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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules
as determined by the Board, is not subject to the aggregate MBL limit.83
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.84
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 216c1A of the FCUA.85 Section 107A defines net worth for purposes of that section, providing that it includes the retained earnings balance, as determined under GAAP. Net worth under this section also includes, for credit unions that serve predominantly low-income members which the Board defines as low-income designated credit unions, 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.86
For credit unions that are not complex and therefore are not subject to a riskbased net worth requirement under section 216d 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 216c1Ai assuming the credit unions 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 83 12

U.S.C. 1757ab1.
U.S.C. 1575ab2.
85 12 U.S.C. 1757aa.
86 This definition does not expressly cover two elements that were added to the definition of net worth in section 216o2 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 111382, 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 216o2. The 2015 Final Rule amended the definition of net worth in part 702 effective January 1, 2022, but did not add or remove any of the components of net worth in the current regulation.

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under section 216d 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.87 However, 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 a risk-based requirement.88
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. The preamble to the 2016 final rule stated that where 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 seven 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.89
Therefore, 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 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,90
the risk-based capital ratio requires a complex credit union to hold net worth in dollars equal to 10 percent of the credit unions risk-weighted assets, as calculated under 702.104. The complex credit union would then 87 Prior to amendments that the Board adopted in the 2016, the MBL regulation limited MBLs to 12.25
percent of an insured credit unions total assets 1.75 times the seven percent net worth ratio.
88 80 FR 37898, 37909 July 1, 2015.
89 81 FR 13530, 13548 Mar. 14, 2016.
90 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.

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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 unions 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 that 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.91 For complex credit unions, the amount to be well capitalized under section 216c1A 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 proposed CCULR framework. A complex credit union must satisfy both of these requirements to be well capitalized under section 216c1A, which means that, in section 107As 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 107Aa points to section 216c1A to determine the minimum net worth required, and in turn, section 216c1A includes both the seven percent net worth ratio and the net worth required by any applicable riskbased net worth requirement, for complex credit unions. Reading section 107Aa to exclude the net worth required for complex credit unions under section 216c1Aii would ignore a key component of the plain language of section 216c1A and inappropriately treat it as surplusage.
The Board also finds that even if sections 107A and 216c1A 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 91 Therefore, the current language in part 723
remains valid, and the Board is not proposing any changes to part 723 at this time.

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