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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules
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raised in Question 9, the Board could consider alternative definitions of capital, for example, the risk-based capital numerator, such that Subordinated Debt is included as capital for purposes of the CCULR framework.
However, the Board notes that the riskbased capital numerator also includes deductions that are not included in the definition of net worth.
Question 9: What are the advantages and disadvantages of using the net worth ratio as the measure of capital adequacy under the CCULR? Should the Board consider alternative measures for the CCULR? Instead of the existing net worth definition, the proposed rule could use the risk-based capital ratio numerator from the 2015 Final Rule.
The Board could also consider drafting a new numerator for purposes of the CCULR. For example, the Board could use net worth as the basic framework for the CCULR numerator, but then make additional deductions.
D. Calibration of the CCULR
Under the proposal, a qualifying complex credit union may opt into the CCULR framework if it meets the minimum CCULR at the time of opting into the CCULR framework. A
qualifying complex credit union opting into the CCULR framework that maintains the minimum ratio or higher would be considered well capitalized.
Commenters to the ANPR, recommended a wide range for the minimum amount of capital necessary for the CCULR framework. Some commenters stated the CCULR should be no greater than eight percent. One commenter supported eight percent by referring to a 2020 Federal Deposit Insurance Corporation FDIC survey.
The commenter stated that the FDICs 2020 study of the CBLR found that under the nine percent leverage ratio, only three percent of banks would see their capital buffers shrink by taking the CBLR option. The commenter stated that for credit unions, a comparable measure of capital relief would be accomplished with a leverage ratio set between eight and 8.5 percent. Other commenters, including a banking trade organization, said nine percent should be the minimum the CBLR is set at nine percent. One commenter recommended 11 percent, which is 400 basis points above the well capitalized leverage ratio the CBLR is set 400 basis points above the other banking agencies wellcapitalized leverage ratio. A commenter also recommended a reduced calibration due to accelerated asset growth in the last year.
In proposing 10 percent as the fully phased-in well-capitalized ratio
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requirement for qualifying complex credit unions, the Board considered several factors. The proposed calibration of the CCULR, in conjunction with the qualifying criteria, seeks to strike a balance among several objectives, including maintaining strong capital levels in the credit union system, ensuring safety and soundness, and providing appropriate regulatory burden relief to as many credit unions as possible. The CCULR framework is designed to generally require credit unions to hold more capital than would be required for a credit union under the 2015 Final Rule. The Board also considered aggregate levels of capital among complex credit unions. The CCULR framework would not result in a reduction of the minimum amount of capital held by complex credit unions and would likely result in an overall increase in minimum amount of required capital held by complex credit unions. Additional data on capital levels under the proposed rule are discussed below.
The Board also considered comparability to the other banking agencies CBLR framework, which established a CBLR of nine percent that is, if an insured bank has a CBLR of nine percent it is considered well capitalized. As discussed previously, the EGRRCPA mandates a higher capital requirement to qualify for the CBLR
framework than the five percent leverage ratio required for wellcapitalized status under the other banking agencies capital regulations.71
Specifically, the EGRRCPA requires that the CBLR be not less than eight percent and not more than 10 percent for qualifying community banks.72 This statutory requirement calibrates the CBLR to maintain the overall amount of capital currently held by qualifying community banking organizations.73
The NCUA is not subject to the statutory requirement of not less than eight percent and not more than 10 percent;
however, the Board considers the congressional directive as an important reference point in considering a comparable CCULR framework.
The 8 to 10 percent range established by Congress for the CBLR is 300 to 500
basis points higher than the five percent leverage ratio required for wellcapitalized status under the other banking agencies PCA framework.
Insured banks and credit unions, however, have different minimum requirements under their PCA
71 12 CFR 6.4 OCC, 12 CFR 208.43 Federal Reserve Board, and 12 CFR 324.403 FDIC.
72 Supra note 11.
73 Supra note 12, at 61778.

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frameworks. Insured banks must maintain a leverage ratio of five percent to be considered well capitalized, whereas insured credit unions are statutorily required to have a seven percent net worth ratio to be considered well capitalized. Therefore, a similar 300 to 500 basis points range would equate to a CCULR of 10 to 12 percent for credit unions.
The Board notes that one of the underlying reasons for the higher statutory net worth requirement may no longer be as relevant given changes in the credit union industry since CUMAA
was enacted over 20 years ago. When CUMAA was enacted in 1998, Congress determined that a higher net worth ratio was appropriate because credit unions cannot quickly issue capital stock to raise their net worth as soon as a financial need arises.74 Instead, credit unions must rely on retained earnings to build net worth, which necessarily takes time. In addition, according to the 2001
Treasury Report, issued pursuant to CUMAA on the NCUAs compliance with the statute, Congress established a capital level two percentage points higher because one percent of a credit unions capital is dedicated to the NCUSIF and another one percent of a typical credit unions capital is dedicated to its corporate credit union.75 In 1998, most credit unions had at least .5 percent of their assets in corporate credit unions.76 That is no longer true. Today, a significant amount of complex credit unions have less than 0.25 percent of their capital invested in corporate credit unions.77 Furthermore, the aggregate total capital complex credit unions have dedicated to corporate credit unions, through nonperpetual capital and perpetual contributed capital, is just under 0.04
percent of complex credit union assets.
Due to the reduction of concentration in corporate credit union capital, the Board 74 The Department of the Treasury, Comparing Credit Unions With Other Depository Institutions, p. 11 Jan. 2001 2001 Treasury Report.
75 Id.
76 Note, 6,874 of 10,972 credit unions had more than 0.5 percent of assets in Membership Capital Share Deposit and Paid-In Capital of Corporate Credit Unions as of December 1998. The Board also notes that an FCU is permitted to invest up to two percent of its assets in the perpetual and nonperpetual capital in one corporate credit union.
An FCUs aggregate amount of contributed capital in all corporate credit unions is limited to four percent of assets. Therefore, it is possible that in the future credit union investments in corporate credit unions exceeds the current investment amounts.
See 12 CFR 703.14b.
77 616 of 649 complex credit unions have less than 0.25 percent of assets in nonperpetual capital and perpetual contributed capital as of December 2020.

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