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Federal Register / Vol. 86, No. 44 / Tuesday, March 9, 2021 / Proposed Rules seven percent threshold. The Board also welcomes views on the practicality of having discreet thresholds above seven percent to guard against higher risk, and striking the right balance between adequate buffers and the efficient allocation of capital.
Question 1: The Board invites comments on the merits of incorporating the RBLR approach as an alternative to the risk-based capital framework under the 2015 Final Rule.
What risk characteristics should be incorporated into the RBLR? Are the higher risk-weighted asset categories from the risk-based capital framework the correct starting point, or should the Board consider a different approach?
Question 2: The Board invites comments on what risk thresholds should be used for the risk factors. What measurements should be used and how would the measurement be reported and monitored? Should there be more than one capital buffer for a risk factor based on the measurement? How would multiple measurements be combined or weighted to determine the threshold?
Question 3: The Board invites comments on what capital buffers over the well-capitalized seven percent threshold should be used?

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B. Impact of RBLR on Subordinated Debt Final Rule The Board recognizes that any changes to the regulatory capital framework have potential consequences for other NCUA rulemakings. Other than the changes required to implement any regulatory capital framework changes, the Board believes the RBLR approach would require the NCUA to modify its recent final rulemaking regarding subordinated debt Subordinated Debt Rule.21 The Subordinated Debt Rule is a direct amendment to the 2015 Final Rule. As such, elimination of the 2015
Final Rule would alter the form and structure of the Subordinated Debt Rule.
Further, the current Subordinated Debt Rule allows a complex credit union that is not designated as a low-income credit union LICU to issue subordinated debt to include in the riskbased capital numerator.22 In an RBLR
approach, non-LICU complex credit unions may or may not be able to apply subordinated debt towards a capital calculation, depending on the ultimate 21 The final rule was approved by the Board at the December 17, 2020 meeting. See, https
www.ncua.gov/files/agenda-items/
AG20201217Item5b.pdf.
22 Subject to a 20 percent per annum discounting of outstanding Subordinated Debt once the remaining maturity is less than five years.

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design of the approach and the relevant legal and policy considerations.
The Board would be required to evaluate the ability of non-LICU
complex credit unions to use a subordinated debt instrument for the RBLR, as the FCUA includes a definition of net worth, which only allows LICUs to include such instruments in their net worth. The potential absence of utility for non-LICU
complex credit unions and the structural changes resulting from the repeal of the 2015 Final Rule may require amendments to the Subordinated Debt Rule. However, the Board notes the Subordinated Debt rule would not need to be modified with respect to non-complex LICUs and new credit unions. Changes to the Subordinated Debt rule would be focused on moving the rule from its current location in the 2015 risk-based capital rule, removing references to the risk-based capital rule, and amending the rule for possible use by complex credit unions of Subordinated Debt to meet any proposed RBLR.
Question 4: The Board invites comments on how a non-LICU complex credit union may be able to apply subordinated debt towards an RBLR
capital calculation.
V. Complex Credit Union Leverage Ratio CCULR
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.23 On November 13, 2019, the other banking agencies issued a final rule implementing this statutory directive CBLR Final Rule.24
The CBLR is an optional framework to the risk-based capital requirements for depository institutions and depository institution holding companies that meet the following criteria:
1. A leverage ratio equal to tier 1
capital divided by average total consolidated assets of greater than nine percent; 25
2. Total consolidated assets of less than $10 billion;
3. Total off-balance sheet exposures of 25 percent or less of its total consolidated assets;
23 Public
Law 115174 May 24, 2018. Section 201 is codified at 12 U.S.C. 5371 note.
24 84 FR 61776 Nov. 13, 2019.
25 Under section 4012 of Public Law 116136
Mar. 27, 2020, the CBLR was temporarily set to 8 percent. See, 85 FR 22924 Apr. 23, 2020. Under the statute, the temporary CBLR of 8 percent expired on December 31, 2020. The CBLR will transition back to 9 percent during calendar year 2021. See, 85 FR 22930 Apr. 23, 2020.

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4. Trading assets plus trading liabilities of five percent or less of its total consolidated assets; and 5. Not an advanced approaches banking organization.26
The CBLR Final Rule refers to the depository institutions and depository institution holding companies that meet these regulatory criteria as qualifying community banking organizations.
Qualifying community banking organizations that opt into the CBLR
framework are considered to be in compliance with the other banking agencies generally applicable risk-based and leverage capital requirements.
Further, for the purposes of section 38
of the Federal Deposit Insurance Act,27
these qualifying banking organizations will have met the well-capitalized ratio requirements. In exchange, the qualifying banking organization must maintain a greater amount of capital than normally required to be deemed well capitalized. Qualifying community banking organizations may opt into or out of the CBLR framework at any time.
The CBLR Final Rule includes a twoquarter grace period during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater than nine percent leverage ratio requirement, will still be deemed well capitalized. However, the qualifying community banking organization must maintain a leverage ratio greater than eight percent. At the end of the grace period, the banking organization must meet all qualifying criteria to remain in the CBLR
framework or otherwise must comply with and report under the generally applicable risk-based and leverage capital requirements. Similarly, a banking organization that fails to maintain a leverage ratio greater than eight percent will not be permitted to use the grace period and must comply with the generally applicable capital requirements and file the appropriate regulatory reports.
In March 2020, the CBLR was temporarily set to eight percent by statute.28 Accordingly, effective the second quarter of 2020, the CBLR
requirement was eight percent or greater.29 Banking organizations are still 26 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.
27 As noted previously, this is the statute that applies PCA to federally insured depository institutions, as defined under the Federal Deposit Insurance Act.
28 Supra, note 22.
29 See, 85 FR 22924 Apr. 23, 2020.

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