Delay of Effective Date of the Risk-Based Capital Rules

 
CONTENT
Federal Register, Volume 84 Issue 242 (Tuesday, December 17, 2019)
[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