(Jan. 28, 2022) Changes to the first quarter call report for federally insured credit unions will be highlighted during a 90-minute webinar set for Feb. 10 by NCUA, the agency announced this week.
More specifically, the webinar on the agency’s call report Form 5300 will include a look at new schedules for risk-based capital (RBC) and the Complex Credit Union Leverage Ratio (CCULR), both of which took effect at year’s start, the agency said.
Registration is open for the event. It is scheduled to begin at 2 p.m. and run for an hour and a half. Participants may submit questions during the presentation, or in advance (by emailing the questions to [email protected], with a email’s subject line of “Call Report Changes.” Technical questions about accessing the webinar should be sent to [email protected].
LINK:
NCUA Call Report Changes Webinar
(Jan. 14, 2022) Changes in risk-based capital requirements for federally insured credit unions have triggered changes in call reports, effective for the first quarter of 2022, NCUA said this week.
In a release, the agency said it is revising its call report (Form 5300) starting with the March 2022 reporting cycle. The changes were spurred by the adoption last month of the new Complex Credit Union Leverage Ratio (CCULR) rule, which took effect Jan. 1.
The agency said the revised call report is part of its 2016 “Call Report Modernization Initiative,” which it added “examined how changes to the agency’s data collection practices could enhance the value of the data NCUA collects from credit unions for offsite monitoring and pre-examination planning as well as reduce the reporting burden for credit unions where appropriate.”
The CCULR is aimed at creating a framework which allows “complex” credit unions (those with more than $500 million in assets) opting in to maintain the CCULR instead of risk-based capital (which also took effect Jan. 1). Under CCULR, a complex credit union may qualify to opt in to the CCULR framework if it has a minimum net worth ratio of 9%. The minimum requirement for a classification of “well capitalized” under the CCULR framework – modeled on federal banking agencies’ community bank leverage ratio (CBLR) – is higher than the 7% minimum ratio required under prompt corrective action (PCA) but lower than the 10% required under risk-based capital.
The CCULR final rule also amends provisions of the 2015 risk-based capital final rule. NCUA has noted that, based on June 30, 2021, call report data, about 70% of complex credit unions (down from 90% pre-pandemic) qualify to use the CCULR framework and would be well capitalized under a 9% calibration.
LINK:
(Dec. 23, 2021) When credit unions open their doors for business on Jan. 3, a revised regulatory landscape will stretch before them with three regulatory changes that took effect Jan. 1: a new “risk-based capital” (RBC) rule, a new “complex credit union leverage ratio” (CCULR), and a new reference rate to replace the then-defunct London Interbank Offered Rate (LIBOR).
The RBC rule was approved by NCUA more than six years ago (and amended more than three years ago). Its aim was to require credit unions taking certain risks to hold capital commensurate with those risks. It restructured the agency’s existing “prompt correction action” (PCA) rules, including by adding a risk-based capital ratio (rather than a risk-based net worth ratio) for federally insured credit unions.
The effective date of the rule was delayed repeatedly by NCUA, as the agency considered (and later made) changes to the asset size for defining a “complex” credit union, which is affected by the RBC rule, and restructured the rule in consideration of recent events.
The agency first issued its risk-based capital proposal for “complex” credit unions – then defined as those with more than $100 million in assets – in 2014, with implementation slated 18 months after the rule would have been finalized. A revised proposed rule was issued in 2015 and finalized that October with an effective date of Jan. 1, 2019. That final rule replaced the risk-based net worth ratio contained in the 2015 rule with a new risk-based capital ratio for federally insured credit unions, which the NCUA called comparable to the regulatory risk-based capital measures used by the federal banking agencies: the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of Currency (OCC).
However, in 2018 the NCUA Board revised its definition of “complex” credit unions to include only those credit unions with more than $500 million in assets and delayed the rule’s implementation again, to Jan. 1, 2020. A year later (in 2019) the agency pushed the rule’s implementation date to Jan. 1, 2022. The delay was necessary, the agency said, to review potential changes to credit union capital such as subordinated debt authority; capital requirements for asset securitization; and an option like the community bank leverage ratio (CBLR) that had since been adopted for banks by federal banking agencies.
The board, in fact, addressed all those issues – including, just last week, finalizing the CCULR which it described as an “off-ramp” for eligible complex credit unions from the RBC rule. The rule also took effect Jan. 1; it was approved just last week.
That final rule creates a framework that allows “complex” credit unions opting in to maintain the CCULR instead of risk-based capital. Under CCULR, a complex credit union – one having more than $500 million in assets – may qualify to opt in to the CCULR framework if it has a minimum net worth ratio of 9%. this minimum requirement for a classification of “well capitalized” under the CCULR framework – modeled on federal banking agencies’ community bank leverage ratio (CBLR) – is higher than the 7% minimum ratio required under prompt corrective action (PCA) but lower than the 10% required under risk-based capital. The CCULR final rule also amends provisions of the 2015 risk-based capital final rule. The agency notes that based on June 30, 2021, call report data, about 70% of complex credit unions (down from 90% pre-pandemic) qualify to use the CCULR framework and would be well capitalized under a 9% calibration.
(Also taking effect Jan. 1: changes to NCUA’s rule on subordinated debt, aimed at easing low-income credit unions’ participation in Treasury’s Emergency Capital Investment Program (ECIP), which was created to help communities hard hit economically by the COVID-19 pandemic. The revisions amend the definition of “grandfathered secondary capital” to include any secondary capital issued to the U.S. government or one of its subdivisions under a secondary capital application approved before Jan. 1, 2022, regardless of the date issued. The final rule also extends the expiration of regulatory capital treatment for such secondary capital issuances to the later of 20 years from the date of issuance or Jan. 1, 2042. According to the NCUA, Treasury on Dec. 14 said 85 credit unions will receive about $2 billion in funding that can be used as secondary capital.)
Finally, also effective Jan. 1: LIBOR can no longer be used as a reference rate for a wide variety of financial instruments: from derivative contracts to consumer loans written after Jan. 1 (existing contracts may use LIBOR until June 30. 2023, when LIBOR will be completely phased out). Financial institutions and others will have to use an alternative, which (for derivatives and many other financial contracts) is the Federal Reserve-developed Secured Overnight Financing Rate (SOFR), a broad Treasuries repurchase financing rate.
NCUA has not told credit unions they must use SOFR for their consumer, student, commercial, real estate or other loans with potential LIBOR exposure. Instead, the agency has left that up to each institution to determine for itself (as long as the credit union determines the rate is appropriate for its risk management and member needs).
The agency has also advised that all LIBOR-based contracts that mature after Dec. 31 (one-week and two-month) and June 30, 2023 (one-, three-, six- and twelve-month) should include contractual language that provides for use of a robust fallback rate.
(Dec. 17, 2021) A final rule adopting an “off ramp” from risk-based capital (RBC) requirements for complex credit unions will take effect Jan. 1 after unanimous action by the NCUA Board Thursday.
The regulations include several changes from the proposal issued in July: It adopts a 9% complex credit union leverage ratio (CCULR), permanently grandfathering excluded supervisory goodwill from the deduction in the risk-based capital numerator, and excluding grandfathered supervisory goodwill from the goodwill qualifying criteria for the CCULR framework.
It applies to federally insured, natural-person credit unions classified as “complex” (those with total assets greater than $500 million).
Designed to provide a simplified measure of capital adequacy (like that provided by federal banking regulators under the community bank leverage ratio, CBLR), qualifying credit unions that maintain the 9% minimum net worth ratio (and meet other qualifying criteria) are allowed to “opt into” the CCULR framework. Once it does that, NCUA said, an eligible credit union need not calculate a risk-based capital ratio under the NCUA Board’s risk-based capital final rule.
Further, a qualifying complex credit union that opts into the CCULR framework and maintains the minimum net worth ratio is considered well capitalized, NCUA said.
The CCULR surfaced in July with a proposal to make a simplified measure of capital adequacy available to federally insured credit unions defined as “complex” – meaning those with more than $500 million in assets. It was inspired by the bank CBLR that went into effect in January 2020 for banks under the 2018 financial regulatory relief law. That rule allows banks to hold a certain, uniform level of capital (now at 9% of assets) as long as they meet certain conditions, including in lending and investments.
The 9% requirement is repeated in the new NCUA rule; a provision included in the proposal that the rate would rise gradually to 10% by Jan. 1, 2024 was dropped from the final rule.
In its October comment letter, NASCUS wrote that the state system supports the CCULR, as well as a quick implementation of a final regulation. However, the state system suggested that: subordinated debt should be permitted in calculating net worth for CCULR thresholds; complex credit unions of all sizes can appropriately manage the optionality of both entering and exiting the CCULR; and changes are needed to the current (and proposed) risk-based capital (RBC) and subordinated debt rules in order to avoid a “chilling effect” on the low-income credit union (LICU) secondary capital system.
NCUA took a pass on including subordinated debt in calculating net worth for CCULR thresholds. The agency argued 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, the agency said, the capital form it may not be readily available during times of stress.
It also declined to make any additional changes, for now, to the existing sub debt and RBC rules. “The Board will separately monitor implementation of the subordinated rule and consider any appropriate changes in the future, the agency wrote. The final rule also made no changes to the opt-in procedures.
LINKS:
Final Rule, Parts 702 and 703, Complex Credit Union Leverage Ratio
(Oct. 22, 2021) The state system supports the NCUA proposed rule establishing a “complex credit union leverage ratio” (CCULR), as well as a quick implementation of a final regulation, but also has key considerations for the agency before it finalizes the rule, NASCUS wrote in its comment letter this week.
More specifically, NASCUS wrote that subordinated debt should be permitted in calculating net worth for CCULR thresholds; that complex credit unions of all sizes can appropriately manage the optionality of both entering and exiting the CCULR; and changes are needed to the current (and proposed) risk-based capital (RBC) and subordinated debt rules in order to avoid a “chilling effect” on the low-income credit union (LICU) secondary capital system.
The NASCUS letter was in response to a call for comments issued by NCUA in July for its proposal to make a simplified measure of capital adequacy available to federally insured credit unions defined as “complex” – meaning those with more than $500 million in assets. According to NCUA, the CCULR framework is comparable to the community bank leverage ratio (CBLR) that went into effect in January 2020 for banks under the 2018 financial regulatory relief law. That rule allows banks to hold a certain, uniform level of capital (now at 9% of assets) as long as they meet certain conditions, including in lending and investments.
Under the NCUA proposed rule, a complex credit union that opts into the CCULR framework and maintains the minimum net worth ratio would be considered well capitalized. For the CCULR, that would begin with 9% as of Jan. 1, 2022, and rise gradually to 10% by Jan. 1, 2024. The credit union would not be required to calculate a risk-based capital ratio under the Oct. 29, 2015, risk-based capital final rule, which also takes effect Jan. 1, 2022. Other qualifying criteria for the proposed framework include: off-balance-sheet exposures equal to 25% or less of total assets; trading assets and trading liabilities that are 5% or less of total assets; and goodwill and other intangible assets that are 2% or less of total assets.
NASCUS wrote developing the CCULR would reduce regulatory burden for those complex credit unions opting-in and would allow them 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,” NASCUS wrote. “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.”
NASCUS also urged the agency to make some additional considerations before finalizing the rule, which – as proposed – would take effect at the beginning of next year, the same date that the RBC rule is scheduled to take effect.
NASCUS recommended that that agency incorporate subordinated debt into the calculation of the CCULR net worth ratio. “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,” NASCUS wrote. “Allowing complex credit unions to access capital in addition to retained earnings to meet regulatory benchmarks is sound public policy.”
Further, NASCUS urged the agency provide credit unions with authority to opt in and out of the CCULR with the same flexibility that community banks have udder the CBLR (the proposal allows credit unions to open in at the end of a reporting quarter, and they can only opt out if they provide NCUA with at least 30 days prior notice; banks can do both at any time under their rule). NCUA, in its proposal, said the advance notice was required because credit unions do not have experience, yet, with calculating risk-based capital under the RBC, which takes effect at the beginning of next year.
“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),” NASCUS asserted.
Finally, the state system urged NCUA to address ongoing concerns about 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,” NASCUS wrote. “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.”
(Aug. 20, 2021) A proposal by NCUA to create the new “complex credit union leverage ratio (CCULR)” framework — the credit union equivalent of the community bank leverage ratio (CBLR) — is out for public comment until Oct. 15, according to a notice published in the Federal Register this week. Issued for comment during the July 22 NCUA Board meeting, the proposed rule would make a simplified measure of capital adequacy available to federally insured credit unions defined as “complex” – meaning those with more than $500 million in assets … The spread of the Delta variant of the coronavirus and stagnant vaccination rates pose “downside risks” to the economic outlook, according to members of the Fed’s rate-setting Federal Open Market Committee, as expressed in the minutes of the meeting from July 27-28. The minutes were released this week. Committee members also noted economic uncertainty remains high and that supply disruptions and labor shortages might last for longer than anticipated … NCUA is scheduling a Sept. 8 webinar on its modernized examination tools. The session, which gets underway at 2 p.m. ET and runs for an hour, will focus on the new modern examination platforms and systems, including the agency’s Modern Examination & Risk Identification Tool, (MERIT), as well as associated programs: the Data Exchange Application (DEXA), NCUA Connect, and the Admin Portal. The agency said registration is now open.
LINKS:
Capital Adequacy: The Complex Credit Union Leverage Ratio; Risk-Based Capital
Minutes of the Federal Open Market Committee, July 27-28, 2021
Register Now for NCUA’s Modernized Examination Tools Webinar on Sept. 8
(July 23, 2021) NASCUS President and CEO Lucy Ito said the state system welcomes the proposal and that it will carefully analyze it and offer comments. “NASCUS has encouraged NCUA to consider adopting an off-ramp to the RBC rule that has an effect that is similar to the banking agencies’ CBLR,” she said.
The state system had strongly urged the agency to move forward on the CCULR, rather than adopt a proposed risk-based leverage ratio (RBLR) requirement. Ito said NASCUS was pleased the agency dropped the latter approach. “The RBLR approach may have created a perceived conflict with the new subordinated debt rule, by requiring the agency to modify the rule,” she said. “That could have put a damper on credit unions’ attempts to apply subordinated debt toward their capital calculations.”
But the proposed CCULR, she noted, would not require that change – and allow credit unions moving forward on subordinated debt to continue their plans. “The CCULR proposal allows both the 2015 RBC rule and subordinated debt rules to go into effect,” she said. “The optional nature of the CCULR would also permit parallel development of subordinated debt with the simultaneous implementation of the existing 2015 RBC rules, providing credit unions with the choice to opt in and out of the CCULR in the future.”
(July 23, 2021) Federally insured credit unions with $500 million or more in assets could avoid risk-based capital (RBC) requirements and opt-in to a new measure of capital adequacy if they meet a minimum net worth standard and other qualifying criteria, under a proposal issued by the NCUA Board Thursday.
Called the Complex Credit Union Leverage Ratio (CCULR, and dubbed “cooler” by members of the board), the proposal would allow the $500 million and more credit unions to opt in to the new capital standard if they also hold a minimum net worth ratio of 9% as of Jan. 1 of next year (which will be gradually increased to 10% two years later).
Other qualifying criteria include: off-balance sheet exposures held by the credit union must be 25% or less of total assets; trading assets and trading liabilities must be 5% or less of total assets; and goodwill and other intangibles must be 2% or less of total assets.
“A complex credit union that opts into the CCULR framework would not be required to calculate a risk-based capital (RBC) ratio under the Oct. 29, 2015, risk-based capital final rule” as amended in October, 2018, the proposal’s summary states. “A qualifying complex credit union that opts into the CCULR framework and that maintains the minimum net worth ratio would be considered to be well capitalized.”
Issued on a unanimous vote by the board, the proposal would make other changes to the RBC rule, according to the summary, including addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, deducting certain mortgage servicing assets from a complex credit union’s risk-based capital numerator, updating several derivative-related definitions, and clarifying the definition of a consumer loan.
As both NCUA staff and board members noted during the meeting, the proposal is similar to the community bank leverage ratio (CBLR) adopted by the federal banking agencies for banks and which became effective in 2020. That rule removes requirements for calculating and reporting risk-based capital ratios for most banks with less than $10 billion in assets that hold more than 9% in risk-based capital, and that meet certain risk-based qualifying criteria. Banks meeting the criteria can “opt-in” to use the CBLR.
The NCUA proposal was issued with a 60-day comment period, which means it would end sometime in either late September or early October. That doesn’t give NCUA much time to consider whatever comments it receives before finalizing a rule that will, in effect, directly affect the risk-based capital (RBC) rule set to take effect on Jan. 1.
During discussion, NCUA Board Chairman Todd Harper called the proposal a prudent course of action. “This proposal is an appropriate measure that provides complex credit unions with a streamlined approach to managing their capital levels while also strengthening the system’s resiliency to economic shocks,” he said.
He said year-end 2020 call report data indicate that nearly 75% of complex credit unions would meet the 9% net worth requirement under the proposal. He also asserted that the proposal would increase the capital buffer of insured complex credit unions, by $22 billion (to an estimated $104.6 billion) , if all of the credit unions “opted in” to the rule. (The increase in capital is compared to the total amount if the RBC rule were in effect, Harper noted.)
Board Vice Chairman Kyle Hauptman said the chief benefit of the proposal is that it allows some credit unions to bypass the risk-based capital approach. “For me, the point of this simpler leverage ratio is that it protects both credit unions and the (National Credit Union) Share Insurance Fund from the inevitable problems of risk weighting,” he said.
Although Board Member Rodney Hood said he would “begrudgingly” vote for the proposal (which he did), he took the opportunity before the vote to call for an end to the RBC rule. He said he wants the board to either table the RBC rule or rescind it, noting that it would be eight years old when it fully takes effect. “RBC should be a tool and not a rule,” he said.
LINK:
Notice of Proposed Rulemaking, Parts 702 and 703, Complex Credit Union Leverage Ratio
(July 16, 2021) A proposed rule on a new complex credit union leverage ratio (CCULR) is on the agenda for a the NCUA Board when it meets next week in open session.
Also on the agenda for the 10 a.m. meeting (to be live-streamed via the Internet) will be a request for information (RFI) on digital assets and related technologies. The board will also consider its 2022-26 strategic plan.
Based on past comments by the agency, the CCULR proposal would likely integrate an NCUA equivalent of the community bank leverage ratio (CBLR) into NCUA’s capital standards. The bank regulation (adopted by federal banking agencies in 2019) removes requirements for calculating and reporting risk-based capital ratios for most banks with less than $10 billion in assets, more than 9% in risk-based capital, and that meet certain risk-based qualifying criteria. Banks meeting the criteria can “opt-in” to use the CBLR.
In a comment letter filed in May with the agency, NASCUS said it was encouraged by the agency’s consideration of a CCULR, and supported further development.
“NASCUS has previously encouraged NCUA to consider adopting an off-ramp to the 2015 Risk-Based Capital Rule commensurate with the Community Bank Leverage Ratio (CBLR),” NASCUS wrote in its May 10 comment letter on a related issued, simplifying risk-based capital requirements.
“The flexibility of parallel, complementary risk-based capital rules will allow credit unions to choose which approach is most compatible with their business model,” NASCUS added. “Additionally, the CCULR proposal would allow both the 2015 RBC Rule and Subordinated Debt Rules to go into effect. The optional nature of the CCULR would also permit parallel development of the new rule with the simultaneous implementation of the existing 2015 RBC rules, providing credit unions with the choice to opt in and out of the CCULR in the future.”
NASCUS also noted, in its comment, that parallels between a CCULR proposal and the existing bank CBLR is another advantage. “The regulatory and commercial experience with the CBLR can help inform the development and implementation of NCUA’s CCULR proposal,” NASCUS wrote.
LINK:
NCUA Board agenda, July 22 meeting
(June 18, 2021) Other new and proposed rules that should be coming up for action soon by the NCUA Board were also outlined in the spring 2021 regulatory agenda published recently by the agency (via the White House Office of Management and Budget (OMB)). Those include:
- A proposed rule to integrate an NCUA equivalent (the Complex Credit Union Leverage Ratio, CCULR) to the community bank leverage ratio (CBLR) into NCUA’s capital standards, perhaps as soon as next month. The CCULR is modeled on the bank ratio adopted by federal banking agencies in 2019, which removes requirements for calculating and reporting risk-based capital ratios for most banks with less than $10 billion in assets, more than 9% in risk-based capital, and that meet certain risk-based qualifying criteria. Banks meeting the criteria can “opt-in” to use the CBLR. NASCUS, in a comment letter last month, said the state system supported further development of the CCULR, noting that it would allow both the 2015 risk-based capital and subordinated debt rules to take effect.
- A final rule (as soon as September) updating the CAMEL exam rating system, including adding an “S” (for “sensitivity to market risk”). NASCUS filed comments on the proposal in early May, urging the agency to move “expeditiously” on adding the S component, which, NASCUS wrote, would better align NCUA with state credit union and federal banking regulators that have already made the move.
- A final rule (perhaps by the end of this summer) expanding CUSO lending activities. In its comment letter in March, NASCUS noted possible, additional reporting requirements for state credit unions if the proposal were made final. In some states, NASCUS pointed out, CUSOs owned by state credit unions already hold expanded lending power. The association noted, however, that the NCUA proposal could end up requiring additional reporting requirements that don’t today exist for SCUs. “NASCUS opposes extension of any additional reporting requirements to SCU CUSOs resulting from an expansion of FCU powers,” the association wrote.
- Revision of regulation prohibiting a federally insured credit union (FICU) from making golden parachute and indemnification payments to an institution-affiliated party under certain circumstances. According to the rule list, the proposed rule would improve the organization and clarity of the regulation and would include a section on merger-related financial arrangements. It also would amend the regulation to assist FICUs in the identification and processing of golden parachute payments. The proposal is scheduled by October or later.
LINK:
OMB Agency Rule List – Spring 2021 (NCUA)
(Jan. 15, 2021) Two approaches for simplifying risk-based capital (RBC) requirements for federally insured credit unions (FICUs) were proposed by the NCUA Board Thursday, one replacing the current rule with a risk-based leverage ratio (RBLR) rule requirement, and the second retaining the RBC rule but allowing credit unions to “opt-in” to the RBLR.
The proposal (an advance notice of proposed rulemaking (ANPR)) was issued for a 60-day comment period on a 2-1 vote, with Board Member Todd Harper objecting.
The final vote on the proposal came after a more than one-hour delay in which the sound (and written transcript) from the Internet-streamed, virtual meeting was unavailable. That meant, for the most part, discussion among the board members about the proposal was not public. The sound (and transcript) was audible (and visible) again just in time for the recorded vote of 2-1.
In issuing the ANPR, NCUA noted that the existing RBC rule, which was adopted more than five years ago, has been delayed to the first of next year. That delay time, the agency said, has provided it with more time to evaluate FICUs that are classified as “complex” (those with total assets greater than $500 million, a new threshold also set at the meeting Thursday).
NCUA said the RBLR contained in the proposal is intended to simplify the regulatory risk-based capital requirements, while ensuring the overall capital framework. “The RBLR approach would utilize certain risk characteristics to determine the required capital level,” the agency said. This approach differs from the 2015 final rule, the agency said, where all assets and certain off- balance sheet activities were categorized into risk groups and then risk-weighted to produce a risk- based ratio.
The first approach the board is considering, according to the agency, would replace the current risk-based capital rule with the RBLR requirement. The agency said that approach uses relevant risk attribute thresholds to determine which complex credit unions would be required to hold additional capital (or buffers).
The second approach would keep the 2015 RBC rule, but would allow eligible complex FICUs to opt-in to a “complex credit union leverage ratio” (CCULR) framework to meet all regulatory capital requirements. That approach would be modeled on the “Community Bank Leverage Ratio” (CBLR) framework, which is available to certain banks under certain conditions, and went into effect early last year (after adoption in 2019). NCUA Board Chairman Rodney Hood has, in the past, signaled his interest in the agency adopting a similar approach for credit unions. Under the CBLR, a community banking organization may qualify if it has a tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities.
The board also indicated that only one or the other of the approaches would be adopted, calling them mutually exclusive and that the CCULR would not be available under the RBLR.
NCUA also said it is considering the net worth ratio as the RBLR measurement. It would be supplemented, the agency said, with mandatory capital buffers when certain risk factors are triggered. That approach, NCUA said, would require an extra cushion of capital buffers over and above the 7% net worth ratio standard for classification as well capitalized “when certain characteristics inherent in a FICU’s balance sheet exceed specified thresholds.”
The risk factors under consideration, according to NCUA, would be based on the 2015 final rule, which it said used higher risk weightings.
LINK:
Advance Notice of Proposed Rulemaking, Part 702, Simplification of Risk Based Capital Requirements