A complex credit union must calculate its risk-based capital ratio in accordance with this section.

Calculation of the risk-based capital ratio. To determine its risk-based capital ratio, a complex credit union must calculate the percentage, rounded to two decimal places, of its risk-based capital ratio numerator as described in paragraph (b) of this section, to its total risk-weighted assets as described in paragraph (c) of this section.

Risk-based capital ratio numerator. The risk-based capital ratio numerator is the sum of the specific capital elements in paragraph (b)(1) of this section, minus the regulatory adjustments in paragraph (b)(2) of this section.

Capital elements of the risk-based capital ratio numerator. The capital elements of the risk-based capital numerator are:

Undivided earnings;

Appropriation for non-conforming investments;

Other reserves;

Equity acquired in merger;

Net income

ALLL, maintained in accordance with GAAP;

Secondary capital accounts included in net worth (as defined in § 702.2); and

Section 208 assistance included in net worth (as defined in § 702.2).

Risk-based capital ratio numerator deductions. The elements deducted from the sum of the capital elements of the risk-based capital ratio numerator are:

NCUSIF Capitalization Deposit;

Goodwill;

Other intangible assets; and

Identified losses not reflected in the risk-based capital ratio numerator.

Risk-weighted assets—(1) General. Risk-weighted assets includes risk- weighted on-balance sheet assets as described in paragraphs (c)(2) and (3) of this section, plus the risk-weighted off-balance sheet assets in paragraph (c)(4) of this section, plus the risk-weighted derivatives in paragraph (c)(5) of this section, less the risk-based capital ratio numerator deductions in paragraph (b)(2) of this section. If a particular asset, derivative contract, or off balance sheet item has features or characteristics that suggest it could potentially fit into more than one risk weight category, then a credit union shall assign the asset, derivative contract, or off balance sheet item to the risk weight category that most accurately and appropriately reflects its associated credit risk.

Risk weights for on-balance sheet assets. The risk categories and weights for assets of a complex credit union are as follows:

Category 1—zero percent risk weight. A credit union must assign a zero percent risk weight to:

The balance of:

Cash, currency and coin, including vault, automatic teller machine, and teller cash.

share-secured loans, where the shares securing the loan are on deposit with the credit union.

The exposure amount of:

An obligation of the U.S. Government, its central bank, or a U.S. Government agency that is directly and unconditionally guaranteed, excluding detached security coupons, ex-coupon securities, and interest-only mortgage-backed-security STRIPS.

Federal Reserve Bank stock and Central Liquidity Facility stock.

Insured balances due from FDIC-insured depositories or federally insured credit unions.

Category 2—20 percent risk weight. A credit union must assign a 20 percent risk weight to:

The uninsured balances due from FDIC-insured depositories, federally insured credit unions, and all balances due from privately-insured credit unions.

The exposure amount of:

A non-subordinated obligation of the U.S. Government, its central bank, or a U.S. Government agency that is conditionally guaranteed, excluding interest-only mortgage-backed-security STRIPS.

A non-subordinated obligation of a GSE other than an equity exposure or preferred stock, excluding interest-only GSE mortgage-backed-security STRIPS.

Securities issued by PSEs that represent general obligation securities.

Part 703 compliant investment funds that are restricted to holding only investments that qualify for a zero or 20 percent risk-weight under this section.

Federal Home Loan Bank stock.

The balances due from Federal Home Loan Banks.

The balance of share-secured loans, where the shares securing the loan are on deposit with another depository institution.

The portions of outstanding loans with a government guarantee.

The portions of commercial loans secured with contractual compensating balances.

Category 3—50 percent risk weight. A credit union must assign a 50 percent risk weight to:

The outstanding balance (net of government guarantees), including loans held for sale, of current first-lien residential real estate loans less than or equal to 35 percent of assets.

The exposure amount of:

Securities issued by PSEs in the U.S. that represent non-subordinated revenue obligation securities.

Other non-subordinated, non-U.S. Government agency or non-GSE guaranteed, residential mortgage-backed security, excluding interest-only mortgage-backed security STRIPS.

Category 4—75 percent risk weight. A credit union must assign a 75 percent risk weight to the outstanding balance (net of government guarantees), including loans held for sale, of:

Current first-lien residential real estate loans greater than 35 percent of assets.

Current secured consumer loans.

Category 5—100 percent risk weight. A credit union must assign a 100 percent risk weight to:

The outstanding balance (net of government guarantees), including loans held for sale, of:

First-lien residential real estate loans that are not current.

Current junior-lien residential real estate loans less than or equal to 20 percent of assets.

Current unsecured consumer loans.

Current commercial loans, less contractual compensating balances that comprise less than 50 percent of assets.

Loans to CUSOs.

The exposure amount of:

Industrial development bonds.

Interest-only mortgage-backed security STRIPS.

Part 703 compliant investment funds, with the option to use the look-through approaches in paragraph (c)(3)(iii)(B) of this section.

Corporate debentures and commercial paper.

Nonperpetual capital at corporate credit unions.

General account permanent insurance.

GSE equity exposure or preferred stock.

Non-subordinated tranches of any investment, with the option to use the gross-up approach in paragraph (c)(3)(iii)(A) of this section.

All other assets listed on the statement of financial condition not specifically assigned a different risk weight under this subpart.

Category 6—150 percent risk weight. A credit union must assign a 150 percent risk weight to:

The outstanding balance, net of government guarantees and including loans held for sale, of:

Current junior-lien residential real estate loans that comprise more than 20 percent of assets.

Junior-lien residential real estate loans that are not current.

Consumer loans that are not current.

Current commercial loans (net of contractual compensating balances), which comprise more than 50 percent of assets.

Commercial loans (net of contractual compensating balances), which are not current.

The exposure amount of:

Perpetual contributed capital at corporate credit unions.

Equity investments in CUSOs.

Category 7—250 percent risk weight. A credit union must assign a 250 percent risk weight to the carrying value of mortgage servicing assets.

Category 8—300 percent risk weight. A credit union must assign a 300 percent risk weight to the exposure amount of:

Publicly traded equity investments, other than a CUSO investment.

Investment funds that do not meet the requirements under § 703.14(c) of this chapter, with the option to use the look-through approaches in paragraph (c)(3)(iii)(B) of this section.

Separate account insurance, with the option to use the look-through approaches in paragraph (c)(3)(iii)(B) of this section.

Category 9—400 percent risk weight. A credit union must assign a 400 percent risk weight to the exposure amount of non-publicly traded equity investments, other than equity investments in CUSOs.

Category 10—1,250 percent risk weight. A credit union must assign a 1,250 percent risk weight to the exposure amount of any subordinated tranche of any investment, with the option to use the gross-up approach in paragraph (c)(3)(iii)(A) of this section.

Alternative risk weights for certain on-balance sheet assets—(i) Non-significant equity exposures.—(A) General. Notwithstanding the risk weights assigned in paragraph (c)(2) of this section, a credit union must assign a 100 percent risk weight to non-significant equity exposures.

Determination of non-significant equity exposures. A credit union has non-significant equity exposures if the aggregate amount of its equity exposures does not exceed 10 percent of the sum of the credit union's capital elements of the risk-based capital ratio numerator (as defined under paragraph (b)(1) of this section).

Determination of the aggregate amount of equity exposures. When determining the aggregate amount of its equity exposures, a credit union must include the total amounts (as recorded on the statement of financial condition in accordance with GAAP) of the following:

Equity investments in CUSOs,

Perpetual contributed capital at corporate credit unions,

Nonperpetual capital at corporate credit unions, and

Equity investments subject to a risk weight in excess of 100 percent.

Charitable donation accounts. Notwithstanding the risk weights assigned in paragraph (c)(2) of this section, a credit union may assign a 100 percent risk weight to a charitable donation account.

Alternative approaches. Notwithstanding the risk weights assigned in paragraph (c)(2) of this section, a credit union may determine the risk weight of investment funds, and non-subordinated or subordinated tranches of any investment as follows:

Gross-up approach. A credit union may use the gross-up approach under appendix A of this part to determine the risk weight of the carrying value of non-subordinated or subordinated tranches of any investment.

Look-through approaches. A credit union may use one of the look-through approaches under appendix A of this part to determine the risk weight of the exposure amount of any investment funds, the holdings of separate account insurance, or both.

Risk weights for off-balance sheet activities. The risk weighted amounts for all off-balance sheet items are determined by multiplying the off-balance sheet exposure amount by the appropriate CCF and the assigned risk weight as follows:

For the outstanding balance of loans transferred to a Federal Home Loan Bank under the mortgage partnership finance program, a 20 percent CCF and a 50 percent risk weight.

For other loans transferred with limited recourse, a 100 percent CCF applied to the off-balance sheet exposure and:

For commercial loans, a 100 percent risk weight.

For first-lien residential real estate loans, a 50 percent risk weight.

For junior-lien residential real estate loans, a 100 percent risk weight.

For all secured consumer loans, a 75 percent risk weight.

For all unsecured consumer loans, a 100 percent risk weight.

For unfunded commitments:

For commercial loans, a 50 percent CCF with a 100 percent risk weight.

For first-lien residential real estate loans, a 10 percent CCF with a 50 percent risk weight.

For junior-lien residential real estate loans, a 10 percent CCF with a 100 percent risk weight.

For all secured consumer loans, a 10 percent CCF with a 75 percent risk weight.

For all unsecured consumer loans, a 10 percent CCF with a 100 percent risk weight.

Derivative contracts. A complex credit union must assign a risk-weighted amount to any derivative contracts as determined under § 702.105.