[Federal Register Volume 84, Number 242 (Tuesday, December 17, 2019)]
[Rules and Regulations]
[Pages 68781-68787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27141]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 702

RIN 3133-AF01


Delay of Effective Date of the Risk-Based Capital Rules

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is amending the NCUA's previously 
revised regulations regarding prompt corrective action (PCA). The final 
rule delays the effective date of both the NCUA's October 29, 2015 
final rule regarding risk-based capital (2015 Final Rule) and the 
NCUA's November 6, 2018 supplemental final rule regarding risk-based 
capital (2018 Supplemental Rule), moving the effective date from 
January 1, 2020 to January 1, 2022. During the extended delay period, 
the NCUA's current PCA requirements will remain in effect.

DATES: The effective date of the final rule published on October 29, 
2015 (80 FR 66626), delayed November 6, 2018 (83 FR 55467), is further 
delayed until January 1, 2022. The amendment in the final rule 
published on November 6,

[[Page 68782]]

2018 (83 FR 55467), is delayed until January 1, 2022.

FOR FURTHER INFORMATION CONTACT: Policy and Analysis: Julie Cayse, 
Director, Division of Risk Management, Office of Examination and 
Insurance, at (703) 518-6360; Kathryn Metzker, Risk Officer, Division 
of Risk Management, Office of Examination and Insurance, at (703) 548-
2456; Julie Decker, Risk Officer, Division of Risk Management, Office 
of Examination and Insurance, at (703) 518-3684; Legal: John Brolin, 
Senior Staff Attorney, Office of General Counsel, at (703) 518-6540; or 
Rachel Ackmann, Senior Staff Attorney, Office of General Counsel, at 
(703) 548-2601; or by mail at National Credit Union Administration, 
1775 Duke Street, Alexandria, VA 22314.

SUPPLEMENTARY INFORMATION:

I. Introduction

    At its October 2015 meeting, the Board issued the 2015 Final Rule 
to amend part 702 of the NCUA's current PCA regulations to require 
credit unions taking certain risks hold capital commensurate with those 
risks.\1\ The risk-based capital provisions of the 2015 Final Rule 
apply to only federally insured, natural-person credit unions (credit 
unions) with quarter-end total assets exceeding $100 million. The 
overarching intent of the 2015 Final Rule is to reduce the likelihood 
of a relatively small number of high-risk credit unions would exhaust 
their capital and cause large losses to the National Credit Union Share 
Insurance Fund (NCUSIF). Under the Federal Credit Union Act (FCUA), 
federally insured credit unions are collectively responsible for 
replenishing losses to the NCUSIF.\2\
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    \1\ 80 FR 66626 (Oct. 29, 2015).
    \2\ See 12 U.S.C. 1782(c)(2)(A) (The FCUA requires that each 
federally insured credit union pay an insurance premium equal to a 
percentage of the credit union's insured shares to ensure that the 
NCUSIF has sufficient reserves to pay potential share insurance 
claims, and to provide assistance in connection with the liquidation 
or threatened liquidation of federally insured credit unions in 
troubled condition.)
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    The 2015 Final Rule restructures the NCUA's current PCA regulations 
and makes various revisions, including amending the agency's risk-based 
net worth requirement by replacing credit unions' risk-based net worth 
ratio with a new risk-based capital ratio. The risk-based capital 
requirements in the 2015 Final Rule are more consistent with the NCUA's 
risk-based capital ratio measure for corporate credit unions, and are 
more comparable to the risk-based capital measures implemented by the 
Federal Deposit Insurance Corporation (FDIC), Board of Governors of the 
Federal Reserve System, and Office of the Comptroller of Currency 
(other banking agencies) in 2013.\3\ The 2015 Final Rule also 
eliminates several provisions in the NCUA's current PCA regulation, 
including provisions related to the regular reserve account, risk-
mitigation credits, and alternative risk weights.
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    \3\ The Board and OCC issued a joint final rule on October 11, 
2013 (78 FR 62018), and the FDIC issued a substantially identical 
interim final rule on September 10, 2013 (78 FR 55340). On April 14, 
2014 (79 FR 20754), the FDIC adopted the interim final rule as a 
final rule with no substantive changes.
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    The Board originally set the effective date of the 2015 Final Rule 
for January 1, 2019 to provide credit unions and the NCUA with 
sufficient time to make the necessary adjustments--such as systems, 
processes, and procedures--and to reduce the burden on affected credit 
unions.
    At its October 2018 meeting, the Board issued the 2018 Supplemental 
Rule to delay the effective date of the 2015 Final Rule for an 
additional year, moving the effective date from January 1, 2019 to 
January 1, 2020.\4\ The 2018 Supplemental Rule also amended the 
definition of ``complex'' credit union, adopted in the 2015 Final Rule 
for risk-based capital purposes, by increasing the threshold level for 
coverage from $100 million to $500 million. Therefore, only credit 
unions with over $500 million in assets are now subject to the 2015 
Final Rule (``covered credit unions''). These changes provided covered 
credit unions and the NCUA with additional time to prepare for the 
rule's implementation, and exempted an additional 1,026 credit unions 
from the risk-based capital requirements of the 2015 Final Rule without 
subjecting the NCUSIF to undue risk.
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    \4\ 83 FR 55467 (Nov. 6, 2018).
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II. Proposed Rule

    At its June 2019 meeting, the Board approved a notice of proposed 
rulemaking (proposed rule) to delay the effective date of both the 2015 
Final Rule and the 2018 Supplemental Final Rule for an additional two 
years, moving the effective date of both rules from January 1, 2020 to 
January 1, 2022.\5\ This proposed delay would provide the Board 
additional time to holistically and comprehensively evaluate the NCUA's 
capital standards for credit unions. The proposed rule provided several 
examples of issues the Board would consider during the delay, including 
asset securitization, subordinated debt, and a community bank leverage 
ratio analog.
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    \5\ 84 FR 30048 (Jun. 26, 2019).
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    The proposed rule stated the Board may reconsider how the 2015 
Final Rule treats securitizations issued by credit unions.\6\ The 2015 
Final Rule does not sufficiently address the treatment of credit union 
issued securitizations. The proposed delay would provide the Board time 
to consider whether the 2015 Final Rule properly accounts for any asset 
securitization conducted by credit unions.
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    \6\ See also, OGC Legal Op. 17-0670 (Jun. 21, 2017).
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    The proposed rule also stated the delay would provide time for the 
Board to consider whether the 2015 Final Rule should be amended to 
address subordinated debt.\7\ The proposed delay would provide the 
Board additional time to make this decision and conduct the rulemaking. 
Should the Board finalize such a rule, the delay would also permit 
credit unions subject to the risk-based capital requirement time to 
consider the use of any authorized forms of subordinated debt before 
the risk-based capital rules go into effect.
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    \7\ The Board indicated in the 2015 Final Rule that it planned 
to examine additional forms of qualifying capital in a separate 
proposed rule. Then in February 2017, the NCUA issued an advance 
notice of proposed rulemaking for alternative capital. 82 FR 9691 
(Feb. 8, 2017).
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    The proposed rule also stated the delay would provide the Board 
time to consider whether a community bank leverage ratio (CBLR) analog 
should be integrated into the NCUA's capital standards. The Economic 
Growth, Regulatory Relief, and Consumer Protection Act of 2018 required 
the other banking agencies, to propose a simplified, alternative 
measure of capital adequacy for federally insured banks.\8\ In February 
2019, the other banking agencies issued a proposed rule that would 
provide qualifying community banks the option to comply with a 
simplified leverage measure of capital adequacy.\9\ The delay in the 
effective date of the 2015 Final Rule would allow the Board time to 
examine the other banking agencies' recent CBLR proposal and consider 
whether adopting an equivalent provision for credit unions is 
appropriate and consistent with the FCUA.
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    \8\ Public Law 115-174 (May 24, 2018).
    \9\ 84 FR 3062 (Feb. 8, 2019).
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    The proposed rule also stated the delay would provide the NCUA with 
additional time to prepare for the 2015 Final Rule's implementation. 
The NCUA has several initiatives in process to improve and modernize 
how the agency conducts examinations and supervision. These initiatives 
include

[[Page 68783]]

the Enterprise Solution Modernization, Call Report Modernization, and 
Virtual Examination programs. The proposed delay would enable the NCUA 
to direct additional time and resources toward modernizing examination 
systems, versus dedicating resources to end-of-life systems being 
retired.
    Finally, the proposed rule stated a delay would further benefit 
credit unions as they work to implement the Financial Accounting 
Standards Board's final current expected credit loss (CECL) standard. 
The Board believes the proposed delay would allow credit unions 
additional time to allocate resources to the implementation of CECL.
    The proposed rule provided for a 30-day comment period, which ended 
on July 26, 2019.

III. The Final Rule and Public Comments on the Proposed Rule

    The NCUA received 29 comment letters in response to the proposed 
rule. These comment letters were received from credit union trade 
associations, credit unions, state and regional credit union leagues, 
bank trade organizations, consumer groups, and an individual. Nearly 
all commenters supported giving credit unions additional time to comply 
with the 2015 Final Rule's requirements. Most of these commenters also 
supported the Board's plan to consider credit union capital standards 
holistically. A few bank trade organization and consumer group 
commenters, however, opposed the delay, asserting generally delaying 
the 2015 Final Rule further would pose potential costs to the NCUSIF 
and to taxpayers. These commenters also opined the stated reasons for 
the proposed delay are insufficient and inconsistent with prior agency 
statements regarding the need for the 2015 Final Rule. The Board has 
not made any changes to the final rule in response to the comments 
received. A discussion of the final rule, including a discussion of the 
comments received, is below.

Comments Supporting the Proposed Delay

    The credit unions, credit union leagues, credit union trade 
associations, and one individual who commented all supported the delay. 
These commenters generally reiterated the Board's reasons for the 
proposed delay, including the plan to review credit union capital 
standards holistically and evaluate rulemaking or guidance options 
relating to subordinated debt, asset securitization, and an analog to 
the CBLR. Several commenters also mentioned CECL as support for the 
delay, which was scheduled to become effective for credit unions in 
January 2022.\10\
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    \10\ In November 2019, the FASB finalized a one-year delay in 
this effective date, which would cause the new CECL standard to go 
into effect in January 2023 for credit unions. See, https://www.fasb.org/cs/Satellite?c=FASBContent_C&cid=1176173179331&pagename=FASB%2FFASBContent_C%2FNewsPaghttps://www.fasb.org/cs/ContentServer?c=FASBContent_C&cid=1176173776362&d=&pagename=FASB%2FFASBContent_C%2FNewsPage (Nov. 15, 2019).
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Comments Opposing the Proposed Delay

    Two banking trade organizations, as well as two consumer groups, 
opposed the delay. These commenters discussed several reasons why they 
believe the 2015 Final Rule, as modified by the 2018 Supplemental Rule, 
should go into effect on January 1, 2020.
    One of the primary concerns expressed was the Board has not 
adequately explained why a delay is necessary. Specifically, the 
commenters did not believe the Board sufficiently explained why last 
year a one-year delay was sufficient and this year an additional two-
year delay is necessary, particularly when the factors cited in the 
proposed rule for supporting the delay, asset securitization, 
subordinated debt, and the CBLR, were all known to the Board before the 
2018 Supplemental Rule. The Board has reconsidered its position on when 
to implement the 2015 Final Rule for a few reasons.
    As discussed in the proposed rule, the Board is now considering a 
holistic review of the 2015 Final Rule and its risk-based capital 
standards. When issuing the 2018 Supplemental Rule, the Board was 
primarily concerned with ensuring credit unions and the NCUA were 
prepared to implement the 2015 Final Rule in its current form. The 
Board has reconsidered its position and is now considering whether to 
make more substantive revisions to the 2015 Final Rule. The Board does 
not believe it is prudent to allow the 2015 Final Rule to become 
effective as the Board considers substantive modifications to the rule.
    The Board is aware a few of its identified concerns, including 
asset securitization and subordinated debt were present when it 
finalized the 2018 Supplemental Rule. The Board, however, has 
reconsidered the extent of changes those issues may require to the 2015 
Final Rule. The Board also notes while the statutory requirement to 
implement a CBLR had been enacted when the Board finalized the 2018 
Supplemental Rule, the other banking agencies had not yet issued their 
final rule.\11\ When issuing the 2018 Supplemental Rule, the Board was 
not aware of the extent of changes that would be proposed to the other 
banking agencies' 2013 risk-based capital rule.
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    \11\ 84 FR 61776 (Nov. 13, 2019).
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    The Board believes the reasons stated in the proposal and discussed 
above, both individually and collectively, sufficiently support the 
delay. The Board, however, also notes other factors have occurred after 
the adoption of the 2018 Supplemental Rule that suggest an additional 
two-year delay is prudent. Other banking agencies are currently 
reconsidering several fundamental aspects of their 2013 risk-based 
capital rule, which influenced the adoption of the 2015 Final Rule.\12\ 
The other banking agencies recently stated in a joint rulemaking since 
the issuance of their 2013 risk-based capital rule, community banking 
organizations have raised concerns regarding the regulatory burden, 
complexity, and costs associated with certain aspects of their capital 
rule.\13\ A community banking organization is a depository institution 
or depository institution holding company with total consolidated 
assets of less than $10 billion. Additionally, in their Economic Growth 
and Regulatory Paperwork Reduction Act (EGRPRA) report, the other 
banking agencies stated they are considering simplifications to their 
capital rule with the goal of meaningfully reducing regulatory burden 
on community banking organizations.\14\ Since the issuance of the 2018 
Supplemental Rule, the Board is aware of at least eight rulemakings 
undertaken by the other banking agencies to amend their 2013 risk-based 
capital rule.\15\ The Board notes one of the rulemakings could provide 
a simplified capital framework for over 90 percent of small FDIC-
insured banks from their 2013 risk-based capital rule.\16\

[[Page 68784]]

Given the extent of the proposed changes to the other banking agencies' 
2013 risk-based capital rule, and that the Board adopted the 2015 Final 
Rule, in part, to make its capital framework more comparable to the 
other banking agencies' 2013 capital rule, the Board believes it is 
sensible to reconsider the 2015 Final Rule before its effective date of 
January 1, 2020.
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    \12\ The Board and OCC issued a joint final rule on October 11, 
2013 (78 FR 62018), and the FDIC issued a substantially identical 
interim final rule on September 10, 2013 (78 FR 55340). On April 14, 
2014 (79 FR 20754), the FDIC adopted the interim final rule as a 
final rule with no substantive changes.
    \13\ 84 FR 3062 (Feb. 8, 2019).
    \14\ Joint Report to Congress, Economic Growth and Regulatory 
Paperwork Reduction Act (Mar. 2017), available at https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf.
    \15\ See, https://www.fdic.gov/regulations/laws/federal/index.html.
    \16\ 84 FR 3062, 3078 (Feb. 8, 2019). Small federally insured 
banks include banking organizations with total assets less than or 
equal to $550 million. The Board notes that its current risk-based 
net worth requirement is applicable to credit unions with quarter-
end assets exceeding $50 million and with a risk-based net worth 
requirement exceeding six percent. 12 CFR 702.103(b).
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    One commenter suggested the Board implement the 2015 Final Rule and 
then amend it as necessary, instead of allowing the existing risk-based 
net worth framework to remain in effect. The commenter stated the NCUA 
has previously noted the current framework has severe weaknesses and 
was subject to criticism from both the Government Accountability Office 
(GAO) and the NCUA's Inspector General.\17\ The Board continues to 
believe the current risk-based net worth system has weaknesses and 
requires risk weights that correspond better to assets' credit risk, as 
stated in the 2015 Final Rule. The Board, however, does not believe the 
agency's current risk-based net worth rule is so deficient that the 
Board should implement the 2015 Final Rule even as the Board considers 
holistic changes to it. Further, implementing the 2015 Final Rule will 
impose compliance costs and a substantial regulatory burden on covered 
credit unions. To comply with the 2015 Final Rule, credit unions are 
required to update internal policies, software, and train employees, 
among other things. The Board does not want to impose unnecessary 
compliance costs to implement a rule and then, shortly thereafter, 
possibly make substantial amendments to the rule. The Board believes 
the more sensible and balanced approach is to extend the effective date 
of the 2015 Final Rule as the Board considers holistic revisions to the 
2015 Final Rule.
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    \17\ 80 FR 66626 (Oct. 29, 2015).
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    Other commenters expressed concerns the two-year delay would occur 
when there is a possibility the economy is weakening. One commenter 
opined delaying the 2015 Final Rule would threaten the financial 
security of credit unions, which may harm consumers. Two commenters 
generally expressed concern about the credit union system not being 
subject to more stringent capital standards. A commenter stated the 
Congressional Budget Office has estimated, if the 2015 Final Rule is 
further delayed, the NCUA will be expected to spend $26 million to 
resolve failed credit unions from 2020-2022.
    The Board agrees higher capital levels keep credit unions from 
becoming undercapitalized during periods of economic stress. The Board, 
however, believes the credit union industry is healthy, well 
capitalized, and most credit unions currently hold capital well beyond 
the minimum required by the 2015 Final Rule. As stated in the 2018 
Supplemental Rule, complex credit unions already hold, on average, more 
than 17 percent capital, or 70 percent more than the 10 percent 
required to be well-capitalized under the 2015 Final Rule.\18\ 
Additionally, approximately 99 percent of complex credit unions are 
holding enough capital to meet the risk-based capital requirements in 
the 2015 Final Rule.\19\ Therefore, implementing the 2015 Final Rule 
would not require credit unions to raise a significant amount of 
capital at this time. The NCUA also will continue to address any 
deficiencies in the capital levels of individual credit unions through 
the supervision process and through the existing PCA framework. 
Furthermore, credit unions are expected to incorporate provisions for 
maintaining prudent levels of capital into their business models and 
strategic plans.
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    \18\ 83 FR 55467, 55469 (Nov. 6, 2018). Complex credit unions 
are credit unions with over $500 million in assets.
    \19\ Id.
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    The Board notes the current health and capitalization levels of the 
credit union industry are not sufficient justification for rescinding 
the 2015 Final Rule, as some commenters suggested. The Board, however, 
is clarifying that the current capitalization of the industry provides 
time for the Board to consider modifications to the 2015 Final Rule and 
alleviate the need to immediately implement the 2015 Final Rule. The 
robust capital levels in the credit union industry, however, do not 
negate the weaknesses in the current capital standards, and having a 
strong capital framework with enhanced risk sensitivity is an integral 
part of the NCUA's supervision of credit unions. The Board believes it 
is sound regulatory practice to ensure credit unions choosing to hold 
higher risk assets and liabilities on their balance sheets are required 
to hold appropriate levels of corresponding capital. The Board also 
notes repealing the 2015 Final Rule is outside the scope of the 
proposed rule.
    A few commenters stated delaying the effective date of the 2015 
Final Rule conflicts with the congressional mandate that the NCUA 
capital rules adequately address risks and harmonize with the other 
banking agencies' framework. Specifically, the commenters stated the 
FCU Act requires the Board to adopt a system of PCA for credit unions 
that is ``comparable to'' section 38 of the Federal Deposit Insurance 
Act (FDI Act).\20\ The Board believes the current rule meets the 
statutory requirement for the Board to implement a PCA framework that 
is comparable to the PCA framework for insured banking organizations in 
the FDI Act. Additionally, the FCUA requires the Board to adopt a PCA 
framework comparable to the PCA framework in the FDI Act. The FCUA, 
however, does not require the Board to adopt a system of risk-based 
capital identical to the risk-based capital framework for federally 
insured banking organizations.
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    \20\ 12 U.S.C. 1831o.
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    Commenters also questioned the need for additional time to prepare 
for the 2015 Final Rule. The Board would have been prepared to 
implement the 2015 Final Rule. The Board, however, does not want to 
allocate the necessary additional resources to implement the 2015 Final 
Rule, given its decision to comprehensively evaluate the 2015 Final 
Rule. The Board believes it is more prudent to allocate resources to 
other priorities that may not require substantial amendment, including 
several initiatives to improve and modernize how the agency conducts 
examinations and supervision. The goals of these initiatives are to 
replace outdated, end-of-life examination systems, streamline 
processes, adopt enhanced examination techniques, and leverage new 
technology and data to maintain high quality supervision of federally-
insured credit unions with less onsite presence. These initiatives 
include the Enterprise Solution Modernization, Call Report 
Modernization, and Virtual Examination programs. The delay enables the 
NCUA to direct additional time and resources toward modernizing 
examination systems, versus dedicating resources to end-of-life systems 
being retired. One commenter noted supervisory guidance has yet to be 
issued to examiners and the industry to assist in implementing the 
risk-based capital rules and changes to the Call Report are necessary 
to capture risk-based capital related information. The NCUA intends to 
issue additional guidance and make necessary changes to the Call Report 
prior to the effective date of the risk-based capital rule.
    One commenter stated the 2015 Final Rule should be implemented 
immediately due to concerns with the treatment of goodwill in the 
agency's current risk-based capital rule. Currently, goodwill is not 
deducted

[[Page 68785]]

from capital, however, intangible assets such as goodwill are generally 
deducted from regulatory capital from the other banking agencies' 
capital rules. The commenter stated that this preferential treatment of 
goodwill promotes the acquisition of other credit unions and community 
banks, which has allowed certain credit unions to expand in size and 
reach unmanageable level of assets. The Board disagrees that the 
regulatory capital treatment of goodwill has a material effect on 
credit union merger activity. As stated in the 2018 Supplemental Rule, 
the 2015 Final Rule provides credit unions with 13 years to write down, 
or otherwise adjust their balance sheets, to account for goodwill and 
other intangible assets acquired through a supervisory merger or 
combination before December 28, 2015. As of December 31, 2018 Call 
Report data, only 8 credit unions with assets greater than $500 
million, report total goodwill and intangible assets of more than 1 
percent of assets, and the valuation under Generally Accepted 
Accounting Principles (GAAP) of these existing assets is likely 
immaterial by the end of the extended sunset date. Accordingly, the 
Board continues to believe 13 years to respond to this change is more 
than sufficient for credit unions impacted.\21\
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    \21\ The 2015 Final Rule grandfathers goodwill originating from 
a supervisory merger or combination that was completed on or before 
December 28, 2015. The two-year delay in the effective date does not 
affect the 2015 Final Rule's treatment of goodwill or the date for 
excluded goodwill. Therefore, any supervisory merger or combination 
completed after December 28, 2015 could not count as goodwill when 
the 2015 Final Rule becomes effective.
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    The same commenter expressed concerns about the agency's ability to 
properly identify potential concentration risks present in credit 
unions and believed the 2015 Final Rule may have addressed recent 
losses related to taxi medallions. Risk-based capital is designed to 
mitigate losses to the NCUSIF; however, it is not meant to protect the 
NCUSIF from outside systemic risks such as severe disruptions in a 
particular market. The Board believes credit unions need to hold 
capital commensurate with the level and nature of the risks to which 
they are exposed. The NCUA will continue to address, through the 
examination process and the agency's various enforcement authorities, 
any safety and soundness concerns related to deficiencies in capital 
levels relative to all of the credit union's risk, inclusive of 
concentration risk.
    The Board notes the risk-based capital framework is generally 
designed and calibrated to reflect risks across the industry and may 
not always require a specific credit union to hold capital commensurate 
with its credit, market, operational, or other risks. Thus, even though 
the 2015 Final Rule imposes higher capital requirements for credit 
unions with significant concentrations of residential real estate and 
commercial loans, that framework was broadly based on the credit union 
industry, and not for specific credit union portfolios, such as those 
with a high concentration in taxi medallions. The Board also notes the 
other banking agencies' 2013 risk-based capital rule does not address 
concentration risk even though both the NCUA's current rule and 2015 
Final Rule impose higher capital requirements for credit unions with a 
significant concentrations of residential real estate and commercial 
loans.

Other Comments Beyond the Scope of the Proposed Rule

    Many commenters also offered recommendations that went beyond the 
scope of the proposed delay. For example, several commenters 
recommended the Board consider rescinding the 2015 Final Rule. The 
Board continues to believe the current risk-based net worth standards 
have weaknesses and revised standards with enhanced risk sensitivity 
are appropriate for covered credit unions. In addition, a few 
commenters recommended the Board change the definition of complex and 
consider applying the 2015 Final Rule only to credit unions with assets 
of $10 billion or more. The Board believes this recommendation is 
beyond the scope of the proposed rule.
    Two credit union-affiliated commenters provided suggestions on 
potential amendments to the 2015 Final Rule. Specifically, a credit 
union trade association discussed why it supports a more flexible 
threshold for applying the 2015 Final Rule, as well as how it would 
envision the Board implementing an analog to the CBLR. The commenter 
also suggested that the Board consider recalibrating certain risk 
weights and permanently grandfather excluded goodwill. Separately, an 
attorney who represents credit unions provided a detailed proposal on 
how the Board could authorize all credit unions to issue perpetual 
capital shares that could constitute regulatory capital. The Board 
believes these comments go beyond the scope of the proposed rule, but 
will consider them as it undergoes a substantive reevaluation of the 
NCUA's capital standards.
    One commenter noted the 2015 Final Rule eliminates several 
provisions in the NCUA's current PCA regulations, including provisions 
related to the regular reserve account, risk mitigation credits, and 
alternative risk weights. This commenter recommended the Board 
separately consider addressing these issues in a more immediate 
timeframe than on the extended timeframe necessary to holistically 
consider the NCUA's risk-based capital framework. The Board believes 
these comments are outside the scope of this rule, as they address 
changes to the current PCA framework, but will consider them as part of 
their holistic review of the NCUA's capital standards.
    Finally, one commenter also asserted the agency's administrative 
record to support the proposed delay is not sufficient. The commenter 
attached a study, which only contained a brief discussion of capital, 
without explaining its relevance. The brief discussion of capital in 
the study was also reflected in other comment letters and has been 
addressed by the Board. The commenter also posed numerous questions 
that it asserts the Board must address in the final rule to comply with 
the Administrative Procedure Act (APA). The Board disagrees. An agency 
is not required to include a response to every comment received nor is 
an agency required to discuss every item of fact or opinion included in 
the comments.\22\ A final rule must summarize the significant comments 
received and include a response to such comments. A significant comment 
generally is one that raises a point relevant to the agency's decision 
and which, if adopted, requires a change in an agency's proposed 
rule.\23\ The Board believes it has addressed the significant points 
raised by the commenters, even if it has not explicitly addressed each 
question asked by one commenter.
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    \22\ Resolute Forest Prod., Inc. v. U.S. Dep't of Agric., 130 F. 
Supp. 3d 81, 93 (D.D.C. 2015) (citing Pub. Citizen, Inc. v. F.A.A., 
988 F.2d 186, 197 (D.C. Cir.1993) (quoting Automotive Parts & 
Accessories Ass'n v. Boyd, 407 F.2d 330, 338 (D.C. Cir.1968)).
    \23\ City of Portland, Oregon v. E.P.A., 507 F.3d 706, 715 (D.C. 
Cir. 2007) (quoting Home Box Office, Inc. v. FCC, 567 F.2d 9, 35 n. 
58 (D.C. Cir. 1977)). Essentially, an agency must state the main 
reasons for its decision and indicate that it has considered the 
most important objections.
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The Final Rule

    The Board is finalizing the two-year delay as proposed. Under the 
final rule, the NCUA's current PCA regulation remains in effect until 
the 2015 Final Rule and the 2018 Supplemental Rule's effective date, 
January 1, 2022. The NCUA will continue to enforce the capital 
standards currently in place and address any supervisory concerns 
through existing regulatory and supervisory mechanisms. The Board

[[Page 68786]]

believes, given the discussion above, extending the implementation 
period of the 2015 Final Rule and 2018 Supplemental Rule until January 
1, 2022 is reasonable and does not pose undue risk to the NCUSIF.

IV. Legal Authority

    In 1998, Congress enacted the CUMAA.\24\ Section 301 of CUMAA added 
section 216 to the FCUA,\25\ which required the Board to adopt by 
regulation a system of PCA to restore the net worth of credit unions 
that become inadequately capitalized.\26\ Section 216(b)(1)(A) requires 
the Board to adopt by regulation a system of PCA for federally insured 
credit unions ``consistent with'' section 216 of the FCUA and 
``comparable to'' section 38 of the FDI Act.\27\ Section 216(b)(1)(B) 
requires that the Board, in designing the PCA system, also take into 
account the ``cooperative character of credit unions'' (i.e., credit 
unions are not-for-profit cooperatives that do not issue capital stock, 
must rely on retained earnings to build net worth, and have boards of 
directors that consist primarily of volunteers).\28\ The Board 
initially implemented the required system of PCA in 2000,\29\ primarily 
in Part 702 of the NCUA's Regulations, and most recently made 
substantial updates to the regulation in October 2015.\30\
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    \24\ Public Law 105-219, 112 Stat. 913 (1998).
    \25\ 12 U.S.C. 1790d.
    \26\ The risk-based net worth requirement for credit unions 
meeting the definition of ``complex'' was first applied on the basis 
of data in the Call Report reflecting activity in the first quarter 
of 2001. 65 FR 44950 (July 20, 2000). The NCUA's risk-based net 
worth requirement has been largely unchanged since its 
implementation, with the following limited exceptions: Revisions 
were made to the rule in 2003 to amend the risk-based net worth 
requirement for MBLs, 68 FR 56537 (Oct. 1, 2003); revisions were 
made to the rule in 2008 to incorporate a change in the statutory 
definition of ``net worth,'' 73 FR 72688 (Dec. 1, 2008); revisions 
were made to the rule in 2011 to expand the definition of ``low-risk 
assets'' to include debt instruments on which the payment of 
principal and interest is unconditionally guaranteed by NCUA, 76 FR 
16234 (Mar. 23, 2011); and revisions were made in 2013 to exclude 
credit unions with total assets of $50 million or less from the 
definition of ``complex'' credit union, 78 FR 4033 (Jan. 18, 2013).
    \27\ 12 U.S.C. 1790d(b)(1)(A); see also 12 U.S.C. 1831o (Section 
38 of the FDI Act setting forth the PCA requirements for banks).
    \28\ 12 U.S.C. 1790d(b)(1)(B).
    \29\ 12 CFR part 702; see also 65 FR 8584 (Feb. 18, 2000) and 65 
FR 44950 (July 20, 2000).
    \30\ 80 FR 66626 (Oct. 29, 2015).
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    The purpose of section 216 of the FCUA is to ``resolve the problems 
of [federally] insured credit unions at the least possible long-term 
loss to the [NCUSIF].'' \31\ To carry out that purpose, Congress set 
forth a basic structure for PCA in section 216 that consists of three 
principal components: (1) A framework combining mandatory actions 
prescribed by statute with discretionary actions developed by the NCUA; 
(2) an alternative system of PCA to be developed by the NCUA for credit 
unions defined as ``new;'' and (3) a risk-based net worth requirement 
to apply to credit unions the NCUA defines as ``complex.''
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    \31\ 12 U.S.C. 1790d(a)(1).
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    Among other things, section 216(c) of the FCUA requires the NCUA to 
use a credit union's net worth ratio to determine its classification 
among five ``net worth categories'' set forth in the FCUA.\32\ Section 
216(o) generally defines a credit union's ``net worth'' as its retained 
earnings balance,\33\ and a credit union's ``net worth ratio,'' as the 
ratio of its net worth to its total assets.\34\ As a credit union's net 
worth ratio declines, so does its classification among the five net 
worth categories, thus subjecting it to an expanding range of mandatory 
and discretionary supervisory actions.\35\
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    \32\ 12 U.S.C. 1790d(c).
    \33\ 12 U.S.C. 1790d(o)(2).
    \34\ 12 U.S.C. 1790d(o)(3).
    \35\ 12 U.S.C. 1790d(c)-(g); 12 CFR 702.204(a)-(b).
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    Section 216(d)(1) of the FCUA requires that the NCUA's system of 
PCA include, in addition to the statutorily defined net worth ratio 
requirement applicable to federally insured natural-person credit 
unions, ``a risk-based net worth \36\ requirement for insured credit 
unions that are complex, as defined by the Board . . . .'' \37\ The 
FCUA directs the NCUA to base its definition of ``complex'' credit 
unions ``on the portfolios of assets and liabilities of credit 
unions.'' \38\ It also requires the NCUA to design a risk-based net 
worth requirement to apply to such ``complex'' credit unions.\39\
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    \36\ For purposes of this rulemaking, the term ``risk-based net 
worth requirement'' is used in reference to the statutory 
requirement for the Board to design a capital standard that accounts 
for variations in the risk profile of complex credit unions. The 
term ``risk-based capital ratio'' is used to refer to the specific 
standards established in the 2015 Final Rule to function as criteria 
for the statutory risk-based net worth requirement. The term ``risk-
based capital ratio'' is also used by the other banking agencies and 
the international banking community when referring to the types of 
risk-based requirements that are addressed in the 2015 Final Rule. 
This change in terminology throughout the Proposal would have no 
substantive effect on the requirements of the FCUA, and is intended 
only to reduce confusion for the reader.
    \37\ 12 U.S.C. 1790d(d)(1).
    \38\ 12 U.S.C. 1790d(d).
    \39\ Id.
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V. Regulatory Procedures

Effective Date

    The final rule delays the effective date of the 2015 Final Rule and 
the 2018 Supplemental Rule from January 1, 2020 until January 1, 2022. 
The previous effective date, January 1, 2020, is less than thirty days 
after the publication of the final rule. Under the APA, a final rule 
cannot be effective until 30 days after its publication, however, there 
is an exception for rules that grant or recognize an exemption or 
relieve a restriction.\40\ Such rules can be effective immediately upon 
publication.
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    \40\ 5 U.S.C. 553(d).
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Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires, in 
connection with a final rule, an agency prepare and make available for 
public comment a final regulatory flexibility analysis that describes 
the impact of the final rule on small entities. A regulatory 
flexibility analysis is not required, however, if the agency certifies 
the rule will not have a significant economic impact on a substantial 
number of small entities (defined for purposes of the RFA to include 
credit unions with assets less than $100 million) \41\ and publishes 
its certification and a short, explanatory statement in the Federal 
Register together with the rule.
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    \41\ See 80 FR 57512 (Sept. 24, 2015).
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    The delay of the 2015 Final Rule and 2018 Supplemental Rule affects 
only complex credit unions, which are those with greater than $500 
million in assets under the 2018 Supplemental Rule. As a result, credit 
unions with $100 million or less in total assets are not affected by 
this final rule. Accordingly, the NCUA certifies this final rule will 
not have a significant economic impact on a substantial number of small 
credit unions.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.) 
requires that the Office of Management and Budget (OMB) approve all 
collections of information by a Federal agency from the public before 
they can be implemented. Respondents are not required to respond to any 
collection of information unless it displays a current, valid OMB 
control number.
    The information collection requirements prescribed by Sec.  
702.101(b) were set-out in the August 8, 2018 (83 FR 38997), proposed 
rule and assigned OMB control number 3133-0191. There is no new 
collection of information contained in this final rule that is subject 
to the PRA. The rule only extends the effective date.

[[Page 68787]]

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the principles of the executive order to 
adhere to fundamental federalism principles. This final rule extends 
the effective date of the 2015 Final Rule and the 2018 Supplemental 
Rule for two additional years, until January 1, 2022. Therefore, this 
final rule does not have a direct effect on the states, on the 
relationship between the National Government and the states, and on the 
distribution of power and responsibilities among the various levels of 
government.

Assessment of Federal Regulations and Policies on Families

    The NCUA has determined this final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) generally provides for congressional review 
of agency rules.\42\ A reporting requirement is triggered in instances 
where the NCUA issues a final rule as defined by Section 551 of the 
APA.\43\ An agency rule, in addition to being subject to congressional 
oversight, may also be subject to a delayed effective date if the rule 
is a ``major rule.'' \44\ The NCUA does not believe this rule is a 
``major rule'' within the meaning of the relevant sections of SBREFA. 
As required by SBREFA, the NCUA submitted this final rule to the Office 
of Management and Budget (OMB) for it to determine if the final rule is 
a ``major rule'' for purposes of SBREFA. OMB determined the final rule 
was not a major rule. The NCUA also will file appropriate reports with 
Congress and the Government Accountability Office so this rule may be 
reviewed.
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    \42\ 5 U.S.C. 801-804.
    \43\ 5 U.S.C. 551.
    \44\ 5 U.S.C. 804(2).
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List of Subjects in 12 CFR Part 702

    Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on December 
12, 2019.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2019-27141 Filed 12-16-19; 8:45 am]
 BILLING CODE 7535-01-P