, 2021).

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rate.’’ 100 Second, the rule makes 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.101 The Board is adopting
references to the CFTC regulations for
consistency and believes these
definitions appropriately define the
terms, but the Board will review these
references in the future if the CFTC
makes changes and will adjust as
necessary.
7. Definitions of Consumer Loan and
Current
The Board proposed to amend the
definitions for Consumer Loan and
Current in 12 CFR 702.2. The Board
received no comments on this proposed
change and is now finalizing it without
change. The Board is amending these
definitions to clarify the 2015 Final
Rule. The 2015 Final Rule does not
include leases in the definition of
Consumer Loan, although the 2014 RiskBased Capital notice of proposed
rulemaking 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.’’ 102 Without
this change the treatment of consumer
leases is unclear and, thus, may be riskweighted in the catchall category of 100
percent. The change makes clear that
consumer leases receive a 75 percent
risk weight. Due to the amendment in
the definition of a consumer loan, the
definition of current is also amended for
consistency and includes the term
leases.
100 The 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).
101 The 2015 Final Rule states a derivative
clearing organization is ‘‘as defined by the
Commodity Futures Trading Commission in 17 CFR
1.3(d).’’ The final rule defines a derivative clearing
organization ‘‘as defined by the Commodity Futures
Trading Commission (CFTC) in 17 CFR 1.3.’’
Essentially the final rule removes the ‘‘(d)’’.
Similarly, the more specific reference in the 2015
Final Rule is updated with the more general
reference included in the recent derivative rule.
102 79 FR 11184, 11198 (Feb. 27, 2014).

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8. Treatment of Goodwill in the 2015
Final Rule
The 2015 Final Rule requires complex
credit unions to deduct goodwill 103
from the risk-based capital numerator.
The proposed rule did not include any
changes to the deduction of goodwill
under the 2015 Final Rule. The
proposed rule, however, asked about the
advantages and disadvantages of
deducting goodwill from regulatory
capital under the 2015 Final Rule. The
proposed rule also asked commenters
whether not deducting goodwill from
regulatory capital would adequately
protect the NCUSIF in the event of a
failure and liquidation given that
goodwill is not a tangible asset. Several
commenters urged the agency to permit
credit unions to include goodwill in the
risk-based capital numerator. One
commenter stated that deducting
supervisory goodwill restricts growth
and decreases the likelihood that a
healthy, well-capitalized credit union
will assist with a supervisory merger of
an under-capitalized credit union.
Another commenter said the deduction
penalizes credit unions that have just
gone through a merger.
Under the 2015 Final Rule, the Board
permitted credit unions to exclude
certain goodwill and other intangible
assets from the deduction in the
numerator that occurred on or before
December 28, 2015. The proposed rule
asked whether this date should be
updated considering the subsequent
delays to the risk-based capital rule. A
few commenters encouraged the agency
to alleviate any potential confusion by
amending this date. Several commenters
suggested grandfathering all goodwill
prior the effective date of the CCULR
framework or the risk-based capital
framework. Another commenter
recommended establishing a formal
approval process for grandfathered
goodwill with required criteria such as
annual goodwill impairment testing.
Another commenter stated that the relief
provided by the original 13-year period,
in which grandfathered goodwill is not
deducted, has been diminished due to
the delayed effective date for the riskbased capital rule.
As discussed previously, in response
to comments about the proposed
treatment of goodwill, the Board has
made two changes in the final rule. The
first change modifies the CCULR
qualifying criteria by not including
excluded goodwill and excluded other
intangible assets as part of the
calculation of the two percent qualifying
103 Note that under the 2015 Final Rule, the term
goodwill does not include excluded goodwill. See,
12 CFR 702.2 (effective Jan. 1, 2022).

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criteria. This change aligns the
treatment of goodwill in CCULR with
the treatment in risk-based capital. For
additional discussion on this change,
see Section B. Qualifying Complex
Credit Unions.
The final rule also amends the
treatment of goodwill under the 2015
Final Rule. Specifically, the final rule
removes the 2029 sunset date for
excluded goodwill and excluded other
intangible assets. Under the final rule,
credit unions will not be required to
deduct excluded goodwill from the riskbased capital numerator, even after
January 1, 2029. Credit unions would
not be required to deduct 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. The Board
believes credit unions that previously
supported the NCUSIF by assisting in
supervisory mergers should not be
penalized for these decisions.
Specifically, the Board is amending the
2015 Final Rule in response to
commenters’ concerns relating to the
deduction of excluded goodwill from
the risk-based capital numerator after
the completion of supervisory mergers.
The Board does not believe the
subsequent change in capital treatment
will unduly penalize credit unions.
M. Technical Amendments
The final rule includes several
technical amendments to part 702,
including some discussed in the
proposed rule and others that the Board
has identified in finalizing this rule.
First, the definition of total assets in 12
CFR 702.2 is amended to carry forward
the PPP-related change made in the
2020 interim final rule. Specifically,
under the final rule, the definition of
total assets would be amended to
explicitly state that PPP loans pledged
to the Federal Reserve Board’s PPP
Lending Facility to support PPP lending
are excluded from the definition of total
assets.104 This 2020 interim final rule
made this change to the definition of
total assets in the currently effective
version of 12 CFR 702.2, but did not
make the change to the definition of
total assets as implemented by the 2015
Final Rule. This technical correction
will ensure the definition carries past
2021 as intended. The definition will
also include an amended citation. The
2015 Final Rule stated that, for each
104 Specifically, the 2020 interim final rule
updated the currently effective § 702.2 and the
definition of total assets, however, the interim final
rule did not update the definition of total assets that
will be effective January 1, 2022.

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quarter, a credit union must elect one of
the measures of total assets to apply
except for 12 CFR 702.103 through
702.106 (risk-based capital
requirement). The exception should be
for 12 CFR 702.103 through 702.105.
This change has been made in the final
rule.
The second technical amendment
adjusts the definition of the net worth
ratio from the 2015 Final Rule. The
change clarifies that the net worth ratio
is rounded to two decimal places, but
the rounding occurs only after the ratio
is expressed as percentage.
The final rule also includes two
technical amendments to 12 CFR part
703 that were included in the proposed
rule. Both amendments make minor
corrections related to the 2015 Final
Rule. The Board received no comment
on the proposed amendments and is
finalizing them without change.
N. Other Comments Beyond the Scope
of the Proposed Rule
Several commenters offered
recommendations that went beyond the
scope of the proposed changes to the
2015 Final Rule. For example, several
commenters recommended the Board
consider rescinding or delaying the
2015 Final Rule. The Board continues to
believe the current risk-based net worth
standards have weaknesses and revised
standards with enhanced risk sensitivity
are appropriate for complex credit
unions. The Board is not currently
rescinding the 2015 Final Rule.
Delaying the 2015 Final Rule is also
outside the scope of the proposed rule,
which did not discuss amending the
effective date of the 2015 Final Rule.
Also, the Board continues to believe that
a delay to the effective date of the 2015
Final Rule is unnecessary, as discussed
previously.
Another commenter recommended
the Board consider refinements to the
subordinated debt framework
contemporaneously with changes to the
risk-based capital rule. Neither the
subordinated debt final rule nor the
2015 Final Rule are yet effective. The
Board will separately monitor
implementation of the subordinated rule
and consider any appropriate changes in
the future.
Other commenters urged the Board to
eliminate the higher risk-weighting for
concentrations of first-lien mortgages,
junior-lien mortgages, MSAs, and
commercial loans. One commenter
stated these concentration limits are not
generally comparable to the risk-based
capital rules of the other banking
agencies or the Basel Framework. One
commenter requested investments in
CUSOs be risk-weighted at no more than

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100 percent. Another commenter stated
MSAs should not be subject to a higher
risk weight under the risk-based capital
rule, which is currently 250 percent.
The commenter recommended 150
percent. The Board believes these
recommendations are beyond the scope
of the proposed rule. As discussed
previously, amendments to risk-weights
can be considered anytime in the future
by the Board, or during the Board’s
regular process to review regulations
every three years.
V. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act 105
requires the NCUA to prepare an
analysis describing any significant
economic impact a regulation may have
on a substantial number of small entities
(primarily those under $100 million in
assets).106 This final rule affects 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
under $100 million in total assets would
not be affected by this final rule.
Accordingly, the NCUA certifies this
final rule does 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 final rule
will revise existing information
collection requirements to the Call
Report (Office of Management and
Budget control number 3133–0004).
These revisions will be addressed in a
separate Federal Register notice and
will be submitted for approval by the
Office of Information and Regulatory
Affairs at the Office of Management and
Budget.
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.107 The NCUA,
an independent regulatory agency, as
defined in 44 U.S.C. 3502(5), voluntarily
complies with the executive order to
105 5

U.S.C. 601 et seq.
U.S.C. 603(a).
107 64 FR 43255 (Aug. 4, 1999).
106 5

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adhere to fundamental federalism
principles. The final rule applies to all
federally insured natural-person credit
unions, including federally insured,
state-chartered natural-person credit
unions. Accordingly, the Final Rule 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
executing the statutory mandate to
adopt a system of PCA to apply to all
federally insured, natural-person credit
unions. The NCUA has consulted with
representatives of state regulators
regarding the impact of the final rule
during the rulemaking process.
D. Assessment of Federal Regulations
and Policies on Families
The NCUA has determined that this
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).

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E. Small Business Regulatory
Enforcement Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996
(SBREFA) generally provides for
congressional review of agency rules.108
A reporting requirement is triggered in
instances where the NCUA issues a final
rule as defined in the Administrative
Procedure Act.109 Besides being subject
to congressional oversight, an agency
rule may also be subject to a delayed
effective date if it is a ‘‘major rule.’’ As
required by SBREFA, the NCUA will
submit this final rule to the Office of
Management and Budget for it to
determine if it is a ‘‘major rule’’ for
purposes of SBREFA. The NCUA also
will file appropriate reports with
Congress and the Government
Accountability Office so this rule may
be reviewed.
F. Administrative Procedure Act
The Administrative Procedure Act
typically requires a 30-day delayed
effective date, except for (1) substantive
rules which grant or recognize an
exemption or relieve a restriction; (2)
interpretative rules and statements of
policy; or (3) as otherwise provided by
the agency for good cause.110 Because
qualifying complex credit unions that
opt into the CCULR framework under
108 5

U.S.C. 551.

109 Id.
110 5

U.S.C. 553(d).

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the final rule are exempt from
compliance with the 2015 Final Rule,
the final rule is exempt from the
Administrative Procedure Act’s delayed
effective date requirement.
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 December 16, 2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.

For the reasons stated in the
preamble, the NCUA amends 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. Amend § 702.2 by:
a. Adding in alphabetical order the
definitions of ‘‘CCULR’’;
■ b. Revising the definition of
‘‘Consumer Loan’’,
■ c. Adding in alphabetical order the
definition of ‘‘Credit derivative’’;
■ d. Revising the definitions of
‘‘Current’’, ‘‘Derivative contract’’,
‘‘Derivatives Clearing Organization’’,
‘‘Excluded goodwill’’, ‘‘Excluded other
intangible assets’’;
■ e. Adding in alphabetical order the
definitions of ‘‘Forward agreement’’,
‘‘Multilateral development bank’’;
■ f. Revising the definition of ‘‘Net
worth ratio’’;
■ g. Adding in alphabetical order the
definition of ‘‘Non-security beneficial
interest’’;
■ h. Revising the definition of ‘‘Offbalance sheet exposure’’, ‘‘Off-balance
sheet items’’;
■ i. Adding in alphabetical order the
definition of ‘‘Repurchase transaction,’’
■ j. Revising the definitions of ‘‘Swap
dealer’’, and ‘‘Total assets’’; and
■ k. Adding in alphabetical order the
definitions ‘‘Trading assets’’, ‘‘Trading
liabilities’’, and ‘‘Unconditionally
cancelable’’.
The revisions and additions 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.
*
*
*
*
*

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72803

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.
*
*
*
*
*
Excluded 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.
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.
*
*
*
*
*
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

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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.
*
*
*
*
*
Net worth ratio means the ratio of the
net worth of the credit union to the total
assets of the credit union, expressed as
a percentage rounded to two decimal
places.
*
*
*
*
*
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 means:
(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.

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(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 means offbalance sheet exposures and the offbalance sheet exposure amount of
repurchase transactions.
*
*
*
*
*
Repurchase transactions means 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.
*
*
*
*
*
Total assets means a credit union’s
total assets as measured by either:
(1)(i) 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;
(ii) 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;
(iii) Average daily balance. The credit
union’s total assets measured by the
average daily balance over the
applicable calendar quarter; or
(iv) 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.
(2) For each quarter, a credit union
must elect one of the measures of total

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assets listed in paragraph (1) of this
definition to apply for all purposes
under this part except §§ 702.103
through 702.105 (risk-based capital
requirement).
(3) Notwithstanding paragraph (1) of
this definition, a credit union may
exclude loans pledged as collateral for
a non-recourse loan that is provided as
part of the Paycheck Protection Program
Lending Facility, announced by the
Federal Reserve Board on April 7, 2020,
from the calculation of total assets for
the purpose of calculating its net worth
ratio. For the purpose of this provision,
a credit union’s liability under the
Facility must be reduced by the
principal amount of the loans pledged
as collateral for funds advanced under
the Facility.
*
*
*
*
*
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 paragraphs
(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 risk-

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based 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 9.0 percent or greater; 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

72805

period, as defined in § 702.104(d)(7),
and has a CCULR of 7.0 percent or
greater.
*
*
*
*
*

TABLE 1 TO § 702.102—CAPITAL CATEGORIES
Risk-based capital
ratio, if applicable

CCULR, if
applicable

Capital classification

Net worth ratio

Well Capitalized ......
Adequately Capitalized.
Undercapitalized .....
Significantly Undercapitalized.

7% or greater .......
6% or greater .......

And ...
And ...

10% or greater .....
8% or greater .......

Or ......
Or ......

9% or greater * .....
N/A ........................

4% to 5.99% .........
2% to 3.99% .........

Or ......

Less than 8% .......
N/A ........................

Or ......

N/A ........................
N/A ........................

Critically Undercapitalized.

Less than 2% .......

N/A ........................

And subject to following
condition(s) . . .
And does not meet the criteria to be
classified as well capitalized.
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.

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 9.0
percent.

*
■

*
*
*
*
5. Revise § 702.103 to read as follows:

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§ 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 the word ‘‘and’’ at the end
of paragraph (b)(2)(iii);
■ c. Remove the period at the end of
paragraph (b)(2)(iv) and add in its place
‘‘; and;
■ d. Add paragraph (b)(2)(v);
■ e. Add paragraphs (c)(2)(i)(B)(3) and
(c)(2)(i)(D);
■ f. Revise paragraphs (c)(2)(vii) and (x);
■ g. Revise paragraph (c)(4) introductory
text;
■ h. Redesignate paragraphs
(c)(4)(iii)(A) through (E) as (c)(4)(iii)(B)
through (F) and add new paragraph
(c)(4)(iii)(A);
■ i. Add paragraphs (c)(4)(iv) through
(x); and
■ j. Add paragraphs (c)(6), (d), and (e).
The revisions and additions read as
follows:

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§ 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

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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

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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.
(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 9.0 percent or greater.
(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 9.0 percent or
greater;
(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

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(iv) Has the sum of total goodwill and
total 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 at the end of each
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

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§ 702.102(a)(1) and its capital
classification is determined by its net
worth ratio.
(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 that is not a supervisory
merger or combination has no grace
period and must comply with the riskbased capital ratio under paragraphs (a)
through (c) of this section in the quarter
it ceases to be a qualifying complex
credit union.
(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
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, amend paragraph
(d)(3)(iii) by
■ a. Removing the phrase ‘‘net worth
classification’’ and adding in its place
the phrase ‘‘capital classifications’’; and
■ b. Removing the phrase ‘‘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. 2021–27644 Filed 12–22–21; 8:45 am]
BILLING CODE 7535–01–P

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