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Federal Register / Vol. 86, No. 44 / Tuesday, March 9, 2021 / Proposed Rules
As an alternative to the 2015 Final Rule, the Board is seeking comment on a simplified capital framework that satisfies the risk-based net worth requirement for complex FICUs. The Boards intention for the RBLR approach is to simplify the regulatory risk-based capital requirements, while ensuring the overall capital framework:

1 Complies with all applicable statutory and legal requirements, including the statutory PCA
requirements;
2 is easier to understand and use;
and 3 effectively identifies risk characteristics that trigger commensurate capital requirements.
The RBLR approach would utilize certain risk characteristics to determine the required capital level. This approach differs from the 2015 Final Rule, where all assets and certain off-balance sheet activities are categorized into risk groups and then risk-weighted to produce a risk-based ratio. The Board is also considering using the net worth
ratio as the RBLR measurement, which is already a well-established, simplified, and observable measurement. The net worth ratio would be supplemented with mandatory capital buffers when certain risk factors are triggered. This approach, illustrated in the chart below, would require an extra cushion of capital buffers over and above the seven percent net worth ratio standard for classification as well capitalized when certain characteristics inherent in a FICUs balance sheet exceed specified thresholds. The amount of the capital buffer would be a discreet percentage of net worth-to-total assets over seven percent and would be a mandatory capital requirement.

The Board is considering basing the RBLR risk factors on the asset categories from the 2015 Final Rule, which utilize higher risk weightings. For example, there are a number of risk-based capital categories under the 2015 Final Rule that receive a risk weighting greater than 100 percent. These categories include:
Non-current loans, commercial loans exceeding 50
percent of assets, junior lien real estate loans exceeding 20 percent of assets, mortgage servicing rights, and other investment activities.
The Board may also consider other asset concentration risk factors in developing risk thresholds.
As previously mentioned, the Board seeks a reduction in the administrative burden of categorizing all assets and offbalance balances into risk categories.
The RBLR approach would identify certain risk factors and establish
thresholds that would trigger a capital buffer. The buffer amount might also vary based on the level of the applicable threshold. For example, if a FICU held a certain amount of commercial loans as a percentage of assets that triggered a Buffer A capital requirement, then the FICU would be required to hold a higher net worth ratio to maintain a wellcapitalized classification. However, if a second and higher threshold were established for commercial loans, then it is possible that the FICU will be required to hold an additional amount of capital above the first buffer amount Buffer B.
The Boards intention is that the RBLR will streamline compliance with capital requirements without sacrificing the safety and efficacy of the overall capital regime. As envisioned, the greater simplicity would come from converting the current computational framework for complex credit unions
into a three-tiered system of minimum leverage ratios for all complex FICUs.
The minimum leverage ratio necessary to be well capitalized under RBLR
would remain at seven percent, with two higher tiers applied to those complex credit unions exhibiting quantified amounts of higher relative risk. The defining risk attributes would be a function of the types and concentration of underlying assets.
Basing the RBLR on the net worth ratio would significantly reduce the Call Report requirements and utilize a measurement that FICUs are already familiar with. However, while an RBLR
approach would be simpler, it may also result in a higher capital requirement for certain FICUs that have riskier assets when compared to the risk-based capital framework. The Board welcomes input on which asset types and concentrations stakeholders view as most significant to establish capital buffers in excess of the
rulemaking authority conferred by section 120 of the FCUA and as discussed in this preamble, the more specific grant of authority under section 216.
IV. Risk-Based Leverage Ratio RBLR

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A. Overview of RBLR Approach
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