Complex Credit Union Leverage Ratio, Amendments to Risk-Based Capital, and other Technical Amendments

October 15, 2021

Melane Conyers-Ausbrooks
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314

Re: NASCUS Comments on Capital Adequacy: The Complex Credit Union Leverage Ratio, Amendments to Risk-Based Capital, and other Technical Amendments (RIN 3133-AF12)

Dear Secretary Conyers-Ausbrooks:

The National Association of State Credit Union Supervisors (NASCUS)[1] submits this letter in response to the National Credit Union Administration’s (NCUA’s) request for comments on RIN 3133-AF12, a proposed rule to create a Complex Credit Union Leverage Ratio (CCULR) and make other amendments to the 2015 Risk-Based Capital rule (RBC rule).[2]  NASCUS has previously recommended NCUA consider developing a streamlined alternative to the risk-based capital (RBC) framework comparable to the Community Bank Leverage Ratio (CBLR) promulgated for banks.[3] As evidenced in our comments that follow, NASCUS supports the proposed rulemaking and we encourage NCUA to move expeditiously to finalize the proposal with modest changes so it may take effect concurrently with the RBC rule on January 1, 2022.

Promulgating a safe, sound, and simplified alternative to calculating a risk-based capital ratio as an option for qualified credit unions is sound public policy. Congress recognized it as such when they directed federal bank regulators to develop the CBLR in 2018.[4] When evaluating a regulatory capital framework, it is important to recognize that, while regulatory capital rules establish an essential buffer against economic downturn, they come at a cost to the economy and consumers in the form of reduced investment in services and facilities or possibly constrained lending. Particularly for credit unions, which are generally constrained to rely exclusively on retained earnings to build and maintain regulatory capital, the costs of regulatory capital fall on the credit unions’ the members rather than being borne by outside investors.[5] In view of the cost imposed on such consumers, it is essential to carefully calibrate and balance regulatory capital frameworks against the operational and compliance burdens borne by the financial institution.

Developing the CCULR will reduce regulatory burden for those complex credit unions opting-in and will allow credit union to redirect scarce resources toward other operational priorities, without compromising capital standards or endangering the credit union share insurance fund (SIF). By ensuring that the CCULR is available as an option to all complex credit unions, the NCUA can maximize synergy with the RBC rule, maintain flexibility, and achieve greater consistency with sound public policy and the Federal Credit Union Act.  Thus, the CCULR can achieve its purposes of providing optionality and regulatory relief to complex credit unions by allowing for more effective and efficient deployment capital in service of the members.

All Complex Credit Unions Regardless of Asset-Size Should be Eligible to Qualify for the CCULR

NASCUS supports allowing any qualifying complex credit union, regardless of asset size, to opt-into the CCULR as proposed.[6] As NCUA notes in the proposal, credit unions are generally more limited than banks in the types of assets that they can hold, a factor that mitigates the risk of foregoing an asset threshold eligibility criterion. Further mitigating the risk of permitting otherwise eligible complex credit unions with assets more than $10 billion is the fact that these credit unions are required to conduct capital planning and stress testing regardless of whether they opt-into the CCULR. NCUA also makes a compelling statistical case for the limited additional exposure of foregoing an asset limit as a qualifying criterion.[7]

NCUA Should Incorporate Subordinated Debt into the Calculation of the CCULR Net Worth Ratio

NCUA’s RBC rule permits complex credit unions to count subordinated debt issued pursuant to the agency’s final Subordinated Debt rule when calculating the risk-based capital ratio. However, as proposed, the CCULR would not include subordinated debt for calculating the net worth threshold.[8] Excluding subordinated debt from the CCULR would be an unfortunate step back from nearly a decade’s worth of work to modernize the credit union capital framework. Allowing complex credit unions to access capital in addition to retained earnings to meet regulatory benchmarks is sound public policy. In contrast, keeping retained earnings as the sole source of capital would have several consequential limitations including that, particularly during times of economic dislocation, even healthy institutions could not accelerate their capital replenishment. Allowing for additional sources of capital such as subordinated debt strengthens the credit union system and protects the SIF.

NCUA regulations should encourage the maturation of the credit union system’s use of subordinated debt, not discourage it. By creating a mismatch between risk-based capital and the CCULR’s treatment of subordinated debt, the proposed rule would create a barrier that would hinder acceptance of the option of the CCULR by a complex credit union that has issued subordinated debt, which would carry no regulatory benefit under the CCULR despite all the cost and compliance burden of issuance. This limitation in turn would hinder achievement of the purposes of promulgating the CCULR.

NCUA should incorporate subordinated debt into the CCULR. The benefits to complex credit unions, and the credit union system outweighs the minimal additional burden of doing so.

The Proposed Amendments to the RBC Final Rule Increase Granularity and Provide for a more Refined Balance Sheet Management

In addition to developing the CCULR, the proposal would make several changes to the RBC rule.[9] These changes increase the granularity of the risk weightings which may allow complex credit unions to precisely calibrate their balance sheet management for calculating the RBC ratio. The changes also more closely align the RBC rule with the risk-based capital rules of the other banking agencies.

NASCUS supports the changes as proposed.[10]

Credit Unions Should be Provided Authority to Opt-In and Opt-Out of the CCULR on Par with Community Bank Optionality with Respect to the CBLR

NASCUS supports maximizing the optionality of the CCLUR and we urge NCUA to allow qualifying complex credit unions to opt-out at any time under the final rule.

Under the proposal, qualifying complex credit unions could opt-into the CCULR at the end of a reporting quarter and would be required to provide NCUA at least 30-day’s notice prior to opting out of the CCULR.[11] Pursuant to the CBLR, banks are permitted to opt-out of the CBLR at any time.[12] NCUA’s stated rational for requiring complex credit unions to give 30-day advance notice is that unlike community banks, complex credit unions do not have experience calculating risk-based capital.

While it is true that complex credit unions have not been required to calculate the risk-based capital ratio pursuant to the 2015 final RBC rule, the fact is that the rule has been in place for several years and we believe many complex credit unions have familiarized themselves with the calculations in anticipation of previous, and now pending, effective date(s). Furthermore, several complex credit unions with assets of $10 billion or more and $20 billion or more are already subject to the far more rigorous capital planning and stress testing requirements (respectively) of 12 CFR § 702, Subpart E. Surely these credit unions, with their robust ERM practices, can conduct the risk weighting required to move seamlessly between the RBC regime and the CCULR. It is highly reasonable to expect that any complex credit union, having opted-into the CCULR, would not subsequently choose to opt-out without first performing a preliminary risk-based ratio calculation to determine pro forma compliance under the RBC rule.  If there is any possibility that such a credit union would skip performing such calculation, that possibility is a faint justification for subjecting all complex credit unions to a mandate for a 30-day delay in opting-out. At some point, all non-CCULR complex credit unions must calculate the risk-based ratio “for the first time.” Effective January 1, 2022, any complex credit union not opting-into the CCULR will have to calculate its risk-based ratio. The supplemental material accompanying the proposal lacks any discussion as to how the experience of those credit unions would be any different from a CCULR complex credit union in the future that chooses to opt-out.

Credit unions designated “complex” pursuant to the 2015 RBC final rule are mature financial institutions with robust risk management and asset/liability management functions. NASCUS believes complex credit unions can manage navigating between risk-based capital and the CCULR calculations to the same extent as their banking counterparts and deserve the business flexibility to do so. We also note that NCUA fails to cite a specific material risk to the SIF or irreparable harm that would be caused by using the supervisory process to address any complex credit unions that are unable to manage the transition. Eliminating the 30-notice would avoid imposing a generally unnecessary regulatory burden and would be consistent with NCUA’s efforts to adopt principle-based regulations.[13]

Low-Income Designated Credit Unions and Secondary Capital

While beyond the scope of this request for comments on RBC and the CCULR, it is our hope that the NCUA will address ongoing concerns about the whether the final Subordinated Debt rule is properly calibrated with respect to low-income designated credit unions (LICUs). LICUs are a critically important component of the credit union system providing services to predominantly low-income members. While an overwhelming majority of LICUs are not subject to the RBC rule, they are subject to the 2020 Subordinated Debt rule. Given the genesis of the Subordinated Debt rule as a corollary to the RBC rule, it is appropriate that refinements to the subordinated debt framework be considered contemporaneously with changes to the RBC rule.

NASCUS supports a robust regulatory framework that governs instruments attracting outside capital into the credit union system. We do not believe that such a framework is incompatible with appropriately streamlined rules applicable to the unique features of traditional LICU secondary capital offerings. We urge NCUA to initiate a notice and comment to solicit more feedback from stakeholders on how to better calibrate secondary capital rules.  Although we agree that the calibration of the Subordinated Debt rule for LICUs should not delay the NCUA’s issuance of a Final Rule on RBC and the CCULR in time to take effect concurrently with the RBC rule on January 1, 2022 as noted above, we believe that a framework for LICUs deserves timely attention.

NASCUS commends NCUA for continuing to refine the risk-based capital regulatory framework. The rule taking effect on January 1, 2022, is better calibrated, more robust, and more operable than the rule first proposed in January 2014. However, the RBC and subordinated debt frameworks can, and should, be further improved. Permitting subordinated debt to be used in calculating net worth for the CCULR thresholds is not incongruous with the FCUA and would be comparable to the CBLR. Furthermore, we believe complex credit unions can appropriately manage the optionality regarding both entering and existing the CCULR on par with community bank flexibility entering and exiting the CBLR. Finally, we stress our concerns that if left unchanged, the current (and proposed) RBC and subordinated debt rules will have a chilling effect on the LICU secondary capital ecosystem.

[1]NASCUS is the professional association of the nation’s 45 state credit union regulatory agencies that charter and supervise over 2,000 state credit unions. NASCUS membership includes state regulatory agencies, state chartered and federally chartered credit unions, and other important stakeholders in the state system. State chartered credit unions hold over half of the $1.98 trillion assets in the credit union system and are proud to represent nearly half of the 127.2 million credit union members.

[2] “The Complex Credit Union Leverage Ratio, Amendments to Risk-Based Capital, and other Technical Amendments” 86 Fed. Reg. 45824 (August 16, 2021).

[3] “NASCUS Comments on Simplification of Risk Based Capital Requirements” (May 10, 2021) available at; and “NASCUS Comments on Proposed Rule: Risk-Based Capital – Delay of Effective Date” (July 26, 2019) available at comment-ded-20190727BKnight.pdf (

See “Regulatory Capital Rule: Capital Simplification for Qualifying Community Banking Organizations” (November 13, 2019) available at

[4] Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law 115-174, § 201 (May 24, 2018).

[5] While Low-Income Designated Credit Unions (LICUs) may issues secondary capital to build and maintain net worth pursuant to 12 CFR 701.34, nearly half of all credit unions are statutorily constrained to reliance on retained earnings.

[6] 86 Fed. Reg. 45833 (August 16, 2021).

[7] Ibid.

[8] Id. 45835.

[9] 86 Fed. Reg. 45836 (August 16, 2021).

[10] We are aware the treatment of good will under the proposal may be detrimental for credit unions acquiring the assets and liabilities of a bank. We encourage NCUA to evaluate whether further refinement of the treatment of good will is warranted in the future.

[11] Id. 45836.

[12] 84 Fed. Reg. 61784 (November 13, 2019).

[13] NCUA has made a concerted effort over the past several years to move to a principle based regulatory framework. Maintaining the notice requirement in the final rule would be a step backward toward an unnecessarily prescriptive rulemaking approach.