NCUA Board Proposes Complex Credit Union Leverage Ratio

Board Action Bulletin

Seeks Comment on Digital Assets, Cryptocurrencies and Related Technologies

ALEXANDRIA, Va. (July 22, 2021) – Through a live webcast, the National Credit Union Administration Board held its seventh open meeting of 2021 and unanimously approved:

• A proposed rule that would create a simplified measure of capital adequacy for complex credit unions.
• A request for information on the use of digital assets and related technologies by federally insured credit unions.

Board Approves Proposed Complex Credit Union Leverage Ratio for Comment

The Board approved a notice of proposed rulemaking that amends the NCUA’s capital adequacy regulation to provide a simplified measure of capital adequacy for federally insured credit unions that are classified as “complex” (those with total assets greater than $500 million).

The proposed rule would modify the NCUA’s capital adequacy regulation and provide a simplified measure of capital adequacy that federally insured credit unions classified as complex can opt into. The new Complex Credit Union Leverage Ratio (CCULR) gives complex credit unions that maintain a minimum net worth level and meet other qualifying criteria a streamlined framework to manage capital in their institutions. As long as a credit union in the CCULR framework maintains the minimum net worth ratio, it would be considered well capitalized.

Under this proposal, the minimum net worth level under the CCULR framework would initially be 9 percent on January 1, 2022, and this level would gradually increase to 10 percent by January 1, 2024. Using December 31, 2020, financial performance data, the NCUA estimates that most complex credit unions would be able to meet the CCULR’s initial net worth requirement of 9 percent.

The new CCULR is comparable to the Community Bank Leverage Ratio that went into effect in January 2020.

“When it comes to risk-based capital standards for credit unions, we have three legal responsibilities, which can be summed up in four words: comparable, consistent, complex, and cooperative,” Chairman Todd M. Harper said. “This proposed rule is a balanced approach that gives complex credit unions a risk-based capital framework comparable to those developed by the other federal banking agencies and consistent with the Federal Credit Union Act. It also strengthens the system’s capital levels and provides complex credit unions with a streamlined approach to managing their capital within the cooperative system of credit.”

The proposed rule would also make several amendments to update the NCUA’s final risk-based capital rule, such as addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, and deducting certain mortgage servicing assets from a complex credit union’s risk-based capital numerator. The proposed rule also updates several derivative-related definitions and clarifies the definition of a consumer loan.

Comments on the proposed rule are due 60 days after publication in the Federal Register.

NCUA Issues Request for Information on Digital Assets and Related Technologies

The NCUA is gathering information from interested parties on the current and potential impact digital assets, cryptocurrency, decentralized finance, and other related technologies will have on federally insured credit unions as part of a request for information approved by the NCUA Board.

The feedback received as part of this request for information will aid the NCUA in creating a framework that ensures federally insured credit unions can innovate and compete in an ever-changing marketplace.

“This request is the logical next step in laying the groundwork for federally insured credit unions to leverage these innovations, but we must recognize that things continue to quickly evolve,” Chairman Harper said. “We especially need to understand what limitations could affect credit unions’ ability to adopt these technologies and what risks they could pose, so that we can adopt appropriate guardrails to prevent regulatory arbitrage and protect the financial well-being of members and the safety and soundness of credit unions.”

Said Vice Chairman Kyle S. Hauptman, “I’m pleased to see agreement at NCUA that early regulatory clarity is better than waiting until credit unions are left behind in a changing marketplace. The last thing we want is for credit unions to go the way of Blockbuster Video because their regulator didn’t allow them to compete. We’ve already seen assets move out of the traditional financial sector, and young people are getting used to using new fintech firms for their financial needs. Meanwhile, credit unions are ready to gain market share in services like remittances if we allow them to try new, easier, cheaper technologies.”

Decentralized finance is the broad category of applications adopting peer-to-peer networks, distributed ledger technology, and related uses, such as smart contracts, to create digital assets like cryptocurrency and crypto-assets, clearing and settlement systems, identity management systems, and record retention systems.

Comments on the request for information must be received no later than 60 days after publication in the Federal Register.

The NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.