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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules
discussed subsequently in this preamble, the Board is proposing changes to the risk-weighting of MSAs under the 2015 Final Rule consistent with the other banking agencies riskbased capital regulations. Currently, MSA balances are insignificant enough relative to total assets that the Board believes a qualifying criterion would be unnecessary and would not have much, or any, effect. However, as discussed in the section on risk-based capital, revisions to the other banking agencies capital rules on this subject and potential increases in future activity warrant at least some adjustment to the risk-based capital treatment of MSAs.
But the Board does not currently find that even that potential increase, which is not certain and would depend on a separate, pending rulemaking, would warrant including MSAs as a qualifying criterion for the CCULR framework. The Board invites comment on this issue.
What are commenters views on the exclusion of such a qualifying criterion?

lotter on DSK11XQN23PROD with PROPOSALS2

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 unions net worth to its total assets rounded to two decimal places.64 Therefore, any amendments to the definition of the net worth ratio would also be applicable to the calculation of CCULR. For example, the Board finalized changes to the net worth ratio to provide that, for purposes of the prompt corrective action regulations, credit unions may phase-in the day-one impact of transitioning to the Current Expected Credit Loss CECL
methodology over a three-year period.65
This change would be part of a credit unions net worth ratio, and therefore, its CCULR. The 2015 Final Rule, as amended, defines net worth as:
1 The retained earnings balance of the credit union at quarter-end as determined under GAAP, subject to paragraph 3 of this definition.
2 With respect to a low-income designated credit union, the outstanding principal amount of Subordinated Debt treated as Regulatory Capital in accordance with 702.407, and the outstanding principal amount of Grandfathered Secondary Capital treated as Regulatory Capital in accordance with 702.414, in each case that is:
i Uninsured; and ii Subordinate to all other claims against the credit union, including 64 12
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claims of creditors, shareholders, and the NCUSIF.
3 For a credit union that acquires another credit union in a mutual combination, net worth also includes the retained earnings of the acquired credit union, or of an integrated set of activities and assets, less any bargain purchase gain recognized in either case to the extent the difference between the two is greater than zero. The acquired retained earnings must be determined at the point of acquisition under GAAP. A
mutual combination, including a supervisory combination, is a transaction in which a credit union acquires another credit union or acquires an integrated set of activities and assets that is capable of being conducted and managed as a credit union.
4 The term net worth also includes loans to and accounts in an insured credit union, established pursuant to section 208 of the Act 12
U.S.C. 1788, provided such loans and accounts:
i Have a remaining maturity of more than 5 years;
ii Are subordinate to all other claims including those of shareholders, creditors, and the NCUSIF;
iii Are not pledged as security on a loan to, or other obligation of, any party;
iv Are not insured by the NCUSIF;
v Have non-cumulative dividends;
vi Are transferable; and vii Are available to cover operating losses realized by the insured credit union that exceed its available retained earnings.
The proposed denominator of the CCULR would be a complex credit unions total assets, consistent with the net worth ratio. Total assets, as defined under the 2015 Final Rule, means:
1 Average quarterly balance. The credit unions total assets measured by the average of quarter-end balances of the current and three preceding calendar quarters;
2 Average monthly balance. The credit unions total assets measured by the average of month-end balances over the three calendar months of the applicable calendar quarter;
3 Average daily balance. The credit unions total assets measured by the average daily balance over the applicable calendar quarter; or 4 Quarter-end balance. The credit unions total assets measured by the quarter-end balance of the applicable calendar quarter as reported on the credit unions Call Report.66
The Board is proposing to use the net worth ratio for the CCULR for its 66 12

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CFR 702.2 effective Jan. 1, 2022.

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simplicity. Complex credit unions are required to calculate their net worth ratio regardless of whether they opt into the CCULR framework. Therefore, complex credit unions would not be required to calculate a unique ratio for purposes of opting into the CCULR
framework. Additionally, complex credit unions are already familiar with the net worth ratio, which would reduce compliance costs compared to a unique ratio designed for the CCULR. The Board intends for the CCULR to be a simple alternative to the risk-based capital ratio and is concerned that the burden imposed by a unique CCULR
would exceed its possible utility as a capital reporting measure.
The Board notes that the other banking agencies originally proposed a new ratio for purposes of the CBLR, but declined to adopt the definition due to the complexities that would be created by adopting a new measure of capital.67
Instead, the other banking agencies based the CBLR on the existing tier 1
capital definition, which is also the basis of the other banking agencies leverage ratio.68 Similarly, the Board is proposing to use the established and well understood net worth ratio rather than proposing a new definition of capital for purposes of the CCULR.
The Board considered using the riskbased capital ratio numerator from the 2015 Final Rule.69 The Board believes that the numerator to the 2015 Final Rule is a more conservative measure of capital compared to the net worth ratio because it includes several deductions, including deductions for the NCUSIF
capitalization deposit, goodwill, other intangible assets, and identified losses not reflected in the risk-based capital ratio numerator. The 2015 Final Rule, however, is not yet effective, and complex credit unions are not familiar with calculating and implementing the definition of capital.70 Therefore, the Board believes it is preferable to base the CCULR on the net worth ratio.
Several commenters to the ANPR
requested that all complex credit unions be permitted to use Subordinated Debt under any proposed CCULR framework.
Under the proposed rule, however, the CCULR is defined as net worth;
therefore, Subordinated Debt would not eligible for inclusion as capital under the CCULR framework unless the complex credit union is also a lowincome designated credit union. As 67 Supra
note 12, at 61783.
12 CFR 324.10b4.
69 12 CFR 702.104b effective Jan. 1, 2022.
70 As proposed, both the 2015 Final Rule and this CCULR framework would be effective January 1, 2022.
68 See,
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