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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
jspears on DSK121TN23PROD with RULES1

securitizations issued by credit unions at this time.
Under the final rule, a non-security beneficial interest is defined as the residual equity interest in the special purpose entity that represents a right to receive possible future payments after specified payment amounts are made to third-party investors in the securitized receivables. Thus, under the final rule, if a credit union has a non-security beneficial interest, such as a CEIO or cash collateral account, it cannot be risk-weighted with the gross-up approach and instead would be given a 1,250-risk weight. The Board believes this treatment is akin to the treatment provided by the other banking agencies in their 2013 risk-based capital rule.
The Board notes that subordinate tranches, either retained by the securitization sponsor or offered to investors as securities, that are also senior in payment priority to the nonsecurity beneficial interest, can be riskweighted using the gross-up approach.
The Board also notes that although the final rule is currently adopting the FDICs approach to securitization through a cross reference, as with other FDIC provisions referenced elsewhere in this final rule, the Board will review the FDICs treatment of securitizations in the future if it makes changes and will consider any adjustments as necessary.
3. Mortgage Servicing Assets The Board proposed to amend 12 CFR
702.104b, risk-based capital numerator, to deduct mortgage servicing assets that exceed 25 percent of the sum of the capital elements in 12 CFR
702.104b1, less deductions required under 12 CFR 702.104b2i through iv of this section. A few commenters did not support the proposed deduction of MSAs. One commenter noted that CCULR lacks a comparable restriction and the risk-based capital rule is primarily designed for credit risk and not operational or market risk.
The Board is not making changes in response to the commenters.
The Board is including a deduction to the risk-based capital numerator for MSAs that exceed 25 percent of the riskbased capital numerator for two primary reasons. First, this change will make the NCUAs risk-based capital calculation more consistent with the other banking agencies revised risk-based capital rules as the other banking agencies simplified their MSA calculation post-issuance of the 2015 Final Rule.90 Under the other banking agencies revised risk-based capital rule, banking organizations deduct MSAs that exceed 25 percent of 90 84

FR 35234 July 22, 2019.

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the banking organizations common equity tier 1 capital.91 The Board believes the simplification of the other banking agencies approach allows the NCUA to be consistent with the other banking agencies risk-based capital rule. Also, the Board believes it is important to implement prudential conditions around MSAs as the Board is considering a final rule to amend parts 703 and 721 to allow FCUs to purchase mortgage servicing rights 92 from other FICUs.93 This rule may potentially increase MSA holdings for complex credit unions.
The Board believes that, by including a deduction to the risk-based capital numerator for MSAs in risk-based capital, complex credit unions will be encouraged to avoid excessive exposures in MSAs relative to the other risks on their balance sheets. As mentioned in the preamble of the 2015
Final Rule, the risks of MSAs contribute to a high level of uncertainty regarding the ability of credit unions to realize value from these assets. Thus, the Board believes it is appropriate to add the riskbased numerator deduction to address the potential of complex credit unions purchasing MSAs from other FICUs.
The treatment would not have an immediate effect on complex credit unions. As of June 30, 2021, the largest concentration in MSAs held by complex credit unions was just under 12 percent of the credit unions net worth. While net worth and the risk-based capital numerator are different calculations, the two calculations are similar enough to state, with a high degree of certainty, there are no complex credit unions as of June 30, 2021, that would be required to deduct MSAs from the risk-based capital numerator.
Finally, the Board is aware that some commenters believe deducting exposures of MSAs over 25 percent of their risk-based capital numerator is punitive. The Board notes both the Board and other banking agencies have stated that MSAs have a relatively high level of uncertainty regarding the ability to both value and realize value from these assets.94 The Board also believes including the MSA deduction from the risk-based capital numerator is prudent 91 12

CFR 324.22d.
terms mortgage servicing rights and MSAs are used interchangeably.
93 85 FR 86867 Dec. 31, 2020.
94 Report to Congress on the Effect of Capital Rules on Mortgage Servicing Assets, Report to the Congress on the Effect of Capital Rules on Mortgage Servicing Assets, June 2016, available at https
www.federalreserve.gov/publications/other-reports/
files/effect-capital-rules-mortgage-servicing-assets201606.pdf.
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for potential balance sheets complex credit union may have in the future.
To determine if a complex credit union would be subject to the MSA
deduction from the risk-based capital numerator, the complex credit union first needs to calculate the risk-based capital numerator before the MSA
deduction. This calculation is in the 2015 Final Rule and requires the complex credit union add all the capital elements of the risk-based capital numerator and subtract all risk-based capital numerator deductions, not including the MSA deduction. The complex credit union would then determine if its MSA exposure exceeds 25 percent of the previous calculation.
If its MSAs do not exceed 25 percent, the previous calculation is the riskbased capital numerator. If its MSAs exceed 25 percent, the complex credit union will need to deduct the amount of MSAs that exceed 25 percent from the previous calculation. All MSA
exposures that are not deducted from the risk-based capital numerator are risk-weighted in the risk-based capital denominator at 250 percent.
4. Supranational Organizations and Multilateral Development Banks The Board proposed amending the risk-based capital rule to assign a risk weighting of zero percent to an obligation of the Bank for International Settlements, the European Central Bank, the European Commission, the International Monetary Fund, the European Stability Mechanism, the European Financial Stability Facility, and multilateral development banks MDBs. The 2015 Final Rule did not specifically discuss MDBs, which would have a risk weight of 100 percent under the catchall category for all other assets not specifically assigned a risk weight.95
Assigning a risk-weight of zero percent is consistent with the other banking agencies risk-based capital rule and the Board believes the zero percent risk weight is appropriate due to the generally high-credit quality of the issuers. A few commenters specifically supported the zero percent risk weight for supranational entities, and none opposed it. The Board is finalizing this provision without change. The Board notes that MDBs are not permissible investments for FCUs under the general investment authorities but may be permissible for federally insured, statechartered credit unions under state investment authorities. But FCUs may invest in MDBs under 12 CFR 701.19
95 12 CFR 702.104c2vC effective Jan. 1, 2022.

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