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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules exposures.54 Off-balance sheet securitizations are not included in the current definition of off-balance sheet exposure or off-balance sheet items, but are included in the other banking agencies CBLR framework as part of the off-balance sheet threshold. An offbalance sheet securitization exposure could arise in a number of circumstances. For example, if an originating credit union provides liquidity or credit support for an issued securitization, the credit union may report an off-balance sheet securitization exposure. The exposure amount of an off-balance sheet securitization exposure would be the notional amount of the exposure.

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Securities Borrowing or Lending Transactions Finally, the proposed rule would explicitly include securities borrowing or lending transactions. Securities borrowing or lending transactions are not included in the current definition of off-balance sheet exposure or offbalance sheet items, but are included in the other banking agencies CBLR
framework as part of the off-balance sheet qualifying criterion. These types of transactions are permissible for FCUs under part 703 of NCUA regulations and may be permissible for FISCUs as well.55 For these transactions, the exposure amount would be the amount of all securities borrowed or lent against collateral or on an uncollateralized basis.
Collectively, the above eight elements comprise the proposed definition of offbalance sheet exposures that would apply to both the proposed CCULR
framework and the risk-based capital framework under the 2015 Final Rule.
Section M. Amendments to the 2015
Final Rule, which addresses two additional off-balance sheet exposures, that are not part of the off-balance exposure definition because they are not included as an off-balance sheet exposure in either the CCULR or the other banking agencies CBLR offbalance sheet thresholds. However, they are considered in the other banking agencies 2013 capital rule and are proposed amendments to the NCUAs 2015 risk-based capital rule. By applying the proposed changes to both 54 The other banking agencies define the term credit enhancements, representations, or warranties. The Board believes the definition used by the other banking agencies introduces additional complexity and therefore is not adopting it at this time and, instead, will rely on the plain meaning of these terms.
55 12 CFR 703.13. 12 CFR 703.2 defines securities lending as lending a security to a counterparty, either directly or through an agent, and accepting collateral in return.

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frameworks, the Board would establish consistency between the 2015 Final Rule and the proposed CCULR
framework. Without these conforming amendments to the definition of offbalance sheet exposures, a credit union might be required to hold less capital under the CCULR framework than under the risk-based capital framework of the 2015 Final Rule.
The Board proposes a 25 percent threshold for off-balance sheet exposures, as this threshold is similar to the CBLR framework and it would provide enough flexibility for complex credit unions to engage in normal lending practices. The Board does not believe that traditional banking activities, such as extending loan commitments to members, should necessarily preclude a complex credit union from qualifying to use the CCULR
framework. The 25 percent threshold will also ensure that complex credit unions engaging in substantial offbalance sheet activity will also have the commensurate regulatory capital requirement. Therefore, the Board proposes a 25 percent threshold for offbalance sheet exposures, consistent with the CBLR Final Rule.
Question 2: The Board invites comment on the proposed off-balance sheet exposures qualifying criterion.
What aspects of the off-balance sheet exposures qualifying criterion, including the related definition, requires further clarity? What other alternatives should the Board consider for purposes of defining the proposed qualifying criterion? What impact would the proposed qualifying criterion have on a complex credit unions business strategies and lending decisions? Is a 25 percent threshold appropriate? If commenters believe an alternative threshold is more appropriate, please provide data.
3. Trading Assets and Liabilities Under the proposal, a qualifying complex credit union would be required to have the sum of its total trading assets and total trading liabilities be five percent or less of its total assets, each measured as of the end of the most recent calendar quarter.56 The proposed rule would include new definitions for the terms trading assets and trading liabilities. Trading assets would be defined as securities or other assets 56 Currently, the Call Report does not include a reporting requirement for trading assets and trading liabilities. As discussed in Section III. L. Illustrative Reporting Forms to Support the CCULR, if the proposed rule is finalized, the NCUA would update the Call Report before January 1, 2022. The revised Call Report would include reporting requirements for trading assets and trading liabilities.

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acquired, not including loans originated by the credit union, for the purpose of selling in the near term or otherwise with the intent to resell to profit from short-term price movements. Trading assets would not include shares of a registered investment company or a collective investment fund used for liquidity purposes. Trading assets, however, would include derivatives recorded as assets on a credit unions balance sheet that are used for trading purposes. The Board notes that FCUs do not currently have the authority under part 703 to enter into derivative transactions for trading.
The Board is proposing to define trading assets similarly to the other banking agencies definition with the exception of including securities or investments acquired through underwriting or dealing, or securities acquired as an accommodation to a customer. The Board does not believe these are activities that credit unions currently engage in and, additionally, they would still likely be captured in the definition of trading assets. The Board notes that any loan originated by a credit union would not be considered a trading asset. However, under the proposed definition, loans purchased with the intent to sell in the short-term would be considered trading assets.
Trading liabilities would be defined as the total liability for short positions of securities or other liabilities held for trading purposes. A short position is established when an investor sells an investment that the investor does not own. The following is an example of a short position that would not be included within the definition of trading liability because it is used to manage interest rate risk. In managing interest rate risk, an investor might sell a 10-year Treasury Note to decrease the price volatility of the investors bond/
loan portfolio. The value of the 10-year Treasury Note, which is a liability for the investor, would change in the same direction as the bond/loan portfolio, reducing interest rate risk if the price change of assets minus liabilities is less than it would have been without shorting the 10-year Treasury Note. If a credit union engaged in such a transaction, it would not be included in the trading liabilities definition. The Board also notes that FCUs do not currently have the authority to short securities.57 Additionally, trading liabilities would include derivatives recorded as liabilities on a credit unions balance sheet that are used for trading purposes. The Board notes that FCUs do not currently have the 57 12

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