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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
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Boards justification in the proposed rule. For example, commenters noted that credit unions stringent portfolioshaping rules mitigate many of the risks associated with larger institutions in the banking sector. Also, credit unions with $10 billion or more in assets are generally required to conduct capital planning, and credit unions with $15
billion or more in assets are generally required to conduct stress testing.52
One commenter objected to the inclusion of all qualifying credit unions by noting that Congress limited the asset size threshold for a qualifying community bank to less than $10 billion in assets. The commenter presented no new information or considerations beyond those the Board addressed in the proposed rule. The Board disagrees and, for the reasons discussed in the proposed rule preamble, continues to believe the CCULR is an appropriate capital framework for all complex credit unions as the FCUA limits the types of assets an FCU can hold compared to banking organizations. The Board also finds that the legislative cap on eligibility for the CBLR does not require the Board to impose the same cap on the CCULR framework, which is tailored to the requirements of the FCUA and the risks associated with complex credit unions. Thus, the Board is finalizing this provision as proposed.
Other Qualifying Criteria In the proposed rule, the Board asked whether the final rule should include other qualifying criteria. Several commenters stated they did not support expanding the qualifying criteria to include certain categories discussed in the proposed rule, including heightened risk asset categories, investments in CUSOs, or concentrations of mortgage servicing assets MSAs. Several commenters stated that the other banking agencies do not have similar qualifying criteria.
One banking trade organization stated that the CCULR framework should only be made available to those credit unions that do not originate or hold a significant amount of member business loans.
The Board is not adding any additional qualifying criteria with a CCULR of nine percent. The Board believes that a CCULR of nine percent is appropriate because most complex credit unions would be required to hold more capital under the CCULR
framework than under the risk-based capital framework. This would be true even if a complex credit unions portfolio included greater than average
amount of assets with higher risk weights under the 2015 Final Rule, such as concentrations in junior-lien mortgages and commercial loans, investments in CUSOs, or concentrations of MSAs. The Board considered adding qualifying criteria to account for adopting the CCULR at 9
percent instead of 10 percent but does not believe it is necessary now as credit unions do not hold less capital under the CCULR framework than the riskbased capital framework.
The Board may consider future qualifying criteria as it gains experience in supervising complex credit unions under the CCULR framework or if the risk-profile of credit union assets change. For example, if the credit union industry begins to hold larger concentrations of high-risk assets, including junior lien mortgages, commercial loans, MSAs, corporate credit unions investments, or CUSO
investments, then the Board may reconsider whether additional qualifying criteria are necessary. If an individual credit union holds significant concentrations of these assets, then the Board may exercise its reservation of authority to require the credit union to calculate its capital adequacy under the risk-based capital framework.53
C. The CCULR Ratio Under the proposal, the CCULR
would be the net worth ratio, which is defined under the 2015 Final Rule as the ratio of the credit unions net worth to its total assets rounded to two decimal places for example 9.32
percent.54
The Board proposed to use the net worth ratio for the CCULR for its simplicity. Complex credit unions are required to calculate their net worth ratio regardless of whether they opt into the CCULR framework. Thus, complex credit unions are not required to calculate a unique ratio for purposes of opting into the CCULR framework. Also, complex credit unions are already familiar with the net worth ratio, which reduces compliance costs compared to a unique ratio designed for the CCULR
framework.
Several commenters supported using the net worth ratio for the CCULR for the reasons stated in the proposed rule.
But three commenters recommended that the Board create a new measure of capital for the CCULR framework.
Specifically, commenters recommended the inclusion of subordinated debt for credit unions that are not low-income
designated credit unions. Alternatively, commenters also recommended the inclusion of other types of capital shares akin to the perpetual contributed capital shares issued by corporate credit unions. An association of credit union supervisors stated that subordinated debt should be included because during times of economic dislocation, even healthy institutions may not be able to accelerate their capital replenishment.
This commenter further stated that allowing for additional sources of capital such as subordinated debt strengthens the credit union system and protects the NCUSIF. One commenter stated that goodwill should be deducted from net worth for purposes of CCULR.
The Board considered an alternative measure of capital in the proposed rule that included subordinated debt parallel to the risk-based capital ratio numerator from the 2015 Final Rule.55 The Board has not adopted a new measure of capital in the final rule. First, the Board believes that the numerator to the 2015
Final Rule is a more conservative measure of capital compared to the numerator in the net worth ratio.
Second, as the proposed rule preamble stated, a new measure of capital would likely include several deductions, including deductions for the NCUSIF
capitalization deposit, goodwill, other intangible assets, and identified losses and would be more complicated to calculate than the net worth ratio.
Regarding commenters characterization of subordinated debt as a useful tool to build capital when a credit union is experiencing a capital hardship, the Board acknowledges the benefits of issuing subordinated debt, but also notes that subordinated debt can be an expensive form of capital, both in the terms of the cost of issuing it and in terms of necessary rate of return to investors. Also, it may not be readily available during times of stress.
D. Calibration of the CCULR
The proposed rule would have allowed a qualifying complex credit union to opt into the CCULR framework if it met the minimum CCULR at the time of opting into the CCULR
framework. The proposed rule initially set the CCULR at 9 percent and transitioned to 10 percent over two years. Almost all commenters objected to calibrating the CCULR ratio at 10
percent, and instead recommended a 9
percent measure in conformance with the ratio used for the CBLR. Other commenters were concerned that fewer credit unions could take advantage of the CCULR framework if it is set at 10

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