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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations its classification among the five net worth categories, thus subjecting it to an expanding range of mandatory and discretionary supervisory actions.29
Section 216d1 of the FCUA
requires the NCUAs system of PCA
include, besides the statutorily defined net worth ratio requirement, a riskbased net worth 30 requirement for credit unions that are complex, as defined by the Board. 31 The FCUA
directs the NCUA to base its definition of complex credit unions on the portfolios of assets and liabilities of credit unions. 32 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. Besides granting the NCUA broad authority to determine which credit unions are complex, and thus subject to a risk-based net worth requirement, the FCUA also grants the NCUA broad authority to design a riskbased net worth requirement to apply to such complex credit unions.33
Specifically, unlike the terms net worth and net worth ratio, the term risk-based net worth is undefined 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 FCUA requirements.
The CCULR framework is comparable to section 38 of the FDI Act, as implemented by CBLR Final Rule.34 As discussed previously, section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act 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 29 12

U.S.C. 1790dcg; 12 CFR 702.204ab.
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 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 final rule would have no substantive effect on the requirements of the FCUA and is intended only to reduce confusion for the reader.
31 12 U.S.C. 1790dd1.
32 12 U.S.C. 1790dd.
33 Id.
34 12 CFR part 3 OCC, 12 CFR part 217 Federal Reserve Board, and 12 CFR part 324 FDIC.

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insured banks.35 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.
Besides satisfying the comparability requirement in section 216, the CCULR
framework also meets the requirements in section 216 of the FCUA 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.36
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.37 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 35 12

U.S.C. 5371.
Board also briefly considered an additional independent legal basis for the CCULR framework.
As discussed in the section III.D. Calibration of the CCULR, the CCULR framework results in complex credit unions generally holding more capital than under the 2015 Final Rule. Because of the higher capital requirements under the CCULR framework, the Board also considered whether the framework 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. Considering the express statutory authority to define complex and design a risk-based net worth framework, however, the Board believes this alternative basis, while valid, is unnecessary to support the final rule.
37 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.
36 The
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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 products and services provided by credit unions.38 The complexity index demonstrated that credit unions with greater than $500 million in total assets held more complex assets and liabilities as a larger share of their total assets than smaller credit unions.39
The Board, however, could also have drafted a definition of complex that looks at the individual portfolios of credit unions with total assets greater than $500 million rather than examining the assets and liabilities of credit unions in the aggregate. 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 have used the same qualifying criteria as in the final rule as measures of complexity. If a credit union would otherwise meet the definition of a qualifying credit union, it would be considered not complex. Thus, it would not be subject to risk-based capital, as implemented by the 2015 Final Rule.
This alternative approach would have created a functionally equivalent requirement to the one set forth in this final 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 noted previously, the FCUA does not define the term risk-based net worth requirement and sets forth only 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.
38 Supra
note 4 at 55470.

39 Id.

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