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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations 702.104

PART 702CAPITAL ADEQUACY
5. The authority citation for part 702
continues to read as follows:

Authority: 12 U.S.C. 1766a, 1790d.

6. In 702.2:
a. Add a sentence after the first sentence of the introductory text;
b. Add a definition for Grandfathered Secondary Capital in alphabetical order;
c. Amend the definition of Net worth by revising the introductory text and paragraphs 1 and 2; and d. Add a definition for Subordinated Debt in alphabetical order.
The additions and revisions read as follows:

702.2

Definitions.

All accounting terms not otherwise defined in this section have meanings consistent with the commonly-accepted meanings under United States generally accepted accounting principles U.S. GAAP.
Grandfathered Secondary Capital means any secondary capital issued under 12 CFR 701.34 revised as of January 1, 2021 or, in the case of a federally insured, state-chartered credit union, with 741.204c of this chapter, before January 1, 2022. 12 CFR 701.34
was recodified as 702.414 as of January 1, 2022.

Net worth means, with respect to any federally insured, natural person credit union, as of any date of determination:
1 The retained earnings balance of the credit union at the most recent quarter end, as determined in accordance with U.S. 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 claims of creditors, shareholders, and the National Credit Union Share Insurance Fund.

Subordinated Debt has the meaning as provided in subpart D of this part.

7. In 702.104, revise paragraph b1vii and add paragraph c2vB9 to read as follows:

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Risk-based capital ratio.

b
1
vii 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; and

c
2
v
B
9 Natural person credit union Subordinated Debt, Grandfathered Secondary Capital, and loans or obligations issued by a privately insured credit union that are subordinate to the private insurer.

8. Amend 702.109 by:
a. Redesignating paragraphs a3 and 4 as paragraphs a4 and 5, respectively;
b. Adding new paragraph a3; and c. Revising paragraph b11.
The addition and revision read as follows:
702.109 Prompt corrective action for critically undercapitalized credit unions.

a
3 Restrictions on payments on Subordinated Debt. Beginning 60 days after the effective date of a federally insured, natural person credit union being classified by the NCUA as critically undercapitalized, that credit union shall not pay principal of or interest on its Subordinated Debt, except that unpaid interest shall continue to accrue under the terms of the related Subordinated Debt Note as defined in subpart D of this part, to the extent permitted by law;

b
11 Restrictions on payments on Grandfathered Secondary Capital.
Beginning 60 days after the effective date of classification of a credit union as critically undercapitalized, prohibit payments of principal, dividends or interest on the credit unions Grandfathered Secondary Capital as defined in subpart D of this part, except that unpaid dividends or interest shall continue to accrue under the terms of the account to the extent permitted by law;

10. Revise 702.205d to read as follows:

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702.205 Prompt corrective action for uncapitalized new credit unions.

d Discretionary liquidation of an uncapitalized new credit union. In lieu of paragraph c of this section, an uncapitalized new credit union may be placed into liquidation on grounds of insolvency pursuant to 12 U.S.C.
1787a1A.
702.206

Amended
11. Amend 702.206 by removing paragraph d and redesignating paragraphs e through h as d through g, respectively.

702.207 through 702.210 Redesignated as 702.208 through 702.211

12. Redesignate 702.207 through 702.210 as 702.208 through 702.211, respectively.
13. Add new 702.207 to read as follows:

702.207 Consideration of Subordinated Debt and Grandfathered Secondary Capital for new credit unions.

a Exception from prompt corrective action for new credit unions. The requirements of 702.204 and 702.205
do not apply to a new credit union if, as of the applicable date of determination, each of the following conditions is satisfied:
1 The new credit union has outstanding Subordinated Debt or Grandfathered Secondary Capital;
2 The Subordinated Debt or Grandfathered Secondary Capital would be treated as Regulatory Capital under subpart D of this part if the new credit union were a complex credit union or a low income-designated credit union;
3 The ratio of the new credit unions net worth including the amount of its Subordinated Debt and Grandfathered Secondary Capital treated as Regulatory Capital as defined in subpart D of this part to its total assets is at least seven percent 7%; and 4 The new credit unions net worth is increasing in a manner consistent with the new credit unions approved initial business plan or RBP.
b Consideration of Subordinated Debt and Grandfathered Secondary Capital in evaluating an RBP. The NCUA shall, in evaluating an RBP under this subpart, consider a new credit unions aggregate outstanding principal amount of Subordinated Debt and Grandfathered Secondary Capital.
c Prompt corrective action based on other supervisory criteria1
Application of prompt corrective action to an exempt new credit union. The NCUA Board may apply prompt corrective action to a new credit union
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