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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules
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216b1A requires the Board to adopt by regulation a system of PCA for credit unions consistent with section 216 of the FCUA and comparable to section 38
of the FDI Act.28 Section 216b1B
requires that the Board, in designing the PCA system, also take into account the cooperative character of credit unions that is, credit unions are not-for-profit cooperatives that do not issue capital stock, must rely on retained earnings to build net worth, and have boards of directors that consist primarily of volunteers.29 The Board initially implemented the required system of PCA in 2000,30 primarily in part 702, and, as discussed previously, most recently made substantial updates to the regulation in the 2015 Final Rule.
Among other things, section 216c of the FCUA requires the NCUA to use a credit unions net worth ratio to determine its classification among five net worth categories set forth in the FCUA.31 Section 216o generally defines a credit unions net worth as its retained earnings balance as determined under generally accepted accounting principles GAAP,32 and a credit unions net worth ratio, as the ratio of its net worth to its total assets.33 As a credit unions net worth ratio declines, so does its classification among the five net worth categories, thus subjecting it to an expanding range of mandatory and discretionary supervisory actions.34
Section 216d1 of the FCUA
requires that the NCUAs system of PCA
include, in addition to the statutorily defined net worth ratio requirement, a risk-based net worth 35 requirement for principal and interest is unconditionally guaranteed by NCUA, 76 FR 16234 Mar. 23, 2011; revisions were made in 2013 to exclude credit unions with total assets of $50 million or less from the definition of complex credit union, 78 FR 4033 Jan. 18, 2013;
and revisions were made in 2020 to reflect loans issued under the Paycheck Protection Program, 85
FR 23212 Apr. 27, 2020.
28 12 U.S.C. 1790db1A; see also 12 U.S.C.
1831o section 38 of the FDI Act setting forth the PCA requirements for insured banks. In discussing the statutory requirement for comparability, the 2019 Supplemental Rule stated that the FCU Act requires the Board to adopt a PCA framework comparable to the PCA framework in the FDI Act.
The FCU Act, however, does not require the Board to adopt a system of risk-based capital identical to the risk-based capital framework for federally insured banking organizations.
29 12 U.S.C. 1790db1B.
30 12 CFR part 702; see also 65 FR 8584 Feb. 18, 2000 and 65 FR 44950 July 20, 2000.
31 12 U.S.C. 1790dc.
32 12 U.S.C. 1790do2.
33 12 U.S.C. 1790do3.
34 12 U.S.C. 1790dcg; 12 CFR 702.204ab.
35 12 U.S.C. 1790dd2. For purposes of this rulemaking, the term risk-based net worth requirement is used in reference to the statutory requirement for the Board to design a risk-based net worth requirement to take account of any material risks against which the net worth ratio required for
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credit unions that are complex, as defined by the Board. 36 The FCUA
directs the NCUA to base its definition of complex credit unions on the portfolios of assets and liabilities of credit unions. 37 If a credit union is not classified as complex, as defined by the NCUA, it is not subject to a risk-based net worth requirement. In addition to granting the NCUA broad authority to determine which credit unions are complex, and therefore subject to a riskbased net worth requirement, the FCUA
also grants the NCUA broad authority to design a risk-based net worth requirement to apply to such complex credit unions.38 Specifically, unlike the terms net worth and net worth ratio, the term risk-based net worth is not defined in the FCUA. Accordingly, section 216
grants the Board the authority to design risk-based net worth requirements, so long as the regulations are comparable to those applicable to other federally insured depository institutions and consistent with the requirements of the FCUA.
The proposed CCULR framework is comparable to section 38 of the FDI Act, as implemented by CBLR Final Rule.39
As discussed previously, section 201 of the EGRRCPA amended part of the other banking agencies capital adequacy framework to direct the other banking agencies to propose a simplified, alternative measure of capital adequacy for certain federally insured banks.40
The other banking agencies implemented this requirement, including amendments to their PCA
regulations under section 38 of the FDI
Act, in the CBLR Final Rule. The Board also notes that the proposed amendments to the NCUAs 2015 Final Rule would make the rule more comparable to the other banking agencies 2013 capital rules.
In addition to satisfying the comparability requirement in section 216, the proposed CCULR framework also meets the requirements in section an insured credit union to be adequately capitalized may not provide adequate protection. The term riskbased capital ratio is used to refer to the specific standards established in the 2015 Final Rule to function as criteria for the statutory risk-based net worth requirement. The term risk-based capital ratio is also used by the other banking agencies and the international banking community when referring to the types of risk-based requirements that are addressed in the 2015 Final Rule. This change in terminology throughout the proposed rule would have no substantive effect on the requirements of the FCUA, and is intended only to reduce confusion for the reader.
36 12 U.S.C. 1790dd1.
37 12 U.S.C. 1790dd.
38 Id.
39 12 CFR part 3 OCC, 12 CFR part 217 Federal Reserve Board, and 12 CFR part 324 FDIC.
40 12 U.S.C. 5371.

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216 for the NCUAs risk-based net worth framework. Section 216 has two express provisions that authorize an NCUA
analogue to the CBLRthe definition of complex credit unions and the mandate for the Board to design a risk-based net worth requirement. In designing its CCULR framework, the Board considered both its legal authority to exclude credit unions from risk-based net worth requirements under the definition of complex, and its authority to design a system of risk-based net worth that includes a higher net worth ratio in place of calculating a ratio based on risk-adjusted assets.41
The Board considered its express authority under section 216 to define which credit unions are complex, and thus exclude noncomplex credit unions from the risk-based net worth requirement.42 The express delegation grants the Board significant discretion to determine which credit unions are considered complex. Under this legal basis, the Board would continue to limit the definition of complex to only those credit unions with quarter-end total assets that exceed $500 million dollars.
In using asset size as a proxy for complexity, the Board complied with the statutory directive that the definition of complex be based on the portfolios of assets and liabilities of credit unions. Specifically, the Board relied on a complexity index that counted the number of complex 41 The Board also briefly considered an additional independent legal basis for the proposed CCULR
framework. As discussed in the section III.D.
Calibration of the CCULR, the proposed CCULR
framework would result in complex credit unions generally holding more capital than under the 2015
Final Rule. Because of the higher capital requirements under the proposed CCULR
framework, the Board also considered whether the proposal could be considered an alternative method to demonstrate compliance with the 2015 Final Rule, instead of an alternative measure of risk-based net worth. This approach would be within the Boards general discretion to determine the means and manner by which it measures compliance with its regulations, including the risk-based net worth requirement. However, in light of the express statutory authority to define complex and design a risk-based net worth framework, the Board believes this alternative basis, while valid, is not necessary to support the proposed rule.
42 When Congress expressly authorizes or directs an agency to define a statutory term, it grants the agency broad discretion. Under these circumstances, an agency is permitted to interpret a term so long as its interpretation is not manifestly contrary to the statute. The interpretation need not conform to the ordinary meaning of the term. See Am. Bankers Assn v. Natl Credit Union Admin., 934 F.3d 649, 663 D.C. Cir. 2019 An express delegation of definitional power necessarily suggests that Congress did not intend the terms to be applied in their plain meaning sense, Women Involved in Farm Econ. v. U.S. Dept of Agric., 876
F.2d 994, 1000 D.C. Cir. 1989, that they are not self-defining, id., and that the agency enjoys broad discretion in how to define them, Lindeen v. SEC, 825 F.3d 646, 653 D.C. Cir. 2016.

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