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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
must continue calculating and reporting its CCULR, unless it has opted out of using the CCULR framework. Also, the qualifying complex credit union continues to be considered to have met the capital ratio requirements for the well-capitalized capital category during the grace period. If the qualifying complex credit union has a CCULR of less than seven percent, however, it is not considered to be well capitalized.
Instead, its capital classification is determined by its net worth ratio. For additional discussion on the treatment of a qualifying complex credit union when its CCULR falls below nine percent, see Section HTreatment of a Qualifying Complex Credit Union That Falls Below the CCULR Requirement.
The two-quarter grace period is akin to the other banking agencies CBLR
framework. The proposed rule differed from the CBLR framework because a qualifying complex credit union that may fail to meet the requirements to be a qualifying complex credit union by the end of the grace period was required to submit written notification to the appropriate Regional Director or the Director of Office of National Examinations and Supervision.
Consistent with the reasons discussed for credit unions voluntarily opting out of the CCULR framework, the Board has decided to remove the notification requirements in the final rule. The Board no longer believes notification is necessary and will monitor compliance and a credit unions adoption of riskbased capital through the supervisory process.
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 included a similar limitation. One commenter suggested a three-year grace period for a credit union that fails to comply with an eligibility requirement due to a merger, rather than immediately subjecting the credit union to the risk-based capital requirements.
In general, the Board believes credit unions that no longer meet the CCULR
eligibility requirements due to a merger do not need a grace period, as complex credit unions should consider the regulatory capital implications of a planned business combination and be prepared to comply with the applicable requirements.
The Board, however, believes that supervisory mergers should be an exception to this general policy. As defined in the 2015 Final Rule, a supervisory merger or combination is a transaction that involved the following:

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1 An assisted merger or purchase and assumption where funds from the NCUSIF
were provided to the continuing credit union;
2 A merger or purchase and assumption classified by the NCUA as an emergency merger where the acquired credit union is either insolvent or in danger of insolvency as defined under appendix B to part 701; or 3 A merger or purchase and assumption that included the NCUAs or the appropriate state officials identification and selection of the continuing credit union.57

The Board believes it is reasonable to provide a limited grace period for this select group of mergers because continuing credit unions in supervisory mergers may not have the benefit of time to plan for the capital implications of a merger. As a result, continuing credit unions may need additional time to meet the CCULR eligibility criteria following a supervisory merger. The Board believes a limited, two-quarter grace period is reasonable.
H. Treatment of a Qualifying Complex Credit Union That Falls Below the CCULR Requirement A qualifying complex credit union that has opted into the CCULR
framework and has a CCULR of nine percent or greater is 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 this case, a credit union may choose to stop using the CCULR framework and instead become subject to the risk-based capital requirement. The Board recognizes, however, that some qualifying complex credit unions may find it unduly burdensome to begin complying with the more complex risk-based capital requirements while the credit union is experiencing a decline in its CCULR.
Under the proposed rule, a minimum CCULR is one of the qualifying criteria.
Thus, 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. The Board received no comments on this provision and is finalizing it as proposed.
Thus, under the final rule a credit union is permitted a two-quarter grace period when its CCULR falls below the minimum requirement. After the twoquarter grace period, the qualifying complex credit union must either once again meet the minimum CCULR ratio or comply with the risk-based capital requirements. During the grace period, 57 12

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the credit union is deemed to have met the well-capitalized capital ratio requirements for PCA purposes, provided its net worth ratio remains at seven percent or greater.
If a credit unions net worth ratio falls below seven percent, it is not 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.
I. Transition Provision The Board proposed a two-year transition provision to delay the introduction of a 10 percent CCULR. All commenters who discussed the transition period favored a longer transition, and most recommended four years. Commenters generally discussed uncertainty due to COVID19, upcoming CECL implementation, and the need for additional time to build capital. A few commenters who recommended a nine percent CCULR
also recommended setting CCULR at eight percent during the transition period. One commenter recommended the agency commit to future retargeting of a fully phased in CCULR once additional data is collected during the transition period.
Because the Board is finalizing the CCULR at 9 percent instead of 10, it is not adopting the transition provision.
As proposed, the transition provision would have applied if the permanent CCULR were 10 percent. Thus, the change in the CCULR in the final rule makes the transition provision unnecessary and of no effect.
The Board is not adopting a transition provision with an initial CCULR of eight percent, as several commenters suggested, for two reasons. First, the Board does not believe there is sufficient logical outgrowth from the proposal to adopt a CCULR of eight percent. Separately from the transition provision, the proposed rule posed a question on calibrating the CCULR at eight percent but did not otherwise discuss it or provide a basis to support this level of capital being sufficient to protect the NCUSIF. Second, the Board does not believe a CCULR of eight percent is necessary to ensure most complex credit unions are eligible to opt into the CCULR framework. As previously mentioned, an estimated 70
percent of complex credit unions will be eligible to opt into the CCULR
framework on January 1, 2022.
J. Reservation of Authority The proposed rule included a reservation of authority for the Board to require a credit union to use the risk-

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