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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
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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 factor 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 in section 216d2 simply identifies the types of risks that the NCUAs riskbased net worth requirement must addressthat is, those risks not already addressed by the statutory six percent net worth requirement. Notably, the FCUA does not require the risk-based net worth requirement include riskadjusted assets as part of its calculation.40 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.41 Thus, if the Board determines that the CCULR
considers all material risks not addressed by the six percent net worth ratio, then the Board has satisfied the statutory requirements for a risk-based net worth ratio.42
40 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.
41 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.
42 Similarly, the Board initially explored a nonrisk-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 riskbased 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
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The Board believes that either the complex-based approach or the riskbased approach to designing the CCULR
framework are supported by the FCUA.
The Board, however, chose to draft the final 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 The Board issued the proposed rule to provide a simplified measure of capital adequacy for complex credit unions at its July 22, 2021, meeting.43 The proposed rule provided for a 60-day comment period that ended on October 15, 2021. The Board received 21
comments from credit unions, both state and federal; credit union leagues and trade associations; a banking trade organization; individuals; and an association of state credit union supervisors. Many of the commenters supported the goal of providing a simplified, alternative measure of capital adequacy for certain highly capitalized complex credit unions. Most commenters, however, expressed some concerns about specific aspects of the proposal. The final rule and a discussion of the Boards responses to the comments are discussed in the following sections.
IV. Final Rule A. Overview of the CCULR Framework The final rule provides a simplified measure of capital adequacy for credit unions classified as complex credit unions with total assets greater than $500 million. Under the final rule, a qualifying complex credit union that meets the minimum CCULR, which is equal to its net worth ratio, is eligible to opt into the CCULR framework and is considered well capitalized. The CCULR
framework is based on the principles of the CBLR framework. As discussed previously in this preamble, it relieves complex credit unions that meet specified qualifying criteria and have opted into the CCULR framework from having to calculate a risk-based capital 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 how the Board accounts for any relevant risks that the six percent net worth ratio does not adequately address.
43 86 FR 45825 Aug. 16, 2021.

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ratio, as implemented by the 2015 Final Rule. In exchange, the qualifying complex credit union is 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 can make under the CBLR.
Most commenters generally supported the CCULR framework. Several commenters noted that credit unions could choose to comply with the current risk-based capital rule or the CCULR.
One commenter stated that, with the CCULR framework, the Board can maximize synergy with the risk-based capital rule, maintain flexibility, and achieve greater consistency with sound public policy and the FCUA. In contrast, another commenter opposed the optionality in the CCULR framework and stated that allowing credit unions to opt-in to the CCULR framework creates two populations of credit unions based on nothing but the compliance of internal actors of the credit unions. The Board believes that implementing a CCULR framework furthers the goal of the FCUAs PCA requirements by ensuring complex credit unions continue to hold sufficient capital, while minimizing the burden associated with complying with the NCUAs riskbased capital requirement. In response to comments, however, the final rule makes several material changes to the CCULR framework. These changes include: 1 Calibrating the CCULR at nine percent instead of 10 and forgoing any transition period; 2 removing the written notification requirement for exiting the CCULR framework after opting in; 3 permitting a grace period for credit unions that no longer meet the qualifying criteria due to a supervisory merger; and 4 amending the treatment of goodwill in both the CCULR
framework and risk-based capital framework. The Board has not amended the effective date in response to the comments; the final rule, along with the 2015 Final Rule, is effective on January 1, 2022. Several commenters stated that this date should be delayed because the effective date of risk-based capital is in less than three months after the comment period closed for the proposed rule. Other commenters discussed the need to comment on Call Report changes. Commenters also stated that the NCUA should factor in the effective date of CECL, which will have a significant impact on net worth and the current economic conditions related to COVID19.
Commenters recommended different alternative effective dates for the CCULR
framework. Several commenters
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