Understanding Risk-Based Capital and Complex Credit Union Leverage Ratio Rules

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Effective Jan. 1, 2022, all federally insured, natural-person credit unions defined as complex are required to comply with the National Credit Union Administration’s (NCUA) risk-based capital (RBC) rule or the newly created Complex Credit Union Leverage Ratio (CCULR) rule. A credit union is defined as complex and a risk-based capital measure is applicable only if the credit union’s quarter-end total assets exceed $500 million, as reflected in its most recent call report. A complex credit union may calculate its risk-based capital measure either by using the risk-based capital ratio, or for a qualifying complex credit union, opting into the CCULR framework.

Risk-Based Capital Rule Versus CCULR

The risk-based capital rule revises Part 702 of the NCUA’s current regulations to establish a risk-based capital ratio measure that is the percentage of a credit union’s capital divided by the defined risk-weighted asset base. Aligning risk weights with those assigned by other banking agencies, the capital classification will now be determined based on both a credit union’s net-worth ratio and risk-based capital ratio. In addition, the rule adopts a 10% risk-based capital level for well-capitalized credit unions and an 8% risk-based capital level for those adequately-capitalized. The methodology for assigning risk weights in this rule primarily accounts for credit risk and concentration risk. Alternatively, the CCULR framework provides a simplified measure of capital adequacy for complex credit unions meeting certain eligibility criteria by allowing them to opt in if they have a minimum net-worth ratio of 9%. A complex credit union that opts into the CCULR framework will not need to calculate a risk-based capital ratio. Instead, a qualifying credit union that opts into the CCULR framework and maintains the minimum net-worth ratio is considered well-capitalized because the CCULR is calculated in the same manner as its net-worth ratio. Note, both rules require credit unions taking certain risks to hold capital commensurate with those risks.

Qualifying Criteria for the CCULR Rule

To qualify for the CCULR framework, a complex credit union must meet the following criteria:

  • Has a CCULR of 9% or greater.
  • Total off-balance sheet exposures are 25% or less of its total assets.
  • The sum of total trading assets and liabilities are 5% or less of its total assets.
  • The sum of total goodwill and other intangible assets are 2% or less of its total assets.

A qualifying credit union may opt into the CCULR framework by completing the applicable reporting requirements of its call report and may opt in or out of the framework at the end of each calendar quarter. Credit unions not meeting all of the above qualifying criteria should follow the risk-based capital rule.

Need Help?

Does your credit union need help in clarifying the final rule or determining if it qualifies for the CCULR rule? Contact our Financial Institutions Group today for assistance.

Justin Glazman
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Justin Glazman is a Principal with Doeren Mayhew's Financial Institutions Group with over 20 years of experience.

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