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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Proposed Rules
burden. The Board believes that it would be rare for a credit union to not provide the notice when required. The notice would be submitted only 30 days before the end of the grace period and a credit union that is being prudently managed should be able to accurately predict whether it would be likely to meet the qualifying criteria. The Board believes that if a credit union does not provide the required notice, it raises supervisory concerns and the credit union may be subject to a lower management rating as a result.
The notification would be similar to the notification required for credit unions voluntarily opting out of the CCULR framework. First, the notification must provide the reason for the potential disqualification. The notification would also be required to include a copy of the board meeting minutes showing that the credit unions board of directors was notified that the credit union might cease to meet the qualifying complex credit union requirements. Finally, the notification also would be required to include a Call Report schedule completed as if the credit union calculated its risk-based capital ratio the previous calendar quarter.
Under the CBLR Final Rule, a qualifying community banking organization that ceases to meet the qualifying criteria as a result of a business combination is not provided a grace period. The proposed rule would include a similar limitation. Therefore, under the proposed rule a qualifying complex credit union that has opted into the CCULR framework and that ceases to meet the qualifying criteria as a result of a business combination would receive no grace period and would be required to revert to a riskbased capital framework immediately.
The Board believes this approach is appropriate, as complex credit unions should consider the regulatory capital implications of a planned business combination and be prepared to comply with the applicable requirements.
Therefore, a qualifying complex credit union that would not meet the qualifying criteria as a result of a business combination must fully comply with the 2015 Final Rule for the regulatory reporting period during which the transaction is completed.
Question 14: The Board invites comment on the proposed treatment for a complex credit union that no longer meets the definition of a qualifying complex credit union after opting into the CCULR framework. Specifically, what are the advantages and disadvantages of the proposed grace period? What other alternatives should
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the Board consider with respect to a complex credit union that no longer meets the definition of a qualifying complex credit union and why? Should the Board consider requiring complex credit unions that no longer meet the qualifying criteria to begin to immediately calculate their assets according to the risk-based capital ratio?
Is notification that a credit union will not meet the qualifying criteria necessary? Should the Board consider a grace period for previously qualified credit unions that have opted into the CCULR framework if after a business combination the credit union no longer qualified as of the next reporting period? Should the Board consider alternative notification requirements or consider not requiring any notification at all?
H. Treatment of a Qualifying Complex Credit Union That Falls Below the CCULR Requirement As discussed previously, under the proposal, a qualifying complex credit union that has opted into the CCULR
framework and has a CCULR of 10
percent or greater, subject to the transition provisions, would be considered well capitalized. A
qualifying complex credit unions CCULR may deteriorate due to a decline in its level of retained earnings, growth in its total assets, or a combination of both. In such a case, a credit union may choose to stop using the CCULR
framework and instead become subject to the risk-based capital ratio. However, the Board recognizes that some qualifying complex credit unions may find it unduly burdensome to begin complying with the more complex riskbased capital ratio reporting requirements at the same time that the credit union is experiencing a decline in its CCULR.
Under the proposed rule, a minimum CCULR 10 percent after the transition period is one of the qualifying criteria.
Therefore, if a qualifying complex credit union has a CCULR that falls below the minimum requirement, it would receive the same grace period of two calendar quarters, as applicable when a credit union ceases to meet the other qualifying criteria. After the two-quarter grace period, the qualifying complex credit union would either have to once again meet the minimum CCULR ratio or comply with the risk-based capital ratio requirements. During the grace period, the credit union would be deemed to have met the well-capitalized capital ratio requirements for PCA
purposes, provided that its net worth ratio remains seven percent or greater.

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If a credit unions net worth ratio falls below seven percent, it will not be considered to have met the capital ratio requirements for the well-capitalized capital category and its capital classification is determined by its net worth ratio. A credit union that becomes less than well capitalized during the two-quarter grace period would not be required to begin calculating its capital under the 2015 Final Rule immediately.
Instead, the credit union would still be eligible for the full two-quarter grace period; however, it would be subject to any applicable PCA requirements for its capital category.
Under the other banking agencies CBLR framework, an electing banking organization with a leverage ratio of eight percent or less is not eligible for the grace period and must comply with the generally applicable rule, that is, for the quarter in which the banking organization reports a leverage ratio of eight percent or less. An electing banking organization experiencing or anticipating such an event would be expected to notify its primary federal supervisory agency, which would respond as appropriate to the circumstances of the banking organization.79 The Board believes that it would be unduly burdensome to require complex credit unions to immediately begin calculating their capital under the 2015 Final Rule.
As discussed previously, credit unions have not previously been subject to the 2015 Final Rule. The Board believes it is reasonable to provide complex credit unions the full twoquarter grace period regardless of their CCULR as the 2015 Final Rule would be a new system of capital adequacy and would require an adjustment for the complex credit union. The Board does not believe permitting two quarters to comply with the qualifying criteria or to begin calculating capital under the 2015
Final Rule presents unreasonable risk to the NCUSIF.
Question 15: What are the advantages and disadvantages of permitting a twoquarter grace period? Should the Board consider including the CCULR in the PCA framework similar to the other banking agencies CBLR proposed rule?
To what extent does the calibration of the CCULR relate to the Boards choice between including the CCULR into the PCA framework versus relying on a grace period when a credit unions CCULR falls below 10 percent?
I. Transition Provision In light of strains in economic conditions related to the COVID19
79 Supra
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