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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules
products and services provided by credit unions.43 The complexity index demonstrated that credit unions with greater than $500 million in total assets held complex assets and liabilities as larger share of their total assets than smaller credit unions.44
The Board, however, could also propose a definition of complex that, rather than looking at the assets and liabilities of credit unions in the aggregate, looks at the individual portfolios of credit unions with total assets greater than $500 million. This approach is also consistent with the statutory provision that the complex definition should be based on the portfolios of assets and liabilities of credit unions. The Board would use the same qualifying criteria as in the proposed rule, as measures of complexity. If a credit union would otherwise meet the proposed definition of a qualifying credit union, it would be considered not complex, and therefore not subject to risk-based capital, as implemented by the 2015 Final Rule.
This alternative approach would create a functionally equivalent requirement to the one set forth in this proposed rule, with the only difference being the technical details of the implementing regulatory text in part 702.
The Board also considered its express authority and mandate to design the CCULR on the basis that the CCULR
constitutes a risk-based net worth requirement, as required for complex credit unions in section 216d. As discussed previously, the FCUA does not define the term risk-based net worth requirement and only sets forth general guidelines for the design of the riskbased net worth requirement mandated under section 216d1. Specifically, section 216d2 requires that the Board design the risk-based net worth requirement to take account of any material risks against which the net worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection. Under section 216c1B
of the FCUA, the net worth ratio required for a credit union to be adequately capitalized is six percent.
The plain language of section 216d2 supports the NCUAs interpretation that Congress intended for the NCUA to design the risk-based net worth requirement to take into account any material risks beyond those already addressed through the statutory six percent net worth ratio required for a credit union to be adequately capitalized. In other words, the language 43 Supra
note 5 at 55470.

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in paragraph 216d2 simply identifies the types of risks that the NCUAs riskbased net worth requirement must address, that is, those risks not already addressed by the statutory six percent net worth requirement. Notably, the FCUA does not require that the riskbased net worth requirement include risk-adjusted assets as part of its calculation.45 Instead, the Board interprets risk-based to require an accounting for risks in some manner that is, the measure must be based on a consideration of risksbut not any particular manner of doing so.46
Therefore, provided the Board determines that the proposed CCULR
considers all material risks against which the six percent net worth ratio does not provide protection, then the Board has satisfied the statutory requirements for a risk-based net worth ratio.47
45 Case law research revealed no decisions discussing the meaning of risk-based under the FCUA or other statutes that impose risk-based capital requirements on financial institutions.
46 By contrast, in 2010, Congress specifically elaborated on the risk-based measures applicable to banks by providing that the generally applicable risk-based capital requirements for those institutions must include risk-weighted assets in the denominator of the ratio. Public Law 111203, codified at 12 U.S.C. 5371. Congress did not elect to amend the FCUA to add a similar elaboration on the risk-based net worth requirement applicable to complex credit unions, which is consistent with the Boards interpretation that the term risk-based by itself does not necessarily entail risk-weighted assets. This reading is consistent with judicial interpretations of the closely related phrase based on, which the Supreme Court has held to indicate a causal or but-for causation relationship between the phrase based on and the term it modifies.
Babb v. Wilkie, 140 S.Ct. 1168, 2020 WL 1668281, at 4 Apr. 6. 2020. Similarly, a risk-based requirement can be understood as a requirement that bears a causal relationship to the relevant risks but does not require a specific form for the calculation of this requirement.
47 In a similar manner, the Board initially explored a non-risk-adjusted approach in the advance notice of proposed rulemaking that the Board issued following CUMAAs enactment in 1998, in which it requested comments on addressing this provision through increased net worth requirements as well as through risk-adjusted measures. 63 FR 57938 Oct. 29, 1998. This approach is also consistent with the Senate report accompanying CUMAA, which stated: The NCUA
must design the risk-based net worth requirement to take into account any material risks against which the 6 percent net worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection. Thus the NCUA should, for example, consider whether the six percent requirement provides adequate protection against interest-rate risk and other market risks, credit risk, and the risks posed by contingent liabilities, as well as other relevant risks.
The design of the risk-based net worth requirement should reflect a reasoned judgment about the actual risks involved. S. Rep. No. 105193 at 14 May 21, 1998 emphasis added. The report indicates that Congress did not intend to prescribe the manner in which the Board accounts for any relevant risks that the six percent net worth ratio does not adequately address.

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The Board believes that both approaches to designing the CCULR
framework are supported by the FCUA.
The Board, however, has chosen to draft the proposed rule under its authority to design a risk-based net worth requirement. The Board believes that considering the CCULR as an alternative way to calculate a risk-based net worth requirement is more straightforward, consistent with the structure of section 216, and simpler for complex credit unions to implement.
III. Proposed Rule A. Overview of the CCULR Framework This proposed rule would provide a simplified measure of capital adequacy for credit unions classified as complex credit unions with total assets greater than $500 million. Under the proposed rule, a qualifying complex credit union that meets the minimum CCULR, which is equal to its net worth ratio, would be eligible to opt into the CCULR
framework and would be considered well capitalized. The proposed CCULR
framework is based on the principles of the CBLR framework. It would relieve complex credit unions that meet specified qualifying criteria and have opted into the CCULR framework from having to calculate a risk-based capital ratio, as implemented by the 2015 Final Rule. In exchange, the qualifying complex credit union would be required to maintain a higher net worth ratio than is otherwise required for the wellcapitalized classification. This is a similar trade-off to the one qualifying community banking organizations are able to make under the CBLR. The CCULR would further the goal of the FCUAs PCA requirements by ensuring that complex credit unions continue to hold sufficient capital, while minimizing the burden associated with complying with the NCUAs risk-based capital requirement.
As noted previously, the 2015 Final Rule is scheduled to take effect on January 1, 2022. Accordingly, the regulatory amendments contained in this proposed rule, if finalized, would not take effect until January 1, 2022, and qualifying complex credit unions would not be able to opt into the proposed CCULR framework prior to this effective date.
B. Qualifying Complex Credit Unions Under the proposal, a qualifying complex credit union would be defined as a complex credit union under 702.103 that meets the following criteria qualifying criteria, each as described further below:

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