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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
partnership finance program, the outstanding loan balance as of the reporting date, net of any related valuation allowance.
4 For financial standby letters of credit, the total potential exposure of the credit union under the contractual agreement.
5 For forward agreements that are not derivative contracts, the future contractual obligation amount.
6 For sold credit protection through guarantees and credit derivatives, the total potential exposure of the credit union under the contractual agreement.
7 For off-balance sheet securitization exposures, the notional amount of the offbalance sheet credit exposure including any credit enhancements, representations, or warranties that obligate a credit union to protect another party from losses arising from the credit risk of the underlying exposures that arises from a securitization.
8 For securities borrowing or lending transactions, the amount of all securities borrowed or lent against collateral or on an uncollateralized basis.

Each element of the off-balance sheet definition is discussed in detail in the proposed rule.
3. Trading Assets and Liabilities Commenters raised no objections to the proposed criterion related to trading assets and labilities. Thus, the Board is finalizing this provision as proposed.
Under the final rule, a qualifying complex credit union is 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. This criterion, including related definitions, is discussed in detail in the proposed rule.
4. Goodwill and Other Intangible Assets Under the proposal, a qualifying complex credit union was required to have the sum of total goodwill and other intangible assets of two percent or less of its total assets. As proposed, qualifying complex credit unions were required to include excluded goodwill and excluded other intangible assets in this calculation.49 Five commenters objected to the inclusion of a criterion related to goodwill and intangible assets. One commenter stated that previous accounting changes resulted in increased amounts of goodwill related
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49 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. 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, 2015.12 CFR 702.2 effective Jan. 1, 2022.

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to supervisory mergers. This commenter stated that credit unions that support the NCUA and the NCUSIF by assisting in supervisory mergers should not be penalized by subsequent restrictions on the holding of supervisory goodwill.50
Several commenters requested that supervisory goodwill and elective goodwill should be treated differently.
Another commenter stated that only impaired goodwill should be deducted.
Another commenter preferred that the goodwill criterion be removed but stated that, at the very least, the Board should not include excluded goodwill and excluded other intangible assets.
Finally, one commenter stated that goodwill is not an eligibility criterion for the CBLR. The Board notes that goodwill is deducted from insured banks numerator for purposes of the CBLR. Other commenters generally supported the inclusion of goodwill as a criterion.
In response to the comments received, the Board has revised the treatment of goodwill in the final rule. The final rule will not include excluded goodwill and excluded other intangible assets as part of the calculation for the two percent eligibility requirement. As a result of these changes, a complex credit union need not include excluded goodwill or excluded other intangible assets for purposes of calculating the two percent goodwill qualifying criterion under the CCULR framework. Related to this change, the 2015 Final Rule has been amended to permanently grandfather excluded goodwill and excluded other intangible assets. Thus, under the 2015
Final Rule, a complex credit union will not deduct excluded goodwill or excluded other intangible assets from its risk-based capital numerator after the sunset date of January 1, 2029. For additional information on this change, see Section L. Amendments to the 2015
Final Rule.
The Board made these changes in response to commenters concerns about equity related to subsequent changes to the treatment of supervisory goodwill.
Certain commenters expressed concern about unforeseen capital implications related to goodwill acquired as part of a supervisory merger or combination before December 28, 2015. In this case, the Board agrees that credit unions that assisted in previous supervisory mergers and combinations should not be unduly penalized by subsequent restrictions on excluded goodwill. Thus, the Board will not require credit unions to include such exposures when calculating the 50 Supervisory goodwill is goodwill originating from a supervisory merger or combination, as defined in the 2015 Final Rule.

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two percent threshold under the CCULR
framework.
The Board, however, still believes a qualifying criterion related to goodwill and other intangible assets should be included in the final rule. The Board also recognizes that other intangible assets contain a high 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 one capital.51 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 criterion, a qualifying credit union could violate the principles of the CBLR framework by using the CCULR despite substantial goodwill and intangible assets. 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.
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, as of June 30, 2021, it is estimated that the two percent threshold would not exclude any complex credit unions from the CCULR framework.
Thus, the Board believes a two percent threshold balances regulatory relief for most qualifying complex credit unions with 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.
5. Other CBLR Eligibility Criteria Total Assets of Less Than $10 Billion Under the other banking agencies CBLR framework, only depository institutions or depository institution holding companies with total consolidated assets of less than $10
billion are eligible to use the CBLR.
The Board did not include this qualifying criterion in the proposed rule. Several commenters supported this position. Commenters reiterated the 51 See
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e.g., 12 CFR 324.22.

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