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lotter on DSK11XQN23PROD with PROPOSALS2

Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules pandemic and stress in U.S. financial markets, the NCUA has taken a number of actions intended to: i Restore market functioning and support the flow of credit to households, businesses, and Communities; and ii increase flexibility and tailor regulations.
Among those actions, the NCUA has communicated a number of rules and supervisory guidance designed to mitigate the economic consequences of the COVID19 pandemic, facilitate the safe and effective operations of credit unions, and protect credit union members.80 Credit unions have played an instrumental role in the nations financial response to the COVID19
pandemic, and many have experienced significant balance sheet growth because of the COVID19 pandemic and the policy response to the event.
The unprecedented and significant balance sheet growth is largely a result of individual member response to actions taken by monetary and fiscal authorities. At the start of the COVID
19 pandemic, consumer spending decreased as individual states or major metropolitan areas ordered millions of Americans to stay home. Additionally, market volatility pushed savers with money in financial markets to safer assets, including insured shares. Fiscal stimulus applied additional upward pressure on credit union total assets.
The Board is aware that the unprecedented balance sheet growth has resulted in declining net worth ratios for most complex credit unions. To help mitigate the impact of this unprecedented balance sheet growth, the Board is proposing a two-year transition provision to delay the introduction of a 10 percent CCULR.
This two-year phase would permit complex credit unions time to increase their net worth ratios.
Under the proposed rule, from January 1, 2022, to December 31, 2022, a complex credit union may opt into the CCULR framework if it has a net worth ratio of nine percent or greater.
Therefore, a qualifying complex credit union that opts into the CCULR
framework and that maintains a nine percent CCULR would be considered well capitalized. Beginning January 1, 2023, a complex credit union that has opted into the CCULR framework must have a CCULR of 9.5 percent or greater to meet the eligibility criteria. Finally, beginning January 1, 2024, a complex credit union must have a CCULR of 10
percent or greater to be eligible to determine their capital adequacy under the CCULR framework. Once an eligible credit union opts into the CCULR
80 See,
e.g., 86 FR 15397 Mar. 23, 2021.

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framework it would be eligible to use the two-quarter grace period, as discussed in section G. Compliance With the Proposed Criteria To Be a Qualifying Complex Credit Union.
Therefore, if a credit union has a CCULR
of nine percent when it opts into the CCULR framework on March 31, 2022, but does not have a CCULR of 9.5
percent on March 31, 2023, the credit union would have until September 30th to either have a CCULR of 9.5 percent or determine their capital adequacy under the risk-based capital framework.
As discussed previously, the temporary changes to the CBLR
framework implemented through the CARES Act expired December 31, 2021.81 Therefore, the temporary reduction in the CBLR to eight percent and 8.5 percent in calendar year 2021
will not be in effect when the 2015 Final Rule becomes effective. The Board, however, believes that due to credit unions unique structure and dependence on retained earnings to accumulate capital, additional time to accumulate capital will be beneficial to complex credit unions. The Board believes that the CCULR framework is beneficial to complex credit unions due to the reduced compliance costs for managing and documenting risk-based capital standards, and to the NCUSIF as complex credit unions that opt into the CCULR framework will be required to hold higher capital levels under the CCULR framework than the risk-based capital framework. The Board does not want complex credit unions that would have otherwise been eligible to opt into a CCULR framework calibrated at 10
percent to be temporarily ineligible due to unexpected asset growth following the COVID19 pandemic. The Board believes two years is sufficient time for complex credit unions that want to opt into the CCULR framework to build the necessary capital.
Question 16: What are the advantages and disadvantages of the transition provision starting at nine percent and permitting a transition period to a CCULR of 10 percent? Should the Board consider a transition period longer or shorter than two years? If suggesting a longer transition period, such as four years, discuss the merits of a longer phase-in and why the additional time over two years would be needed. Please provide specific data.
J. Reservation of Authority In general, a complex credit union that meets the eligibility criteria may opt into the CCULR framework.
81 Coronavirus Aid, Relief, and Economic Security Act, Public Law 116136, 134 Stat. 281.

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However, there may be limited instances in which the CCULR
framework would be inappropriate and not require sufficient capital to adequately protect the NCUSIF. To address such situations, the proposed rule includes a reservation of authority.
Under the reservation of authority, the Board can require a complex credit union that has opted into the CCULR
framework to use the risk-based capital framework to calculate its capital adequacy if the Board determines that the complex credit unions capital requirements are not commensurate with its credit or other risks. When making any such determination, the Board would consider all relevant factors affecting the complex credit unions safety and soundness.
The Board expects to apply the reservation of authority only in limited circumstances. Under the reservation of authority, credit unions would be entitled to a two-quarter grace period before being required to comply with the risk-based capital framework. The other banking agencies also have reserved the authority to disallow the use of the CBLR framework by a depository institution or depository institution holding company, based on the risk profile of the banking organization.
Question 17: The Board invites general comment on the reservation of authority in the proposed rule. Should the Board consider a reservation of authority that applies to the risk-based capital rule? Should the Board consider a general waiver provision or consider including a statement that assets can be provided a more conservative risk weight than provided in the proposed rule? Should the Board consider adopting notice and response procedures to be used in determining whether the reservation of authority should be used?
K. Effect of the CCULR on Other Regulations 1. Member Business Loan Cap Section 107A of the FCUA generally limits the aggregate amount of member business loans MBLs that an insured credit union may make, subject to exceptions for some categories of loans, such as loans granted by a corporate credit union to another credit union.82
In addition, the FCUA exempts certain credit unions from compliance with the aggregate MBL limit. Specifically, an insured credit union chartered for the purpose of making MBLs, or that has a history of making MBLs to its members, 82 12

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