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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations based capital framework in specific cases. As detailed in this section, the final rule adopts this provision as proposed. Most commenters who discussed the reservation of authority did not object to it. A few noted it was analogous to the reservation of authority for the other banking agencies under the CBLR. Several commenters recommended the Board provide greater detail on how this process will work, who at NCUA makes the decision, and what information would be provided to the credit union. Three commenters also requested an appeal process. Two commenters objected to the reservation of authority. One commenter characterized the provision as providing NCUA with subjective judgment to establish minimum capital levels which should be left out of any minimum capital threshold. The final rule adopts the reservation of authority as proposed.
Additional information is discussed in the following paragraphs in response to commenters.
In general, a complex credit union that meets the eligibility criteria may opt into the CCULR framework. There may be limited instances, however, whereby the CCULR framework would be inappropriate and not require sufficient capital to adequately protect the NCUSIF. To address such situations, the final rule includes a reservation of authority that can be exercised by the Board. Under the reservation of authority, the Board can require a complex credit union that has opted into the CCULR framework to use the risk-based capital framework to calculate its capital adequacy if the Board determines that the complex credit unions capital requirements are not commensurate with its credit or other risks. When deciding, the Board would consider all relevant factors affecting the complex credit unions safety and soundness. Also, the Board expects to provide a credit union potentially subject to use of the reservation of authority with an opportunity to present evidence on why the CCULR framework is appropriate for that institution.
The Board expects to apply the reservation of authority only in limited circumstances. Under the reservation of authority, credit unions are entitled to a two-quarter grace period before being required to comply with the risk-based capital framework. No appeal process is being provided, however, because under this final rule, the Board would exercise the reservation of authority.

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K. Effect of the CCULR on Other Regulations 1. Member Business Loan Cap The Board did not receive any comments on the proposed member business loans MBL analysis and thus, affirms its conclusions and interpretations in the proposed rule.
Section 107A of the FCUA generally limits the aggregate amount of MBLs that an insured credit union may make, subject to exceptions for some categories of loans, such as loans granted by a corporate credit union to another credit union.58 In addition, the FCUA exempts certain credit unions from complying with the aggregate MBL limit.
Specifically, an insured credit union chartered to make MBLs, or has a history of making MBLs to its members, as determined by the Board, is not subject to the aggregate MBL limit.59
Also, an insured credit union that serves predominantly low-income members, as defined by the Board, or is a community development financial institution, as defined in 12 U.S.C. 4702, is also not subject to the aggregate MBL limit.60
An insured credit union that is subject to the aggregate MBL limit may not make an MBL that would result in the total amount of outstanding MBLs at the credit union being more than the lesser of 1.75 times the actual net worth of the credit union or 1.75 times the minimum net worth required for a credit union to be well capitalized under section 216c1A of the FCUA.61 Section 107A defines net worth for purposes of that section, providing that it includes the retained earnings balance, as determined under GAAP. Under this section, for credit unions that serve predominantly lowincome members, net worth also includes secondary capital accounts that are uninsured and subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and the NCUSIF.62
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U.S.C. 1757ac1B.
U.S.C. 1757ab1.
60 12 U.S.C. 1575ab2.
61 12 U.S.C. 1757aa.
62 This definition does not expressly cover two elements that were added to the definition of net worth in section 216o2 for PCA purposes in a 2011 enactment: 1 Amounts that were previously retained earnings of any other credit union with which the insured credit union has combined; and 2 assistance that the Board has provided under Section 208. Public Law 111382, 124 Stat. 4135
Jan. 4, 2011. In the 2016 MBL final rule, the Board included these elements in net worth for purposes of the MBL limitation by defining net worth in the MBL regulation through a cross-reference to the current part 702 definition of net worth, which includes all the elements in section 216o2. The 2015 Final Rule amended the definition of net worth in part 702 effective January 1, 2022 but did 59 12

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For credit unions that are not complex and thus are not subject to a risk-based net worth requirement under section 216d of the FCUA, MBLs are limited to 1.75 times the net worth required for the credit union to meet the seven percent net worth ratio under section 216c1Ai, assuming the credit unions actual net worth is greater than the minimum required to be well capitalized. To determine its maximum allowable outstanding balance of MBLs, a credit union multiplies 1.75 by seven percent of its total assets.
Until 2016, the Board calculated the MBL limitation in the same manner for complex credit unions that are subject to a risk-based net worth requirement under section 216d without considering any greater amount of net worth that a complex credit union might need to hold to be well capitalized under a risk-based net worth requirement.63 In the 2015 proposed rule on MBLs, the Board proposed to amend the MBL regulation to incorporate section 107A more faithfully and noted that complex credit unions could have a different limitation caused by the need to hold more net worth under the risk-based requirement.64 The preamble to the 2016 Final Rule on MBLs and commercial loans analyzed this issue in response to comments on the rule and explained that under the 2015 Final Rule on risk-based capital, the MBL
limitation would be calculated in the following manner. When actual net worth is greater than the minimum to be well capitalized, the limit on MBLs is 1.75 times the greater of the following calculations: i The minimum amount of capital in dollars required by the net worth ratio, which is 7 percent times total assets; and ii the minimum amount of capital in dollars required by the risk-based capital ratio, which is 10 percent times total risk-weighted assets. Then, the credit union must solve for the minimum amount of net worth needed after accounting for other forms of qualifying capital allowed under the 2015 Final Rule.65
Thus, a complex credit union subject to a risk-based capital requirement under the 2015 Final Rule would have to calculate the minimum amount of net worth required by both its net worth ratio and risk-based capital requirement.
First, the net worth ratio requires a not add or remove any of the components of net worth in the current regulation.
63 Before amendments that the Board adopted in the 2016, the MBL regulation limited MBLs to 12.25
percent of an insured credit unions total assets 1.75 times the seven percent net worth ratio.
64 80 FR 37898, 37909 July 1, 2015.
65 81 FR 13530, 13548 Mar. 14, 2016.

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