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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules
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authority to enter into derivative transactions for trading.
These qualifying criteria would be calculated in accordance with the reporting instructions in the Call Report and the complex qualifying credit union would divide the sum of its total trading assets and total trading liabilities by its total assets.
The other banking agencies limited a qualifying community banking organization to having total trading assets and trading liabilities of five percent or less of its total consolidated assets. In the CBLR Final Rule, the other banking agencies discussed the potential elevated levels of risk and complexity that can be associated with certain trading activities and, therefore, required banking organizations with significant trading assets and liabilities to be subject to risk-based capital requirements. The other banking agencies noted that elevated levels of trading activity can produce a heightened level of earnings volatility, which has implications for capital adequacy. The other banking agencies also expressed concerns about making the CBLR framework available to banking organizations with material market risk exposure. For similar reasons, the Board believes it is important to have a qualifying criterion based on the sum of total trading assets and trading liabilities.
Based on the Boards analysis of currently available Call Report data and permissible activities for FCUs, the Board believes the vast majority of complex credit unions do not have material amounts of trading assets and trading liabilities.58 The Board has included a trading activity criterion, despite the general lack of credit union trading activity, because the Board recognizes the potential elevated levels of risk and complexity that can be associated with certain trading activities even if is not applicable to most complex credit unions. In addition, the Board recognizes that the level of credit union trading activity could increase in the future.
Question 3: The Board invites comment on the proposed trading activity criterion. What other alternative measures of trading activity should the 58 Even though it is permissible for FCUs to trade securities, Call Report data shows FCUs do not hold substantial trading assets. See, 12 CFR 703.13f.
Depending on state law, FISCUs also may be permitted to hold trading assets, however, again, the Boards analysis shows that FISCUs do not hold material amounts of trading assets. As of December 2020, the largest concentration in trading debt securities at a complex credit union was 2.3 percent of assets. Furthermore, only four complex credit unions had over one percent of assets in trading debt securities.

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Board consider for purposes of defining a qualifying complex credit union and why?
4. Goodwill and Other Intangible Assets Under the proposal, a qualifying complex credit union would be required to have the sum of total goodwill and other intangible assets of two percent or less of its total assets. Qualifying complex credit unions would be required to include excluded goodwill and excluded other intangible assets in this calculation.59 Goodwill is defined as an intangible asset, maintained in accordance with GAAP, representing the future economic benefits arising from other assets acquired in a business combination for example, a merger that are not individually identified and separately recognized. Other intangible assets mean intangible assets, other than servicing assets and goodwill, maintained in accordance with GAAP.
Other intangible assets do not include excluded other intangible assets. These are the same definitions as in the 2015
Final Rule. However, as discussed previously, for purposes of the CCULR, complex credit unions would be required to include in the proposed threshold excluded goodwill and excluded other intangible assets, even though excluded goodwill and excluded other intangible assets are not included in the goodwill deduction under the 2015 Final Rule. The 2015 Final Rule established an implementation period for deducting goodwill and other intangible assets acquired by certain supervisory mergers prior to the publication of the 2015 Final Rule. This approach ensured credit unions were not treated punitively for goodwill and other intangible assets acquired before the publication of the 2015 Final Rule.
However, the CCULR framework is voluntary and the same fairness concerns are not present. Therefore, the Board has chosen to include the full amount of goodwill and other intangible assets for this criterion.
The Board is proposing a qualifying criterion related to goodwill and other intangible assets because goodwill and other intangible assets contain a high 59 Excluded goodwill means the outstanding balance, maintained in accordance with GAAP, of any goodwill originating from a supervisory merger or combination that was completed on or before December 28, 2015. This term and definition expire on January 1, 2029. Excluded other intangible assets means the outstanding balance, maintained in accordance with GAAP, of any other intangible assets such as core deposit intangible, member relationship intangible, or trade name intangible originating from a supervisory merger or combination that was completed on or before December 28, 2015. This term and definition expire on January 1, 2029. 12 CFR 702.2 effective Jan. 1, 2022.

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level of uncertainty regarding a credit unions ability to realize value from these assets, especially under adverse financial conditions. Due to the uncertainty of recognizing value from goodwill and other intangible assets, the other banking agencies require insured banks to deduct goodwill and intangible assets from tier 1 capital.60 The Board believes it is prudent to assess the credit unions balance of goodwill and other intangible assets to ensure comparability with the banking industry. Without this proposed criterion, a qualifying credit union could use the CCULR despite substantial goodwill and intangible assets, which would be inconsistent with the principles of the CBLR
framework. The Board also notes that under the 2015 Final Rule, goodwill and other intangible assets are deducted from both the risk-based capital ratio numerator and denominator.
As stated previously, the proposed rule includes a two percent threshold on goodwill and other intangibles assets.
The Board believes that complex credit unions with two percent or less of their assets in goodwill and other intangibles assets would not hold less capital under the CCULR framework than under the risk-based capital ratio. In addition, a two percent threshold only would exclude a small portion of otherwise qualifying complex credit unions, an estimated four credit unions as of December 31, 2020, from the CCULR
framework. Therefore, the Board believes a two percent threshold balances regulatory relief for most qualifying complex credit unions, while still recognizing the uncertainty and volatility of goodwill and other intangible assets. The Board believes that complex credit unions with substantial goodwill and other intangible assets should calculate their capital adequacy using the risk-based capital ratio, as their portfolios may require higher capital levels.
Question 4: The Board invites comment on the proposed qualifying criterion for the sum of total goodwill and other intangible assets. What are commenters views on the inclusion of such a qualifying criterion? Should qualifying complex credit unions be required to include excluded goodwill and excluded other intangible assets that would have been excluded under the 2015 Final Rule?
Question 5: As discussed previously, under the 2015 Final Rule, goodwill and other intangible assets are deducted from both the risk-based capital ratio numerator and denominator in order to 60 See
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e.g., 12 CFR 324.22.

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