[House Report 105-472]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-472
_______________________________________________________________________


 
                   CREDIT UNION MEMBERSHIP ACCESS ACT

                                _______
                                

 March 30, 1998.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


   Mr. Leach, from the Committee on Banking and Financial Services, 
                        submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 1151]

  The Committee on Banking and Financial Services, to whom was 
referred the bill (H.R. 1151) to amend the Federal Credit Union 
Act to clarify existing law and ratify the longstanding policy 
of the National Credit Union Administration Board with regard 
to field of membership of Federal credit unions, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Credit Union Membership Access Act''.

SEC. 2. FINDINGS.

  The Congress finds the following:
          (1) The American credit union movement began as a cooperative 
        effort to serve the productive and provident credit needs of 
        individuals of modest means.
          (2) Credit unions continue to fulfill this public purpose, 
        and current members and membership groups should not face 
        divestiture from the financial services institution of their 
        choice as a result of recent court action.
          (3) To promote thrift and credit extension, a meaningful 
        affinity and bond among members, manifested by a commonality of 
        routine interaction, shared and related work experiences, 
        interests, or activities, or the maintenance of an otherwise 
        well-understood sense of cohesion or identity is essential to 
        the fulfillment of credit unions' public mission.
          (4) Credit unions, unlike many other participants in the 
        financial services market, are exempt from Federal and most 
        State taxes because they are member-owned, democratically 
        operated, not-for-profit organizations generally managed by 
        volunteer boards of directors and because they have the 
        specified mission of meeting the credit and savings needs of 
        consumers, especially persons of modest means.
          (5) Improved credit union safety and soundness provisions 
        will enhance the public benefit that citizens receive from 
        these cooperative financial services institutions.

                     TITLE I--CREDIT UNION MEMBERSHIP

SEC. 101. FIELDS OF MEMBERSHIP.

  Section 109 of the Federal Credit Union Act (12 U.S.C. 1759) is 
amended--
          (1) in the 1st sentence--
                  (A) by striking ``Federal credit union membership 
                shall consist of'' and inserting ``(a) In General.--
                Subject to subsection (b), Federal credit union 
                membership shall consist of''; and
                  (B) by striking ``, except that'' and all that 
                follows through the period at the end of such sentence 
                and inserting a period; and
          (2) by adding at the end the following new subsections:
  ``(b) Membership Field.--Subject to the other provisions of this 
section, the membership of any Federal credit union shall be limited to 
the membership described in 1 of the following categories:
          ``(1) Single common-bond credit union.--1 group which has a 
        common bond of occupation or association.
          ``(2) Multiple common-bond credit union.--More than 1 group--
                  ``(A) each of which has (within such group) a common 
                bond of occupation or association; and
                  ``(B) the number of members of each of which (at the 
                time the group is first included within the field of 
                membership of a credit union described in this 
                paragraph) does not exceed any numerical limitation 
                applicable under subsection (d).
          ``(3) Community credit union.--Persons or organizations 
        within a well-defined local community, neighborhood, or rural 
        district.
  ``(c) Grandfathered Members and Groups.--
          ``(1) In general.--Notwithstanding subsection (b)--
                  ``(A) any person or organization who is a member of 
                any Federal credit union as of the date of the 
                enactment of the Credit Union Membership Access Act may 
                remain a member of such credit union after such date; 
                and
                  ``(B) a member of any group whose members constituted 
                a portion of the membership of any Federal credit union 
                as of such date of enactment shall continue to be 
                eligible to become a member of such credit union, by 
                virtue of membership in such group, after such date.
          ``(2) Successors.--If the common bond of any group referred 
        to in paragraph (1) is defined by any particular organization 
        or business entity, paragraph (1) shall continue to apply with 
        respect to any successor to such organization or entity.
  ``(d) Multiple Common-Bond Credit Union Group Requirements.--
          ``(1) Numerical limitation.--Except as provided in paragraph 
        (2), only a group with fewer than 3,000 members shall be 
        eligible to be included in the field of membership of a credit 
        union described in subsection (b)(2).
          ``(2) Exceptions.--In the case of any Federal credit union 
        whose field of membership is determined under subsection 
        (b)(2), the numerical limitation described in paragraph (1) 
        shall not apply with respect to the following:
                  ``(A) Certain larger groups incapable of supporting 
                and operating a single-group credit union.--Any group 
                which the Board determines, in writing and in 
                accordance with the guidelines and regulations 
                described in paragraph (4), could not feasibly or 
                reasonably establish a new single common-bond credit 
                union described in subsection (b)(1) because--
                          ``(i) the group lacks sufficient volunteer 
                        and other resources to support the efficient 
                        and effective operation of a credit union;
                          ``(ii) the group does not meet the criteria 
                        which the Board has determined to be important 
                        for the likelihood of success in establishing 
                        and managing a new credit union, including 
                        demographic characteristics, such as 
                        geographical location of members, diversity of 
                        ages and income levels, and other factors which 
                        may affect the financial viability and 
                        stability of a credit union; or
                          ``(iii) the group would be unlikely to 
                        operate a safe and sound credit union.
                  ``(B) Transactions for supervisory reasons.--Any 
                group transferred from another credit union--
                          ``(i) in connection with a merger or 
                        consolidation which has been recommended by the 
                        Board or any appropriate State credit union 
                        supervisor for safety and soundness concerns 
                        with respect to such other credit union; or
                          ``(ii) by the Board in the Board's capacity 
                        as conservator or liquidating agent with 
                        respect to such other credit union.
          ``(3) Exception for underserved areas.--Notwithstanding 
        subsection (b), in the case of a Federal credit union described 
        in paragraph (2) of such subsection, the Board may allow the 
        membership of the credit union to include any person or 
        organization within a local community, neighborhood, or rural 
        district if--
                  ``(A) the Board determines that such local community, 
                neighborhood, or rural district--
                          ``(i) meets the requirements of paragraph (3) 
                        and subparagraphs (A) and (B) of paragraph (4) 
                        of section 233(b) of the Bank Enterprise Act of 
                        1991, and such additional requirements as the 
                        Board may impose; and
                          ``(ii) is underserved, based on data of the 
                        Board and the Federal banking agencies (as 
                        defined in section 3 of the Federal Deposit 
                        Insurance Act), by other depository 
                        institutions (as defined in section 19(b)(1)(A) 
                        of the Federal Reserve Act); and
                  ``(B) the credit union establishes and maintains an 
                office or facility in such local community, 
                neighborhood, or rural district at which credit union 
                services are available.
          ``(4) Regulations and guidelines.--The Board shall issue 
        guidelines or regulations, after notice and opportunity for 
        comment, setting forth the criteria the Board will apply in 
        determining whether or not an additional group may be included 
        within the field of membership of an existing credit union 
        pursuant to paragraph (2).
  ``(e) Additional Membership Eligibility Provisions.--
          ``(1) Membership eligibility limited to immediate family or 
        household members.--No individual shall be eligible for 
        membership in a credit union on the basis of the relationship 
        of such individual to another person who is eligible for 
        membership in such credit union unless the individual is a 
        member of the immediate family or household (as such terms are 
        defined by the Board by regulation) of such other person.
          ``(2) Retention of membership.--Except as provided in section 
        118, once a person becomes a member of a credit union in 
        accordance with this title, such person or organization may 
        remain a member of such credit union until the person or 
        organization chooses to withdraw from the membership of the 
        credit union.''.

SEC. 102. CRITERIA FOR APPROVAL OF EXPANSION OF MEMBERSHIP OF MULTIPLE 
                    COMMON-BOND CREDIT UNIONS.

  Section 109 of the Federal Credit Union Act (12 U.S.C. 1759) is 
amended by inserting after subsection (e) (as added by section 101 of 
this title) the following new subsection:
  ``(f) Criteria for Approval of Expansion of Multiple Common-Bond 
Credit Unions.--
          ``(1) In General.--The Board shall--
                  ``(A) encourage the formation of separately chartered 
                credit unions instead of approving an application to 
                include an additional group within the field of 
                membership of an existing credit union whenever 
                practicable and consistent with reasonable standards 
                for the safe and sound operation of the credit union; 
                and
                  ``(B) if the formation of a separate credit union by 
                such group is not practicable or consistent with such 
                standards, require the inclusion of such group in the 
                field of membership of a credit union which is within 
                reasonable proximity to the location of the group 
                whenever practicable and consistent with reasonable 
                standards for the safe and sound operation of the 
                credit union.
          ``(2) Approval criteria.--The Board may not approve any 
        application by a Federal credit union described in subsection 
        (b)(2) to include any additional group within the field of 
        membership of such credit union (or an application by a Federal 
        credit union described in paragraph (1) to include an 
        additional group and become a credit union described in 
        paragraph (2)) unless the Board determines, in writing, that--
                  ``(A) such credit union has not engaged in any unsafe 
                or unsound practice (as defined in section 206(b)) 
                which is material during the 1-year period preceding 
                the filing of the application;
                  ``(B) the credit union is adequately capitalized;
                  ``(C) the credit union has the administrative 
                capability to serve the proposed membership group and 
                the financial resources to meet the need for additional 
                staff and assets to serve the new membership group;
                  ``(D) pursuant to the most recent evaluation of such 
                credit union under section 215, the credit union is 
                satisfactorily providing affordable credit union 
                services to all individuals of modest means within the 
                field of membership of such credit union;
                  ``(E) any potential harm the expansion of the field 
                of membership of the credit union may have on any other 
                insured credit union and its members is clearly 
                outweighed in the public interest by the probable 
                beneficial effect of the expansion in meeting the 
                convenience and needs of the members of the group 
                proposed to be included in the field of membership; and
                  ``(F) the credit union has met such additional 
                requirements as the Board may prescribe in 
                regulations.''.

SEC. 103. GEOGRAPHICAL GUIDELINES FOR COMMUNITY CREDIT UNIONS.

  Section 109 of the Federal Credit Union Act (12 U.S.C. 1759) is 
amended by inserting after subsection (f) (as added by section 102 of 
this title) the following new subsection:
  ``(g) Regulations Required for Community Credit Unions.--
          ``(1) Definition of well-defined local community, 
        neighborhood, or rural district.--The Board shall prescribe 
        regulations defining the term `well-defined local community, 
        neighborhood, or rural district' for purposes of--
                  ``(A) making any determination with regard to the 
                field of membership of a credit union described in 
                subsection (b)(3); and
                  ``(B) establishing the criteria applicable with 
                respect to any such determination.
          ``(2) Scope of application.--Paragraph (1) shall apply with 
        respect to any application to form a new credit union, or to 
        alter or expand the field of membership of an existing credit 
        union, which is filed with the Board after the date of the 
        enactment of Credit Union Membership Access Act.''.

                 TITLE II--REGULATION OF CREDIT UNIONS

SEC. 201. FINANCIAL STATEMENT AND AUDIT REQUIREMENTS.

  (a) In General.--Section 202(a)(6) of the Federal Credit Union Act 
(12 U.S.C. 1782(a)(6)) is amended by adding at the end the following 
new subparagraphs:
                  ``(C) Accounting principles.--
                          ``(i) In general.--Accounting principles 
                        applicable to reports or statements required to 
                        be filed with the Board by each insured credit 
                        union shall be uniform and consistent with 
                        generally accepted accounting principles.
                          ``(ii) Board determination.--If the Board 
                        determines that the application of any 
                        generally accepted accounting principle to any 
                        insured credit union is not appropriate, the 
                        Board may prescribe an accounting principle for 
                        application to such credit unions which is no 
                        less stringent than generally accepted 
                        accounting principles.
                          ``(iii) De minimus exception.--This 
                        subparagraph shall not apply to any insured 
                        credit union the total assets of which are less 
                        than $10,000,000 unless prescribed by the Board 
                        or an appropriate State credit union 
                        supervisor.
                  ``(D) Large credit union audit requirement.--Each 
                insured credit union which has total assets of 
                $500,000,000 or more shall have an annual independent 
                audit of the financial statement of the credit union 
                performed in accordance with generally accepted 
                auditing standards by an independent certified public 
                accountant or public accountant licensed by the 
                appropriate State or jurisdiction to perform such 
                services.''.
  (b) Technical and Conforming Amendment.--Section 202(a)(6)(B) of the 
Federal Credit Union Act (12 U.S.C. 1786(b)(6)(B)) is amended by 
striking ``subparagraph (A)'' and inserting ``subparagraph (A) or 
(D)''.

SEC. 202. CONVERSIONS OF CREDIT UNIONS INTO OTHER DEPOSITORY 
                    INSTITUTIONS.

  (a) Review of Regulations Required.--The National Credit Union 
Administration Board shall conduct a detailed review of all regulations 
which govern or affect the conversion of a credit union into any other 
form of depository institution, including regulations relating to the 
form of disclosure required preceding a vote by the members of a credit 
union with regard to any such conversion and the manner in which such 
vote shall be conducted, to ensure that such regulations freely and 
fairly permit any such conversion after free, fair, and objective 
disclosure to the members of the credit union of the facts and issues 
involved in any such conversion.
  (b) Report to the Congress.--
          (1) In general.--Before the end of the 12-month period 
        beginning on the date of the enactment of this Act, the 
        National Credit Union Administration Board shall submit a 
        detailed report on the findings and conclusions of the Board in 
        connection with the review required under subsection (a).
          (2) Contents of report.--The report submitted pursuant to 
        paragraph (1) shall contain--
                  (A) any recommendation for any administrative or 
                legislative change which the Board may determine to be 
                appropriate with regard to any aspect of the conversion 
                of a credit union into another form of depository 
                institution; and
                  (B) the justification for any recommendation of the 
                Board--
                          (i) to retain in effect any provision of the 
                        regulations in effect on March 13, 1998, which 
                        govern or affect the conversion of a credit 
                        union into any other form of depository 
                        institution; or
                          (ii) to amend or alter any such provision.
  (c) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) Credit union.--The term ``credit union'' means any 
        Federal credit union or State credit union (as such terms are 
        defined in paragraphs (1) and (6), respectively, of section 101 
        of the Federal Credit Union Act).
          (2) Depository institution.--The term ``depository 
        institution'' has the meaning given such term in section 3 of 
        the Federal Deposit Insurance Act.

SEC. 203. FREEZE ON BOARD REGULATIONS RELATING TO COMMERCIAL LOANS AND 
                    CERTAIN APPRAISAL REQUIREMENTS RELATING TO SUCH 
                    LOANS.

  (a) In General.--The regulations of the National Credit Union 
Administration Board which are codified in parts 701.21(h) and 722.3(a) 
of the Code of Federal Regulations, as in effect on March 13, 1998 
(relating to business loans and lines of credit to members and 
appraisal requirements), including any other regulations which are 
applicable with respect to loans or lines of credit to which the part 
applies, shall remain in effect without amendment or altered 
application until the end of the 1-year period beginning on such date 
and, notwithstanding the Federal Credit Union Act or any other 
provision of law, any action of the National Credit Union 
Administration Board, or the National Credit Union Administration, on 
or after such date which purports to amend (including an amendment by 
substitution) or otherwise apply any such regulation differently than 
in effect on such date shall have no force or legal effect before the 
end of such 1-year period.
  (b) Review and Report to the Congress.--Before the end of the 1-year 
period described in subsection (a), the National Credit Union 
Administration Board shall conduct a review of the effectiveness of the 
regulations referred to in such subsection as in effect on March 13, 
1998, and shall submit a report to the Congress on the results of such 
review before the end of such 1-year period.

SEC. 204. SERVING PERSONS OF MODEST MEANS WITHIN THE FIELD OF 
                    MEMBERSHIP OF CREDIT UNIONS.

  (a) In General.--Title II of the Federal Credit Union Act (12 U.S.C. 
1781 et seq.) is amended by adding at the end the following new 
section:

``SEC. 215. SERVING PERSONS OF MODEST MEANS WITHIN THE FIELD OF 
                    MEMBERSHIP OF CREDIT UNIONS.

  ``(a) Continuing and Affirmative Obligation.--The purpose of this 
section is to reaffirm that insured credit unions have a continuing and 
affirmative obligation to meet the financial services needs of persons 
of modest means consistent with safe and sound operation.
  ``(b) Evaluation by the Board.--The Board shall, before the end of 
the 12-month period beginning on the date of the enactment of the 
Credit Union Membership Access Act--
          ``(1) prescribe criteria for periodically reviewing the 
        record of each insured credit union in providing affordable 
        credit union services to all individuals of modest means 
        (including low- and moderate-income individuals) within the 
        field of membership of such credit union; and
          ``(2) provide for making the results of such review publicly 
        available.
  ``(c) Additional Criteria for Community Credit Unions Required.--The 
Board shall, by regulation--
          ``(1) prescribe additional criteria for annually evaluating 
        the record of any insured credit union which is organized to 
        serve a well-defined local community, neighborhood, or rural 
        district in meeting the credit needs and credit union service 
        needs of the entire field of membership of such credit union; 
        and
          ``(2) prescribe procedures for remedying the failure of any 
        insured credit union described in paragraph (1) to meet the 
        criteria established pursuant to such paragraph, including the 
        disapproval of any application by such credit union to expand 
        the field of membership of such credit union.
  ``(d) Emphasis on Performance, Not Paperwork.--In evaluating any 
insured credit union under this section, the Board shall--
          ``(1) focus on the actual performance of the insured credit 
        union; and
          ``(2) not impose burdensome paperwork or recordkeeping 
        requirements.''.
  (b) Annual Reports.--With respect to each of the 1st 5 years which 
begin after the date of the enactment of this Act, the National Credit 
Union Administration Board shall include in the annual report to the 
Congress under section 102(d) of the Federal Credit Union Act a report 
on the progress of the Board in implementing section 215 of such Act 
(as added by subsection (a) of this section).

SEC. 205. NATIONAL CREDIT UNION ADMINISTRATION BOARD MEMBERSHIP.

  Section 102(b) of the Federal Credit Union Act (12 U.S.C. 1752a(b)) 
is amended--
          (1) by striking ``(b) The Board'' and inserting ``(b) 
        Membership and Appointment of Board.--
          ``(1) In general.--The Board''; and
          (2) by adding at the end the following new paragraph:
          ``(2) Appointment criteria.--
                  ``(A) Experience in financial services.--In 
                considering appointments to the Board under paragraph 
                (1), the President shall give consideration to 
                individuals who, by virtue of their education, 
                training, or experience relating to a broad range of 
                financial services, financial services regulation, or 
                financial policy, are especially qualified to serve on 
                the Board.
                  ``(B) Limit on appointment of credit union 
                officers.--Not more than 1 member of the Board may be 
                appointed to the Board from among individuals who, at 
                the time of such appointment, are, or have recently 
                been, involved with any insured credit union as a 
                committee member, director, officer, employee, or other 
                institution-affiliated party.''.

SEC. 206. REPORT AND CONGRESSIONAL REVIEW REQUIREMENT FOR CERTAIN 
                    REGULATIONS.

  Any regulation prescribed by the National Credit Union Administration 
Board defining, or amending the definition of--
          (1) the term ``immediate family or household'' for purposes 
        of subsection (e)(1) of section 109 of the Federal Credit Union 
        Act (as added by section 101 of this Act); or
          (2) the term ``well-defined local community, neighborhood, or 
        rural district'' for purposes of subsection (g) of such section 
        (as added by section 103 of this Act),
shall be treated as a major rule for purposes of chapter 8 of title 5, 
United States Code.

        TITLE III--CAPITALIZATION AND NET WORTH OF CREDIT UNIONS

SEC. 301. PROMPT CORRECTIVE ACTION.

  (a) In General.--Title II of the Federal Credit Union Act (12 U.S.C. 
1781 et seq.) is amended by inserting after section 215 (as added by 
section 204 of this Act) the following new section:

``SEC. 216. PROMPT CORRECTIVE ACTION.

  ``(a) Resolving Problems to Protect Fund.--
          ``(1) Purpose.--The purpose of this section is to resolve the 
        problems of insured credit unions at the least possible long-
        term loss to the National Credit Union Share Insurance Fund.
          ``(2) Prompt corrective action required.--The Board shall 
        carry out the purpose of this section by taking prompt 
        corrective action to resolve the problems of insured credit 
        unions.
  ``(b) Regulations.--The Board shall implement subsection (a) of this 
section by prescribing regulations, after public notice and opportunity 
for comment, which--
          ``(1) establish criteria and procedures for classifying 
        credit unions as `well capitalized', `adequately capitalized', 
        `undercapitalized', `significantly undercapitalized', or 
        `critically undercapitalized';
          ``(2) specify a series of graduated regulatory enforcement 
        actions that may be imposed upon any credit union which fails 
        to meet the requirements for classification as an adequately 
        capitalized credit union, including--
                  ``(A) the submission of net worth restoration plans;
                  ``(B) earnings retention requirements;
                  ``(C) prior written approval by the Board for certain 
                activities such as branching and entry into new lines 
                of business; and
                  ``(D) the appointment of a conservator or liquidating 
                agent in appropriate circumstances;
          ``(3) establish reasonable net worth requirements, including 
        risk-based net worth requirements in the case of complex credit 
        unions, for various categories of credit unions and prescribe 
        the manner in which net worth is calculated (for purposes of 
        such requirements) with regard to various types of investments, 
        including investments in corporate credit unions, taking into 
        account the unique nature and role of credit unions;
          ``(4) establish criteria for reclassifying the capital 
        classifications of credit unions that engage in unsafe or 
        unsound practices; and
          ``(5) are generally comparable with the prompt corrective 
        action provisions set forth in section 38 of the Federal 
        Deposit Insurance Act, taking into account the distinct capital 
        structure, cooperative nature, and other characteristics of 
        credit unions.''.
  (b) Effective Date of Regulations.--
          (1) Proposed regulations.--The National Credit Union 
        Administration Board shall publish, in the Federal Register, 
        proposed regulations which meet the requirements of the 
        amendment made by subsection (a) before the end of the 270-day 
        period beginning on the date of the enactment of this Act.
          (2) Final regulations.--The regulations required by the 
        amendment made by subsection (a) shall take effect in final 
        form by the end of the 18-month period beginning on the date of 
        the enactment of this Act.
  (c) Report to Congress.--At the time the proposed prompt corrective 
action regulations are published in the Federal Register by the 
National Credit Union Administration Board pursuant to subsection 
(b)(1), the Board shall submit a report to the Congress on the 
differences and similarities between such prompt corrective action 
regulations and the regulations prescribed by the Federal bank agencies 
under section 38 of the Federal Deposit Insurance Act.

SEC. 302. NATIONAL CREDIT UNION SHARE INSURANCE FUND EQUITY RATIO, 
                    AVAILABLE ASSETS RATIO, AND STANDBY PREMIUM CHARGE.

  (a) In General.--Section 202 of the Federal Credit Union Act (12 
U.S.C. 1782) is amended--
          (1) by amending subsection (b) to read as follows:
  ``(b) Certified Statement.--
          ``(1) Statement required.--
                  ``(A) In general.--For each calendar year in the case 
                of an insured credit union with total assets of not 
                more than $50,000,000, and for each semi-annual period 
                in the case of an insured credit union with total 
                assets of $50,000,000 or more, an insured credit union 
                shall file with the Board, at such time as the Board 
                prescribes, a certified statement showing the total 
                amount of insured shares in the credit union at the 
                close of the relevant period and both the amount of its 
                deposit or adjustment of deposit and the amount of the 
                insurance charge due to the fund for that period, both 
                as computed under subsection (c).
                  ``(B) Exception for newly insured credit union.--
                Subparagraph (A) shall not apply with respect to a 
                credit union that became insured during the reporting 
                period.
          ``(2) Form.--The certified statements required to be filed 
        with the Board pursuant to this subsection shall be in such 
        form and shall set forth such supporting information as the 
        Board shall require.
          ``(3) Certification.--The president of the credit union or 
        any officer designated by the board of directors shall certify, 
        with respect to each such statement, that to the best of his or 
        her knowledge and belief the statement is true, correct, 
        complete, and in accordance with this title and the regulations 
        issued under this title.'';
          (2) by amending clause (iii) of subsection (c)(1)(A) to read 
        as follows:
                          ``(iii) Periodic adjustment.--The amount of 
                        each insured credit union's deposit shall be 
                        adjusted as follows, in accordance with 
                        procedures determined by the Board, to reflect 
                        changes in the credit union's insured shares:
                                  ``(I) annually, in the case of an 
                                insured credit union with total assets 
                                of not more than $50,000,000; and
                                  ``(II) semi-annually, in the case of 
                                an insured credit union with total 
                                assets of $50,000,000 or more.'';
          (3) by amending paragraphs (2) and (3) of subsection (c) to 
        read as follows:
          ``(2) Insurance premium charges.--
                  ``(A) In general.--Each insured credit union shall, 
                at such times as the Board prescribes (but not more 
                than twice in any calendar year), pay to the fund a 
                premium charge for insurance in an amount stated as a 
                percentage of insured shares (which shall be the same 
                for all insured credit unions).
                  ``(B) Relation of premium charge to equity ratio of 
                fund.--The Board may assess a premium charge only if--
                          ``(i) the fund's equity ratio is less than 
                        1.3 percent; and
                          ``(ii) the premium charge does not exceed the 
                        amount necessary to restore the equity ratio to 
                        1.3 percent.
                  ``(C) Premium charge required if equity ratio falls 
                below 1.2 percent.--If the fund's equity ratio is less 
                than 1.2 percent, the Board shall, subject to 
                subparagraph (B), assess a premium charge in such an 
                amount as the Board determines to be necessary to 
                restore the equity ratio to, and maintain that ratio 
                at, 1.2 percent.
          ``(3) Distributions from fund required.--
                  ``(A) In general.--The Board shall effect a pro rata 
                distribution to insured credit unions after each 
                calendar year if, as of the end of that calendar year--
                          ``(i) any loans to the fund from the Federal 
                        Government, and any interest on those loans, 
                        have been repaid;
                          ``(ii) the fund's equity ratio exceeds the 
                        normal operating level; and
                          ``(iii) the fund's available assets ratio 
                        exceeds 1.0 percent.
                  ``(B) Amount of distribution.--The Board shall 
                distribute under subparagraph (A) the maximum possible 
                amount that--
                          ``(i) does not reduce the fund's equity ratio 
                        below the normal operating level; and
                          ``(ii) does not reduce the fund's available 
                        assets ratio below 1.0 percent.
                  ``(C) Calculation based on certified statements.--In 
                calculating the fund's equity ratio and available 
                assets ratio for purposes of this paragraph, the Board 
                shall determine the aggregate amount of the insured 
                shares in all insured credit unions from insured credit 
                unions certified statements under subsection (b) for 
                the final reporting period of the calendar year 
                referred to in subparagraph (A).'';
          (4) by adding at the end of subsection (c) the following new 
        paragraph:
          ``(4) Timeliness and accuracy of data.--In calculating the 
        available assets ratio and equity ratio of the fund, the Board 
        shall use the most current and accurate data reasonably 
        available.''; and
          (5) by amending subsection (h) to read as follows:
  ``(h) Definitions.--For purposes of this section, the following 
definitions shall apply:
          ``(1) Available assets ratio.--The term `available assets 
        ratio', when applied to the fund, means the ratio of--
                  ``(A) the amount determined by subtracting--
                          ``(i) direct liabilities of the fund and 
                        contingent liabilities for which no provision 
                        for losses has been made, from
                          ``(ii) the sum of cash and the market value 
                        of unencumbered investments authorized under 
                        section 203(c), to
                  ``(B) the aggregate amount of the insured shares in 
                all insured credit unions.
          ``(2) Equity ratio.--The term `equity ratio', when applied to 
        the fund, means the ratio of--
                  ``(A) the amount of fund capitalization, including 
                insured credit unions' 1 percent capitalization 
                deposits and the fund's retained earnings balance (net 
                of direct liabilities of the fund and contingent 
                liabilities for which no provision for losses has been 
                made), to
                  ``(B) the aggregate amount of the insured shares in 
                all insured credit unions.
          ``(3) Insured shares.--The term `insured shares', when 
        applied to this section, includes share, share draft, share 
        certificate, and other similar accounts as determined by the 
        Board, but does not include amounts exceeding the insured 
        account limit set forth in section 207(c)(1).
  ``(4) Normal operating level.--The term `normal operating level', 
when applied to the fund, means an equity ratio specified by the Board, 
which shall be not less than 1.2 percent and not more than 1.5 
percent.''.
  (b) Effective Date.--This section shall become effective on January 1 
of the first calendar year beginning more than 180 days after the date 
of enactment of this Act.

SEC. 303. ACCESS TO LIQUIDITY.

  Section 204 of the Federal Credit Union Act (12 U.S.C. 1784) is 
amended by adding at the end the following new subsections:
  ``(f) Access to Liquidity.--The Board shall--
          ``(1) periodically assess the potential liquidity needs of 
        each insured credit union, and the options that the credit 
        union has available for meeting those needs; and
          ``(2) periodically assess the potential liquidity needs of 
        insured credit unions as a group, and the options that insured 
        credit unions have available for meeting those needs.
  ``(g) Sharing Information With Federal Reserve Banks.--The Board 
shall, for the purpose of facilitating insured credit unions' access to 
liquidity, make available to the Federal reserve banks (subject to 
appropriate assurances of confidentiality) information relevant to 
making advances to such credit unions, including the Board's reports of 
examination.''.

                   TITLE IV--MISCELLANEOUS PROVISIONS

SEC. 401. ASSURING INDEPENDENT DECISION MAKING IN CONNECTION WITH 
                    CERTAIN CONVERSIONS.

  Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) is 
amended by adding at the end the following new subsection:
  ``(t) Conversions Involving Former Credit Unions.--
          ``(1) In general.--Notwithstanding any other provision of 
        law--
                  ``(A) an insured credit union may not convert into an 
                insured depository institution; and
                  ``(B) an insured depository institution which 
                resulted from a prior conversion of an insured credit 
                union into such insured depository institution may not 
                convert from the mutual form to the stock form and may 
                not convert from 1 form of depository institution into 
                another,
        unless the appropriate Federal banking agency for the insured 
        depository institution which results from any such conversion 
        reviews the conversion and determines that the requirements of 
        paragraphs (2) and (3) have been met.
          ``(2) Prohibition on economic benefit from conversion for 
        credit union officers, directors, and committee members.--An 
        individual who is or, at any time during the 5-year period 
        preceding any conversion described in paragraph (1), was a 
        director, committee member, or senior management official of an 
        insured credit union described in subparagraph (A) or (B) of 
        such paragraph (in connection with such conversion) may not 
        receive any economic benefit as a result of the conversion with 
        regard to the shares or interests of such director, member, or 
        officer in the former insured credit union or in any resulting 
        insured depository institution.
          ``(3) Acknowledgement and attestation by officers, directors, 
        and committee members.--Any insured credit union or insured 
        depository institution which is seeking to engage in a 
        conversion which is subject to this subsection shall submit--
                  ``(A) a written acknowledgement, in such form and 
                manner as the appropriate Federal banking agency may 
                prescribe, by every individual who is subject to the 
                prohibition contained in paragraph (2), that such 
                individual is aware of such prohibition; and
                  ``(B) an attestation that the conversion under review 
                will not result in a violation of such prohibition.
          ``(4) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                  ``(A) Insured credit union.--The term `insured credit 
                union' has the meaning given to such term in section 
                101(7) of the Federal Credit Union Act.
                  ``(B) Senior management official.--The term `senior 
                management official' means a chief executive officer, 
                an assistant chief executive officer, a chief financial 
                officer, and any other senior executive officer (as 
                defined by the appropriate Federal banking agency 
                pursuant to section 32(f)).''.

SEC. 402. PAYMENT OF INTEREST ON RESERVES AT FEDERAL RESERVE BANKS.

  (a) In General.--Section 19(b) of the Federal Reserve Act (12 U.S.C. 
461(b)) is amended by adding at the end the following new paragraph:
          ``(12) Earnings on reserves.--
                  ``(A) In general.--Balances maintained at a Federal 
                reserve bank by or on behalf of a depository 
                institution to meet the reserve requirements of this 
                subsection applicable with respect to such depository 
                institution shall receive earnings to be paid by the 
                Federal reserve bank at least once each calendar 
                quarter at a rate not to exceed the rate earned on the 
                securities portfolio of the Federal Reserve System 
                during the preceding quarter.
                  ``(B) Regulations relating to payments and 
                distributions.--The Board may prescribe regulations 
                concerning--
                          ``(i) the payment of earnings in accordance 
                        with this paragraph;
                          ``(ii) the distribution of such earnings to 
                        the depository institutions which maintain 
                        balances at such banks or on whose behalf such 
                        balances are maintained; and
                          ``(iii) the responsibilities of depository 
                        institutions, Federal home loan banks, and the 
                        National Credit Union Administration Central 
                        Liquidity Facility with respect to the 
                        crediting and distribution of earnings 
                        attributable to balances maintained, in 
                        accordance with subsection (c)(1)(B), in a 
                        Federal reserve bank by any such entity on 
                        behalf of depository institutions which are not 
                        member banks.''.
  (b) Technical and Conforming Amendment.--
          (1) Section 19(b)(4) of the Federal Reserve Act (12 U.S.C. 
        461(b)(4)) is amended by striking subparagraph (C).
          (2) Section 19(c)(1)(A) of the Federal Reserve Act (12 U.S.C. 
        461(c)(1)(A)) is amended by striking ``subsection (b)(4)(C)'' 
        and inserting ``subsection (b)''.

                          Purpose and Summary

    The purpose of H.R. 1151, the Credit Union Membership 
Access Act, as reported out of the Committee on Banking and 
Financial Services, is to ensure the continued safety and 
soundness of credit unions by permitting multiple common bond 
formations while preserving the integrity of the common bond 
concept as established by the Federal Credit Union Act (FCUA) 
by imposing certain limitations on permissible new groups that 
can be added to an existing credit union. H.R. 1151 also 
addresses many uncertainties for the credit union industry, 
which resulted from the Supreme Court's decision on February 
25, 1998, National Credit Union Administration v. First 
National Bank & Trust Co.

                                title i

    Title I of the bill clarifies that there are three distinct 
kinds of common bond requirements for federal credit unions: 
single common bond, multiple common bond, or community credit 
unions. With respect to multiple common bond credit union, each 
group within a multiple common bond credit union must have a 
common bond of occupation or association and have less than 
3,000 people at the time the group joins an existing credit 
union. In order for a credit union to add a new group to its 
field of membership, the National Credit Union Administration 
(NCUA) must determine in writing that the credit union meets 
certain criteria, and thus permit such group to join an 
existing credit union. There are two exceptions to the limits 
on expansion. If a group is larger than 3,000, the NCUA may 
permit the group to join an existing credit union if it 
determines in writing that, based on criteria outlined in the 
bill, the group would not be financially viable as a new single 
common bond credit union. The bill further provides that if the 
NCUA determines that a group cannot form a viable credit union 
on its own, the NCUA is required to place the group with a 
credit union in reasonably proximity to the group where 
practicable. Additionally, any person or organization located 
in an underserved community may be included in the field of 
membership of a credit union which will establish and maintain 
an office or facility in the area.
    This title also grandfathers all current members as well as 
current groups contained within the membership of a credit 
union as of the date of enactment of this legislation. The 
grandfather will permit such groups to continue accepting new 
members.

                                title ii

    Title II affects NCUA regulations relating to annual 
financial statement preparation, audit requirements, credit 
union conversions into other depository institutions, and 
commercial loans.
    Title II also reaffirms that insured credit unions have a 
continuing obligation to meet the financial services needs of 
persons of modest means, including low- and moderate-income 
individuals. The NCUA is required to review each credit union's 
record of meeting the financial service needs of its entire 
field of membership.

                               title iii

    Title III strengthens capital and net worth requirements 
for credit unions. The NCUA is required to prescribe 
regulations for prompt corrective action to resolve the 
problems of insured credit unions as well as establish net 
worth requirements. This title also affects the reporting of 
and calculation of the National Credit Union Share Insurance 
Fund equity ratio, available assets ratio, and standby premium 
charge.

                                title iv

    Title IV prohibits insured credit unions from converting to 
insured depository institutions unless the appropriate 
regulatory determines that no current or former (within the 
past five years) director, committee member, or senior 
management officer will receive any economic benefit as a 
result of the conversion. This title also amends the Federal 
Reserve Act to provide that balances maintained by or on behalf 
of insured depository institutions to meet reserve requirements 
shall receive earnings to be paid by the Federal Reserve Bank.

                  Background and Need for Legislation

    Credit unions are financial institutions that provide a 
savings function and offer consumer credit to their members. 
Like banks and saving and loans, they can be chartered at the 
state or federal level. However, unlike other depository 
institutions, credit unions are cooperatives whose members must 
have a ``common bond.'' The National Credit Union 
Administration's (NCUA) regulations establish three categories 
of common bond: occupational, associational, and community-
based. Credit union members in the occupational category are 
employed by the same enterprise, or in the same trade. An 
associational common bond is available to groups of individuals 
who participate in activities that develop common loyalties, 
mutual benefits, and mutual interests. Members in the community 
category have a common bond based on employment or residence in 
a geographic area with clearly defined boundaries.
    Until 1982, the NCUA interpreted this common bond provision 
to mean that members of each occupational federal credit union 
must be drawn from a single occupational group (employees from 
a single employer). However, in 1982 the NCUA amended its 
interpretation of the provision to allow a federal credit union 
to comprise ``multiple occupational groups'' which only had to 
be within a ``well-defined area'' according to an NCUA 
interpretive ruling. The term ``well-defined area'' was 
interpreted by the NCUA as an area served by either an actual 
or planned office of the credit union--a broad interpretation 
because there could be virtually any number of such offices. 
The NCUA's new interpretation of the common bond requirement 
led to a conflict between banks and credit unions.
    In December 1990, five North Carolina banks and the 
American Bankers Association sued the NCUA for allowing AT&T 
Family Federal Credit Union to serve employees at more than 150 
different companies. The banks argued that the NCUA 
interpretation violated the Federal Credit Union Act (FCUA) by 
allowing unaffiliated groups to join together in a credit 
union.
    Six years later, on July 30, 1996, the U.S. Court of 
Appeals for the District of Columbia Circuit issued an opinion 
that rejected the NCUA's new interpretation of the common bond 
language in the statute. The court held that the FCUA common 
bond provision requires all members of an occupational federal 
credit union to share a single common bond. The court held that 
the NCUA had exceeded its statutory authority when it permitted 
the AT&T Family Federal Credit Union to expand its field of 
membership to include the employees of a variety of businesses 
that were unaffiliated with the credit union's original 
membership.
    On October 25, 1996, the U.S. District Court for the 
District of Columbia issued an injunction in the consolidated 
case declaring unlawful membership in a federal credit union by 
individuals or groups who do not share a ``single common bond 
of occupation.'' The court also ordered the NCUA to cease 
authorizing occupational federal credit unions to admit members 
who do not share a single common bond of occupation. The Court 
of Appeals, however, issued a partial stay of this decision on 
December 24, 1996. Under this stay, federal credit unions were 
allowed to continue accepting members from existing groups that 
were not part of the credit union's original and core 
membership group. Credit unions were not, however, allowed to 
add new and unrelated groups that did not share a common bond 
with the credit union's original core membership group.
    On April 14, 1997, the U.S. Court of Appeals for the Sixth 
Circuit rendered a decision in a similar case, First City Bank 
v. NCUA. The Sixth Circuit agreed with the District of Columbia 
Circuit that the NCUA had exceeded its statutory authority with 
the new interpretation in 1982 to permit multiple common bond 
credit unions.
    The Supreme Court heard oral arguments concerning the AT&T 
case on October 6, 1997 and, on February 25, 1998, the Court 
issued a 5-4 decision concluding that the banks had standing to 
challenge the NCUA's interpretation of the FCUA, and that the 
NCUA's interpretation was contrary to the unambiguously 
expressed intent of Congress, and was therefore impermissible.
    A legislative response was called for to address issues 
that arose as a result of the Supreme Court's decision. In 
addition, the Department of the Treasury issued a report in 
December 1997 pursuant to the Economic Growth and Regulatory 
Paperwork Reduction Act of 1996 reviewing NCUA regulations. The 
report included several recommendations for Congress to 
strengthen safety and soundness requirements for credit unions. 
These recommendations are reflected in Title III of the bill.

                                Hearings

    On March 11, 1998 the full Committee held a hearing to 
review the Supreme Court's February 25, 1998 decision regarding 
the credit union common bond requirement and the appropriate 
Congressional response to the ruling. Testifying before the 
Committee were The Honorable Ron Paul; The Honorable Steven 
LaTourette; The Honorable Paul Kanjorski; The Honorable Chris 
Cannon; The Honorable Nick Smith; The Honorable Richard Baker; 
The Honorable Joseph Kennedy; The Honorable Bob Ehrlich; 
Richard Carnell, Assistant Secretary for Financial 
Institutions, Department of the Treasury; Norman D'Amours, 
Chairman, National Credit Union Administration; Harold Feeney, 
Chairman, National Association of State Credit Union 
Supervisors; Don W. Lewis, President and CEO, Aberdeen Proving 
Ground Federal Credit Union, Aberdeen, MD, on behalf of the 
National Association of Federal Credit Unions; Rose 
Bartolomucci, President and CEO, Kent Credit Union, Kent, OH, 
on behalf of the Credit Union National Association; Gail 
Briles, Director of Industrial Relations, Klaussner Furniture 
Company, on behalf of the Alliance to Protect Credit Union 
Choice; Jeffrey L. Plagge, President and CEO, First National 
Bank, Waverly, IA, on behalf of the American Bankers 
Association; K. Reid Pollard, President and CEO, Randolph Bank 
& Trust Company, Asheboro, NC, on behalf of the Independent 
Bankers Association of America; John D. Garrison, Chairman, 
President, and CEO, Walden Savings Bank, Walden, NY, on behalf 
of America's Community Bankers.
    The Subcommittee on Financial Institutions and Consumer 
Credit held a February 26, 1997 hearing on issues facing the 
credit union industry. Testifying before the Subcommittee were 
The Honorable Martin Frost; Norman D'Amours, Chairman, National 
Credit Union Administration; David Paul, Commissioner, Division 
of Financial Services, State of Colorado, on behalf of the 
National Association of State Credit Union Supervisors; Scott 
Jones, First Vice President, American Bankers Association; 
Leland Stenehjem, Jr., President, Independent Bankers 
Association of America; John Garrison, Chairman, President and 
CEO, Walden Savings Bank, Walden, NY, on behalf of America's 
Community Bankers; Winifred Corey, CEO of Los Angeles Scholls 
Credit Union, on behalf of the Credit Union National 
Association; Michael Vadala, President and CEO, The Summit 
Federal Credit Union, Rochester, NY, on behalf of the National 
Association of Federal Credit Unions; Steve Brobeck, Executive 
Director, Consumer Federation of America; Robert Anderson, 
President and CEO, Liberty Check Printers.

                   Committee Consideration and Votes

    On March 26, 1998, the full Committee met in open session 
to mark up H.R. 1151, the ``Credit Union Membership Access 
Act.'' The Committee considered as original text for purposes 
of amendment an amendment in the nature of a substitute to H.R. 
1151. The Committee considered several amendments to the 
substitute and accepted the following amendments by voice vote:
    An amendment offered by Mr. Bereuter to required that any 
regulation prescribed by the NCUA Board to define or amend the 
definition of the term ``immediate family or household'' or 
``well-defined local community, neighborhood, or rural 
district'' be treated as a major rule for purposes of chapter 8 
of title 5 of the United States Code.
    An amendment offered by Mr. Kennedy to clarify that the 
term ``persons of modest means'' includes low- and moderate-
income individuals with respect to the Board's criteria for 
periodic review of insured credit unions serving these 
individuals within the field of membership.
    An amendment offered by Mrs. Roukema to the Baker 
commercial lending limit amendment to allow NCUA to grant 
insured credit unions temporary or permanent exceptions from 
the commercial lending limit if the credit union's request was 
made in writing and the NCUA determined in writing that the 
credit union would suffer significant and continuing harm to 
the achievement of the credit's union's purposes unless the 
exception was granted.
    An amendment offered by Mr. Baker, as amended by the 
substitute offered by Messrs. Leach and LaFalce (see below for 
details).
    An amendment offered by Mr. McCollum to strike the 
requirements that credit unions file financial statements with 
NCUA and instead to require that credit unions file reports or 
statements that are consistent with generally accepted 
accounting principles. The amendment also exempts credit unions 
with assets of $10 million or less.
    Two amendments were offered en-bloc by Mr. Barrett to (1) 
require for five years the Board to include in the annual 
reports to Congress their progress in implementing the 
regulation to review credit unions' efforts to serve persons of 
modest means within the field of membership and (2) require 
that the Board, within the 12-month period of the date of 
enactment of the Act, prescribe criteria for review of the 
record of credit unions in serving those persons of modest 
means within the field of membership.
    The Committee considered the following amendments by 
recorded votes:
    A substitute by Messrs. Leach and LaFalce to an amendment 
offered by Mr. Baker to (1) freeze for one year the regulations 
which are codified in section 701.21(h) and 722.3(a) of the 
Code of Federal Regulations and any other regulations 
applicable thereunder with respect to loans or lines of credit 
notwithstanding the effect of the Federal Credit Union Act or 
other laws, and the action of the Board and the NCUA and (2) 
require the Board to review and submit to Congress a report on 
the effectiveness of such regulations as they are in effect on 
March 31, 1998. The substitute passed by a vote of 27-25.
        YEAS                          NAYS
Mr. Leach                           Mr. McCollum
Mr. Ney                             Mrs. Roukema
Mr. Barr                            Mr. Bereuter
Dr. Paul                            Mr. Baker, R.
Mr. Riley                           Mr. Lazio
Mr. Sessions                        Mr. Bachus
Mr. LaTourette                      Mr. Castle
Mr. Foley                           Mr. Campbell
Mr. Fossella                        Mr. Lucas
Mr. LaFalce                         Mr. Metcalf
Mr. Vento                           Mr. Ehrlich
Mr. Frank                           Mrs. Kelly
Mr. Kanjorski                       Dr. Weldon
Mr. Kennedy                         Mr. Ryun
Mr. Sanders                         Mr. Cook
Mrs. Maloney                        Mr. Snowbarger
Mr. Gutierrez                       Mr. Hill
Ms. Roybal-Allard                   Mr. Manzullo
Mr. Barrett. T.                     Mr. Jones
Mr. Hinchey                         Ms. Velazquez
Mr. Ackerman                        Mr. Watt
Mr. Jackson, Jr.                    Mr. Bensten
Ms. Kilpatrick                      Mr. Maloney
Ms. Carson                          Ms. Hooley
Mr. Weygand                         Mr. Meeks, G.
Mr. Sherman
Mr. Sandlin

    An amendment by Messrs, McCollum and Ehrlich to eliminate 
the requirement that credit unions serve persons of modest 
means within the field of membership was defeated by a vote of 
22-32.
        AYES                          NAYS
Mr. McCollum                        Mr. Leach
Mrs. Roukema                        Mr. Lazio
Mr. Bereuter                        Mr. Castle
Mr. Baker, R.                       Mr. Ney
Mr. Bachus                          Mrs. Kelly
Mr. King                            Mr. LaTourette
Mr. Campbell                        Mr. LaFalce
Mr. Lucas                           Mr. Vento
Mr. Metcalf                         Mr. Schumer
Mr. Ehrlich                         Mr. Frank
Mr. Barr                            Mr. Kanjorski
Dr. Paul                            Mr. Kennedy
Mr. Ryun                            Mr. Sanders
Mr. Cook                            Mrs. Maloney
Mr. Snowbarger                      Mr. Gutierrez
Mr. Riley                           Ms. Roybal-Allard
Mr. Hill                            Mr. Barrett. T.
Mr. Manzullo                        Ms. Velazquez
Mr. Foley                           Mr. Watt
Mr. Jones                           Mr. Hinchey
Mr. Redman                          Mr. Ackerman
Mr. Fossella                        Mr. Bensten
                                    Mr. Jackson, Jr.
                                    Ms. Kilpatrick
                                    Mr. Maloney
                                    Ms. Hooley
                                    Ms. Carson
                                    Mr. Weygand
                                    Mr. Sherman
                                    Mr. Sandlin
                                    Mr. Meeks, G.
                                    Mr. Torres.

    An amendment offered by Mr. Barrett to require the Board to 
periodically review credit unions' record of serving persons of 
modest means in virtually the same manner as banking agencies 
examine depository institutions for their compliance with the 
Community Reinvestment Act. The amendment was defeated by a 
vote of 18-33 and one present.

                                                                                                                
                  AYES                                 NAYS                                 PRESENT             
                                                                                                                
Mr. LaFalce                          Mr. McCollum                         Mr. Leach                             
Mr. Frank                            Mrs. Roukema                                                               
Mr. Kennedy                          Mr. Bereuter                                                               
Mr. Sanders                          Mr. Baker, R.                                                              
Mrs. Maloney                         Mr. Lazio                                                                  
Mr. Gutierrez                        Mr. Bachus                                                                 
Ms. Royball-Allard                   Mr. King                                                                   
Mr. Barrett, T.                      Mr. Campbell                                                               
Ms. Velazquez                        Mr. Lucas                                                                  
Mr. Watt                             Mr. Metcalf                                                                
Mr. Bentsen                          Mr. Ehrlich                                                                
Mr. Jackson, Jr.                     Mr. Barr                                                                   
Ms. Kilpatrick                       Mr. Fox                                                                    
Mr. Maloney                          Mrs. Kelly                                                                 
Ms. Carson                           Dr. Paul                                                                   
Mr. Sandlin                          Dr. Weldon                                                                 
Mr. Meeks, G.                        Mr. Cook                                                                   
Mr. Torres                           Mr. Snowbarger                                                             
                                     Mr. Riley                                                                  
                                     Mr. Hill                                                                   
                                     Mr. LaTourette                                                             
                                     Mr. Manzullo                                                               
                                     Mr. Foley                                                                  
                                     Mr. Jones                                                                  
                                     Mr. Redmond                                                                
                                     Mr. Fossella                                                               
                                     Mr. Vento                                                                  
                                     Mr. Kanjorski                                                              
                                     Mr. Hinchey                                                                
                                     Mr. Ackerman                                                               
                                     Ms. Hooley                                                                 
                                     Mr. Weygand                                                                
                                     Mr. Sherman                                                                
                                                                                                                

    Also, the Committee adopted by voice vote the amendment in 
the nature of a substitute, as amended. Finally, with a quorum 
being present, the Committee approved by voice vote final 
passage of H.R. 1151, as amended, and favorably reported it to 
the full House.

                      Committee Oversight Findings

    In compliance with clause 1(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings and recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(d) of rule XI of the Rules of the House of 
Representatives.

                        Constitutional Authority

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the constitutional authority 
for Congress to enact this legislation is derived from the 
interstate commerce clauses (Clause 3, Section 8, Article I). 
In addition, the power ``to coin money'' and ``regulate the 
value thereof' provided for in Clause 5, Section 8, Article I, 
has been broadly construed to allow for the Federal chartering 
and regulation of banks and other financial institutions.

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of rule XI of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide a new budgetary authority or increased tax 
expenditures.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act are created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

    Congressional Budget Office Cost Estimate and Unfunded Mandates 
                                Analysis

    The CBO cost estimates and unfunded mandated analysis for 
the bill were not available at the time the report was filed, 
but will be provided in a subsequent addendum to the report.

                      section-by-section analysis

Section 1. Short title

    Section 1 designates the act as the ``Credit Union 
Membership Access Act'' (the Act).

Section 2. Findings

    Section 2 lists five Congressional finding related to the 
credit union movement, the public purposes of these cooperative 
institutions, and the importance of the common bond 
requirement. Additionally, the section indicates the findings 
of the Committee regarding credit unions' tax and 
organizational status, and the need for improved safety and 
soundness provisions.

                    Title I--Credit Union Membership

Section 101. Fields of membership

    Section 101 provides that membership in federal credit 
unions shall be limited to one of three types: single common-
bond, multiple common-bond, or community credit unions. Subject 
to the exceptions that follows, single common-bond credit 
unions are to consist of one group that has a single common 
bond of occupation or association. Multiple common-bond credit 
unions shall consist of more than one group, each of which has 
(within such group) a common bond of occupation or association, 
and the number of members of which does not exceed 3,000 
persons at the time it is included in the field of membership 
of the credit union. As noted above, the Committee held a 
hearing on March 11, 1998 regarding the Supreme Court's 
decision on the common bond issue in the AT&T case. The 
Committee has determined that it is appropriate to change 
existing law and specifically authorize multiple common bond 
federal credit unions. These federal credit unions are subject, 
however, to certain additional group size and geographic 
expansion limits.
    Current law regarding community credit unions is modified 
by providing that these institutions shall consist of persons 
or organization within a well-defined local community, 
neighborhood, or rural district.
    The section clarifies that the 3,000 person limitation 
applies only to the size of the group at the time of their 
inclusion within the field of membership of a credit union. The 
limit is not intended to restrict the growth of such groups 
after they are added to the credit union.
    The Committee does not intend for this numerical limitation 
to be interpreted as permitting all groups with 3,000 or fewer 
members to be included within the field of membership of an 
existing credit union. The 3,000 member limitation is intended 
as the maximum size of groups that can organize within an 
existing credit union, unless a group meets specific 
exemptions. The Board is required, under Section 102 of the 
bill, to encourage common bond groups, regardless of size, to 
organize new separately chartered credit unions. The NCUA must 
determine that a group has sufficient financial and operational 
resources to form a separate credit union and to operate it in 
a safe and sound manner.
    There are two exceptions to the 3,000 member limit. First, 
the NCUA may permit groups with over 3,000 members to join an 
existing credit union if the Board determines in writing that 
the group does not have the financial resources or operational 
capacity to organize and operate a new single common bond 
credit union. Second, the Board may merge or consolidate a 
group with over 3,000 members with another credit union 
forsupervisory reasons. The Committee does not intend for these 
exceptions to provide broad discretion to the Board to permit larger 
groups to be incorporated within or merged with other credit unions. 
The exceptions are intended to apply where the Board has sufficient 
evidence to support a finding that creation of a separately chartered 
credit union, or the continued operation of an existing credit union, 
present safety and soundness concerns.
    There is also an exception in this section for underserved 
areas. Any person or organization within an underserved local 
community, neighborhood, or rural district may be added to 
multiple common bond credit unions which establishes and 
maintains an office or facility in the underserved areas. The 
term ``facility'' in the Act is meant to be defined in the same 
way that the National Credit Union Administration (``NCUA'' or 
``Board'') has defined ``service facility,'' that is, an 
automatic teller machine or similar device would not qualify. 
The section also requires the NCUA to issue regulations, with 
notice and comment, establishing criteria that will be applied 
when determining whether additional groups may be added under 
this section.
    Additionally, the section provides a broad grandfather for 
all persons and organizations who could be forced out of credit 
unions by the Supreme Court's decision in the AT&T case. This 
section covers all persons or organizations or successors who 
were members of a federal credit union on the date of enactment 
of this Act, as well as anyone who is or becomes a member of a 
group representing a portion of the credit union's membership, 
may remain members or eligible members of that credit union. 
This section also addresses the appropriate field of membership 
with respect to family. The section provides that membership in 
federal credit unions shall be limited to the ``immediate 
family or household'' of eligible members. The NCUA is directed 
to define these terms by regulation. Members may retain their 
membership until they choose to withdraw, unless credit unions 
use provisions in current law to remove them.

Section 102. Criteria for approval of expansion of membership of 
        multiple common-bond credit unions

    It is the Committee's position that the NCUA should charter 
new credit unions wherever possible and such formation would be 
consistent with safety and soundness. As noted above in Section 
101, the 3,000 member figure is not intended to indicate that 
groups below 3,000 are incapable of forming new, viable credit 
unions. To the contrary, over 3,300 credit unions have less 
than $2 million in assets and average just 700 members. The 
NCUA shall encourage groups, regardless of size, to form their 
own credit unions where such formation would be consistent with 
safety and soundness and not pose a significant risk to the 
share insurance fund.
    Section 102 also articulates a strong policy towards 
placing groups which cannot form their own credit unions with a 
local credit union. If the NCUA determines that a group cannot 
form a viable credit union on its own, then the NCUA is 
required to place the group with a credit union within 
reasonable proximity of the group. This local preference is 
qualified by safety and soundness principles. The Committee 
strongly believes credit union members who live, work and 
interact in the same geographic area are likely to have more of 
a meaningful affinity and common bond than those who do not. 
The NCUA's regulations shall strongly favor placing groups with 
local credit unions and document in writing their compliance 
with the local preference requirement. We note, however, that 
this provision does not require local credit unions to add 
groups which they do not want.
    Under this section, multiple common bond credit unions are 
required to apply to the NCUA every time they want to add a new 
group to their field of membership, regardless of the size of 
the group to be added. The NCUA must determine in writing that 
the six specific approval criteria have been met. This NCUA 
determination is a final agency action. Specifically, the Board 
must find that the credit union has not engaged in material 
unsafe or unsound practices during the year prior to the 
application; the credit union is adequately capitalized; it has 
the administrative capability to serve the proposed membership 
group and the financial resources to meet the need for 
additional staff and assets to serve the new group. 
Additionally, in accordance with section 215 of the Federal 
Credit Union Act, the Board must determine that the credit 
union is satisfactorily providing credit union services to all 
individuals of modest means within its field of membership; and 
that any potential harm to another insured credit union and its 
members from the credit union's expansion is clearly outweighed 
by the probable beneficial effect of the expansion in meeting 
the convenience and needs of the members of the group proposed 
to be included. The credit union must also meet any other 
requirements the Board has prescribed.
    The Committee specifically notes the approval criteria in 
subparagraph (E) which relates to potential harm to other 
insured credit unions. As noted above, the Committee strongly 
favors placing groups with local credit unions. However, it is 
not intended that this requirement be implemented in a manner 
that causes significant injury to other local credit unions in 
terms of creating overlapping memberships that may weaken the 
membership or financial base of an existing credit union. The 
Board is expected to establish procedures to minimize the 
potential harm to other insured credit unions wherever possible 
and, at a minimum, to ensure that any potential harm to an 
existing credit union is clearly outweighed by the benefits 
created by the membership expansion in terms of additional 
services and convenience for the new member group.

Section 103. Geographical guidelines for community credit unions

    Section 103 requires the Board to define by regulation the 
criteria it will use in determining the meaning of the term 
``well defined local community, neighborhood, or rural 
district'' for purposes of evaluating charter applications by 
community credit unions. These terms shall only apply to 
applications for new credit unions and applications to alter 
the membership of existing credit unions submitted after the 
date of enactment.

                 Title II--Regulation of Credit Unions

Section 201. Financial statement and audit requirements

    Section 201 provides that accounting principles applicable 
to reports or statements required to be filed shall be 
consistent with generally accepted accounting principles, 
unless the Board determines that such application is not 
appropriate, in which case the Board may prescribe principles 
that, while different, are no less stringent. Additionally, 
credit unions with assets below $10 million do not have to 
comply with this provision, unless the Board or an appropriate 
State supervisor prescribes it. This section requires insured 
credit unions with over $500 million in assets to have an 
annual independent audit of their financial statement performed 
in accordance with generally accepted accounting principles by 
an independent certified public accountant or public accountant 
licensed by the appropriate State or jurisdiction to perform 
such services.

Section 202. Conversions of credit unions into other depository 
        institutions

    This section requires the NCUA to conduct a detailed review 
of its regulations affecting such conversions to ensure that 
they freely and fairly permit conversions after adequate 
disclosure of relevant information to members. The intent of 
this section is that the Board consult with State credit union 
supervisors in conducting the review. Section 202 also calls 
for a report to Congress one year after enactment containing 
recommendations and justifications for any changes to 
regulations in effect on March 13, 1998.

Section 203. Freeze on Board regulations relating to commercial loans

    Section 203 provides that the regulations codified at 
section 701.21(h) and 722.3(a) of the Code of Federal 
Regulations (relating to business loans and lines of credit to 
members as well as certain appraisal requirements), including 
any other regulations which such section makes applicable with 
respect to loans or lines of credit to which such section 
applies, shall for one year remain in effect and unaltered from 
their operation on March 13, 1998. Under these current 
regulations, loans made for business purposes are treated as 
business loans (and made subject to additional underwriting and 
reporting requirements) only in cases where the aggregate 
amount lent to one borrower exceeds $50,000. The provision 
requires the Board to conduct a review of the effectiveness of 
the regulations, and to report to Congress on its findings, 
before the end of the one year period.

Section 204. Serving persons of modest means within the field of 
        membership of credit unions

    Section 204 reaffirms the continuing and affirmative 
obligation of insured credit unions to meet the financial 
services needs of persons of modest means, including those with 
low- and moderate-incomes, consistent with safe and sound 
operation. The section also requires the Board, after 
consultation with State credit union supervisors, to prescribe 
criteria, within one year of the date of enactment, for 
periodically reviewing the record of each insured credit union 
in providing affordable credit union services to all 
individuals of modest means within the field of membership of 
such credit union, and to make the results of such review 
publicly available.
    The Act also provides that the NCUA Board is required under 
this section to prescribe additional criteria for annually 
evaluating the record of any insured credit union which is 
organized to serve a well-defined local community, 
neighborhood, or rural district in meeting the credit needs and 
credit union service needs of its entire field of membership. 
The Board must also prescribe procedures for remedying the 
failure of any ``community'' credit union to meet the credit 
needs of its entire field of membership. Such remedies would 
include the disapproval of any application by such credit union 
to expand its field of membership.
    In evaluating insured credit unions under this section, the 
Board shall focus on the performance of the insured credit 
union and not impose burdensome paperwork or recordkeeping 
requirements.
    The Act requires the Board to include, for the first five 
years following enactment, in its annual report to the Congress 
a report on its progress in implementing this section.

Section 205. National Credit Union Administration Board membership

    This section directs the President, in appointing members 
to the Board, to consider individuals who, by virtue of their 
education, training, or experience relating to a broad range of 
financial services, financial services regulation, or financial 
policy, are especially qualified to serve on the Board. Not 
more than 1 member of the Board may be appointed to the Board 
from among individuals who, at the time of such appointment, 
are, or have recently been, involved with any insured credit 
union as a committee member, director, officer, employee, or 
other institution-affiliated party.

Section 206. Report and congressional review requirement for certain 
        regulations

    Section 206 established that NCUA regulations to define or 
amend the definition of ``immediate family or household'' or 
``well-defined local community, neighborhood, or rural 
district'' shall be treated as a major rule for purposes of 
chapter 8 of title 5 of the U.S. Code.

        Title III--Capitalization and Net Worth of Credit Unions

Section 301. Prompt corrective action

    Section 301 requires the Board to promulgate regulations to 
provide for a supervisory scheme of prompt corrective action. 
These regulations are to establishcriteria and procedures for 
classifying credit unions as `well capitalized', `adequately 
capitalized', `undercapitalized', `significantly undercapitalized', or 
`critically undercapitalized'. These regulations must specify a series 
of graduated regulatory enforcement actions that may be imposed upon 
credit unions which fail to meet the requirements for classification as 
`adequately capitalized'. These actions, which include the appointment 
of a conservator or liquidating agent in appropriate circumstances, are 
enumerated in the text of the section. In addition, the regulations 
promulgated under this section must establish reasonable net worth 
requirements, including risk-based net worth requirements in the case 
of complex credit unions, for various categories of credit unions and 
prescribe the manner in which net worth is calculated (including 
treatment of investments in corporate credit unions). Regulations must 
be promulgated which establish criteria for reclassifying the capital 
classifications of credit unions that engage in unsafe or unsound 
practices. All regulations promulgated under this section shall be 
generally comparable with the prompt corrective action provisions 
applicable to banks and savings and loan associations that are set 
forth in section 38 of the Federal Deposit Insurance Act, taking into 
account distinctive features of credit unions.
    The Board shall publish proposed regulations which meet the 
requirements of this section within 270 days following the 
enactment of this Act. It is intended that the Board shall 
consult with state credit union supervisory authorities in 
drafting the proposed rules. The regulations required by this 
section shall take effect in final form by the end of the 18-
month period beginning on the date of enactment of this Act.
    At the time when the proposed prompt corrective action 
regulations are published by the Board, the Board shall submit 
a report to Congress on differences and similarities between 
such prompt corrective action regulations and the regulations 
prescribed by the Federal bank agencies under section 38 of the 
Federal Deposit Insurance Act.

Section 302. National Credit Union Share Insurance Fund equity ratio, 
        available assets ratio, and standby premium charge

    Beginning on January 1st of the first calendar year 
beginning no more than 180 days after the date of enactment, 
the following provisions shall apply.
    First, on a calendar year basis (or semi-annually for 
credit unions with assets of $50 million or more), each credit 
union with less than $50 million in assets shall file, as the 
Board requires, a certified statement showing the total amount 
of insured shares in the credit union at the close of the 
relevant period and both the amount of its deposit or 
adjustment of deposit and the amount of the insurance charge 
due to the fund for that period. Newly insured credit unions 
are excepted.
    Second, the amount of each insured credit union's deposit 
shall be adjusted to reflect changes in the credit union's 
insured shares on an annual basis for credit unions with total 
assets of less than $50 million, and simi-annually for credit 
unions with $50 million or more.
    Third, section 302 provides that the Board may assess 
premiums on insured credit unions only if the insurance fund's 
equity ratio is less than 1.3 percent, and the charge does not 
exceed the amount necessary to restore the equity ratio to 1.3 
percent. If the equity ratio falls below 1.2 percent, the Board 
is required to assess a premium charge sufficient to restore 
the ratio to 1.2 percent.
    Fourth, this section requires the Board to effect a pro 
rata distribution to insured credit unions after each calendar 
year if, at the end of the year, any loans to the fund from the 
Federal Government have been repaid with interest, the fund's 
equity ratio exceeds the normal operating level, and the fund's 
available assets ratio exceeds 1.0 percent. This calculation is 
to be based on the certified statements. The amount of the 
distribution shall be the maximum possible amount that does not 
reduce the fund's equity ratio below the normal operating 
level, and does not reduce the fund's available assets ratio 
below 1.0 percent. The normal operating level is to be 
specified by the Board, but cannot be less than 1.2 percent and 
not more than 1.5 percent.
    Fifth, in calculating the available assets ratio and equity 
ratio of the fund, the Board shall use the most current and 
accurate data reasonably available.
    The terms ``available assets ratio'', ``equity ratio'', 
``insured shares'', and ``normal operating level'' are defined 
for purposes of this section.

Section 303. Access to liquidity

    Section 303 requires the Board to periodically assess the 
potential liquidity needs of individual credit unions, and 
insured credit unions as a group, and the options available for 
meeting those needs. This section also requires the Board to 
make available to the Federal Reserve Banks certain information 
relevant to making advances to credit unions.

                   Title IV--Miscellaneous Provisions

Section 401. Assuring independent decision making connection with 
        certain conversions

    Section 401 prohibits insured credit unions from converting 
to insured depository institutions unless the appropriate 
regulator determines that no current or former (within the past 
five years) director, committee member, or senior management 
official will receive any economic benefit as a result of the 
conversion. This section requires that credit unions seeking to 
convert to an insured depository institution must also submit a 
written acknowledgment by all such senior management officials 
that they are aware of the above prohibition, and that the 
conversions will not violate the prohibition. Section 401 also 
provides that credit unions that previously so converted may 
not convert from mutual to stock form or from one form of 
depository institution into any other type of depository 
institution, unless the above requirements are met.

Section 402. Payment of interest on reserves at federal reserve banks

    Section 402 amends the Federal Reserve Act to provide that 
balances maintained by or on behalf of insured depository 
institutions to meet reserve requirements shall receive 
earnings to be paid by the Federal Reserve Bank at least once 
each quarter at a rate not to exceed the rate earned on the 
securities portfolio of the Federal Reserve System during the 
preceding quarter. Section 402 also provides that the Federal 
Reserve Board may prescribe regulations related to this 
provision.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

FEDERAL CREDIT UNION ACT

           *       *       *       *       *       *       *


TITLE I--FEDERAL CREDIT UNIONS

           *       *       *       *       *       *       *


                       creation of administration

  Sec. 102. (a) * * *
  [(b) The Board] (b) Membership and Appointment of Board.--
          (1) In general.--The Board shall consist of three 
        members, who are broadly representative of the public 
        interest, appointed by the President, by and with the 
        advice and consent of the Senate. In appointing the 
        members of the Board, the President shall designate the 
        Chairman. Not more than two members of the Board shall 
        be members of the same political party.
          (2) Appointment criteria.--
                  (A) Experience in financial services.--In 
                considering appointments to the Board under 
                paragraph (1), the President shall give 
                consideration to individuals who, by virtue of 
                their education, training, or experience 
                relating to a broad range of financial 
                services, financial services regulation, or 
                financial policy, are especially qualified to 
                serve on the Board.
                  (B) Limit on appointment of credit union 
                officers.--Not more than 1 member of the Board 
                may be appointed to the Board from among 
                individuals who, at the time of such 
                appointment, are, or have recently been, 
                involved with any insured credit union as a 
                committee member, director, officer, employee, 
                or other institution-affiliated party.

           *       *       *       *       *       *       *


                               membership

  Sec. 109. [Federal credit union membership shall consist of] 
(a) In General.--Subject to subsection (b), Federal credit 
union membership shall consist of the incorporators and such 
other persons and incorporated and unincorporated 
organizations, to the extent permitted by rules and regulations 
prescribed by the Board, as may be elected to membership and as 
such shall each, subscribe to at least one share of its stock 
and pay the initial installment thereon and a uniform entrance 
fee if required by the board of directors[, except that Federal 
credit union membership shall be limited to groups having a 
common bond of occupation or association, or to groups within a 
well-defined neighborhood, community, or rural district. Shares 
may be issued in joint tenancy with right of survivorship with 
any persons designated by the credit union member, but no joint 
tenant shall be permitted to vote, obtain loans, or hold 
office, unless he is within the field of membership and is a 
qualified member].
  (b) Membership Field.--Subject to the other provisions of 
this section, the membership of any Federal credit union shall 
be limited to the membership described in 1 of the following 
categories:
          (1) Single common-bond credit union.--1 group which 
        has a common bond of occupation or association.
          (2) Multiple common-bond credit union.--More than 1 
        group--
                  (A) each of which has (within such group) a 
                common bond of occupation or association; and
                  (B) the number of members of each of which 
                (at the time the group is first included within 
                the field of membership of a credit union 
                described in this paragraph) does not exceed 
                any numerical limitation applicable under 
                subsection (d).
          (3) Community credit union.--Persons or organizations 
        within a well-defined local community, neighborhood, or 
        rural district.
  (c) Grandfathered Members and Groups.--
          (1) In general.--Notwithstanding subsection (b)--
                  (A) any person or organization who is a 
                member of any Federal credit union as of the 
                date of the enactment of the Credit Union 
                Membership Access Act may remain a member of 
                such credit union after such date; and
                  (B) a member of any group whose members 
                constituted a portion of the membership of any 
                Federal credit union as of such date of 
                enactment shall continue to be eligible to 
                become a member of such credit union, by virtue 
                of membership in such group, after such date.
          (2) Successors.--If the common bond of any group 
        referred to in paragraph (1) is defined by any 
        particular organization or business entity, paragraph 
        (1) shall continue to apply with respect to any 
        successor to such organization or entity.
  (d) Multiple Common-Bond Credit Union Group Requirements.--
          (1) Numerical limitation.--Except as provided in 
        paragraph (2), only a group with fewer than 3,000 
        members shall be eligible to be included in the field 
        of membership of a credit union described in subsection 
        (b)(2).
          (2) Exceptions.--In the case of any Federal credit 
        union whose field of membership is determined under 
        subsection (b)(2), the numerical limitation described 
        in paragraph (1) shall not apply with respect to the 
        following:
                  (A) Certain larger groups incapable of 
                supporting and operating a single-group credit 
                union.--Any group which the Board determines, 
                in writing and in accordance with the 
                guidelines and regulations described in 
                paragraph (4), could not feasibly or reasonably 
                establish a new single common-bond credit union 
                described in subsection (b)(1) because--
                          (i) the group lacks sufficient 
                        volunteer and other resources to 
                        support the efficient and effective 
                        operation of a credit union;
                          (ii) the group does not meet the 
                        criteria which the Board has determined 
                        to be important for the likelihood of 
                        success in establishing and managing a 
                        new credit union, including demographic 
                        characteristics, such as geographical 
                        location of members, diversity of ages 
                        and income levels, and other factors 
                        which may affect the financial 
                        viability and stability of a credit 
                        union; or
                          (iii) the group would be unlikely to 
                        operate a safe and sound credit union.
                  (B) Transactions for supervisory reasons.--
                Any group transferred from another credit 
                union--
                          (i) in connection with a merger or 
                        consolidation which has been 
                        recommended by the Board or any 
                        appropriate State credit union 
                        supervisor for safety and soundness 
                        concerns with respect to such other 
                        credit union; or
                          (ii) by the Board in the Board's 
                        capacity as conservator or liquidating 
                        agent with respect to such other credit 
                        union.
          (3) Exception for underserved areas.--Notwithstanding 
        subsection (b), in the case of a Federal credit union 
        described in paragraph (2) of such subsection, the 
        Board may allow the membership of the credit union to 
        include any person or organization within a local 
        community, neighborhood, or rural district if--
                  (A) the Board determines that such local 
                community, neighborhood, or rural district--
                          (i) meets the requirements of 
                        paragraph (3) and subparagraphs (A) and 
                        (B) of paragraph (4) of section 233(b) 
                        of the Bank Enterprise Act of 1991, and 
                        such additional requirements as the 
                        Board may impose; and
                          (ii) is underserved, based on data of 
                        the Board and the Federal banking 
                        agencies (as defined in section 3 of 
                        the Federal Deposit Insurance Act), by 
                        other depository institutions (as 
                        defined in section 19(b)(1)(A) of the 
                        Federal Reserve Act); and
                  (B) the credit union establishes and 
                maintains an office or facility in such local 
                community, neighborhood, or rural district at 
                which credit union services are available.
          (4) Regulations and guidelines.--The Board shall 
        issue guidelines or regulations, after notice and 
        opportunity for comment, setting forth the criteria the 
        Board will apply in determining whether or not an 
        additional group may be included within the field of 
        membership of an existing credit union pursuant to 
        paragraph (2).
  (e) Additional Membership Eligibility Provisions.--
          (1) Membership eligibility limited to immediate 
        family or household members.--No individual shall be 
        eligible for membership in a credit union on the basis 
        of the relationship of such individual to another 
        person who is eligible for membership in such credit 
        union unless the individual is a member of the 
        immediate family or household (as such terms are 
        defined by the Board by regulation) of such other 
        person.
          (2) Retention of membership.--Except as provided in 
        section 118, once a person becomes a member of a credit 
        union in accordance with this title, such person or 
        organization may remain a member of such credit union 
        until the person or organization chooses to withdraw 
        from the membership of the credit union.
  (f) Criteria for Approval of Expansion of Multiple Common-
Bond Credit Unions.--
          (1) In General.--The Board shall--
                  (A) encourage the formation of separately 
                chartered credit unions instead of approving an 
                application to include an additional group 
                within the field of membership of an existing 
                credit union whenever practicable and 
                consistent with reasonable standards for the 
                safe and sound operation of the credit union; 
                and
                  (B) if the formation of a separate credit 
                union by such group is not practicable or 
                consistent with such standards, require the 
                inclusion of such group in the field of 
                membership of a credit union which is within 
                reasonable proximity to the location of the 
                group whenever practicable and consistent with 
                reasonable standards for the safe and sound 
                operation of the credit union.
          (2) Approval criteria.--The Board may not approve any 
        application by a Federal credit union described in 
        subsection (b)(2) to include any additional group 
        within the field of membership of such credit union (or 
        an application by a Federal credit union described in 
        paragraph (1) to include an additional group and become 
        a credit union described in paragraph (2)) unless the 
        Board determines, in writing, that--
                  (A) such credit union has not engaged in any 
                unsafe or unsound practice (as defined in 
                section 206(b)) which is material during the 1-
                year period preceding the filing of the 
                application;
                  (B) the credit union is adequately 
                capitalized;
                  (C) the credit union has the administrative 
                capability to serve the proposed membership 
                group and the financial resources to meet the 
                need for additional staff and assets to serve 
                the new membership group;
                  (D) pursuant to the most recent evaluation of 
                such credit union under section 215, the credit 
                union is satisfactorily providing affordable 
                credit union services to all individuals of 
                modest means within the field of membership of 
                such credit union;
                  (E) any potential harm the expansion of the 
                field of membership of the credit union may 
                have on any other insured credit union and its 
                members is clearly outweighed in the public 
                interest by the probable beneficial effect of 
                the expansion in meeting the convenience and 
                needs of the members of the group proposed to 
                be included in the field of membership; and
                  (F) the credit union has met such additional 
                requirements as the Board may prescribe in 
                regulations.
  (g) Regulations Required for Community Credit Unions.--
          (1) Definition of well-defined local community, 
        neighborhood, or rural district.--The Board shall 
        prescribe regulations defining the term `well-defined 
        local community, neighborhood, or rural district' for 
        purposes of--
                  (A) making any determination with regard to 
                the field of membership of a credit union 
                described in subsection (b)(3); and
                  (B) establishing the criteria applicable with 
                respect to any such determination.
          (2) Scope of application.--Paragraph (1) shall apply 
        with respect to any application to form a new credit 
        union, or to alter or expand the field of membership of 
        an existing credit union, which is filed with the Board 
        after the date of the enactment of Credit Union 
        Membership Access Act.

           *       *       *       *       *       *       *


TITLE II--SHARE INSURANCE

           *       *       *       *       *       *       *


   reports of condition; certified statements; premiums for insurance

  Sec. 202. (a)(1) * * *
          (6) Audit requirement.--
                  (A) * * *
                  (B) Unsafe or unsound practice.--The Board 
                may treat the failure of any insured credit 
                union to obtain an outside, independent audit 
                for any fiscal year for which such audit is 
                required under subparagraph (A) or (D) as an 
                unsafe or unsound practice within the meaning 
                of section 206(b).
                  (C) Accounting principles.--
                          (i) In general.--Accounting 
                        principles applicable to reports or 
                        statements required to be filed with 
                        the Board by each insured credit union 
                        shall be uniform and consistent with 
                        generally accepted accounting 
                        principles.
                          (ii) Board determination.--If the 
                        Board determines that the application 
                        of any generally accepted accounting 
                        principle to any insured credit union 
                        is not appropriate, the Board may 
                        prescribe an accounting principle for 
                        application to such credit unions which 
                        is no less stringent than generally 
                        accepted accounting principles.
                          (iii) De minimus exception.--This 
                        subparagraph shall not apply to any 
                        insured credit union the total assets 
                        of which are less than $10,000,000 
                        unless prescribed by the Board or an 
                        appropriate State credit union 
                        supervisor.
                  (D) Large credit union audit requirement.--
                Each insured credit union which has total 
                assets of $500,000,000 or more shall have an 
                annual independent audit of the financial 
                statement of the credit union performed in 
                accordance with generally accepted auditing 
                standards by an independent certified public 
                accountant or public accountant licensed by the 
                appropriate State or jurisdiction to perform 
                such services.
  [(b)(1) For each insurance year, each insured credit union 
which became insured prior to the beginning of that year shall 
file with the Board, at such time as the Board prescribes, a 
certified statement showing the total amount of the insured 
shares in the credit union at the close of the preceding 
insurance year and both the amount of its deposit or adjustment 
thereof and the amount of the premium charge for insurance due 
to the fund for that year, both as computed under subsection 
(c) of this section.
  [(2) The certified statements required to be filed with the 
Board pursuant to this subsection shall be in such form and 
shall set forth such supporting information as the Board shall 
require.
  [(3) Each such statement shall be certified by the president 
of the credit union, or by any officer of the credit union 
designated by its board of directors, that to the best of his 
knowledge and belief the statement is true, correct, and 
complete and in accordance with this title and regulations 
issued thereunder.]
  (b) Certified Statement.--
          (1) Statement required.--
                  (A) In general.--For each calendar year in 
                the case of an insured credit union with total 
                assets of not more than $50,000,000, and for 
                each semi-annual period in the case of an 
                insured credit union with total assets of 
                $50,000,000 or more, an insured credit union 
                shall file with the Board, at such time as the 
                Board prescribes, a certified statement showing 
                the total amount of insured shares in the 
                credit union at the close of the relevant 
                period and both the amount of its deposit or 
                adjustment of deposit and the amount of the 
                insurance charge due to the fund for that 
                period, both as computed under subsection (c).
                  (B) Exception for newly insured credit 
                union.--Subparagraph (A) shall not apply with 
                respect to a credit union that became insured 
                during the reporting period.
          (2) Form.--The certified statements required to be 
        filed with the Board pursuant to this subsection shall 
        be in such form and shall set forth such supporting 
        information as the Board shall require.
          (3) Certification.--The president of the credit union 
        or any officer designated by the board of directors 
        shall certify, with respect to each such statement, 
        that to the best of his or her knowledge and belief the 
        statement is true, correct, complete, and in accordance 
        with this title and the regulations issued under this 
        title.
  (c)(1)(A)(i) Each insured credit union shall pay to and 
maintain with the National Credit Union Share Insurance Fund a 
deposit inan amount equaling 1 per centum of the credit union's 
insured shares.
  (ii) The Board may, in its discretion, authorize insured 
credit unions to initially fund such deposit over a period of 
time in excess of one year if necessary to avoid adverse 
effects on the condition of insured credit unions.
  [(iii) The amount of each insured credit union's deposit 
shall be adjusted annually, in accordance with procedures 
determined by the Board, to reflect changes in the credit 
union's insured shares.]
                          (iii) Periodic adjustment.--The 
                        amount of each insured credit union's 
                        deposit shall be adjusted as follows, 
                        in accordance with procedures 
                        determined by the Board, to reflect 
                        changes in the credit union's insured 
                        shares:
                                  (I) annually, in the case of 
                                an insured credit union with 
                                total assets of not more than 
                                $50,000,000; and
                                  (II) semi-annually, in the 
                                case of an insured credit union 
                                with total assets of 
                                $50,000,000 or more.

           *       *       *       *       *       *       *

  [(2) Each insured credit union, at such times as the Board 
prescribes, shall pay to the fund a premium charge for 
insurance equal to one-twelfth of 1 per centum of the total 
amount of the insured shares in such credit union at the close 
of the preceding insurance year.
  [(3) When, at the end of a given insurance year, any loans to 
the fund from the Federal Government and the interest thereon 
have been repaid and the equity of the fund exceeds the normal 
operating level, the Board shall effect for that insurance year 
a pro rata distribution to insured credit unions of an amount 
sufficient to reduce the equity in the fund to its normal 
operating level.]
          (2) Insurance premium charges.--
                  (A) In general.--Each insured credit union 
                shall, at such times as the Board prescribes 
                (but not more than twice in any calendar year), 
                pay to the fund a premium charge for insurance 
                in an amount stated as a percentage of insured 
                shares (which shall be the same for all insured 
                credit unions).
                  (B) Relation of premium charge to equity 
                ratio of fund.--The Board may assess a premium 
                charge only if--
                          (i) the fund's equity ratio is less 
                        than 1.3 percent; and
                          (ii) the premium charge does not 
                        exceed the amount necessary to restore 
                        the equity ratio to 1.3 percent.
                  (C) Premium charge required if equity ratio 
                falls below 1.2 percent.--If the fund's equity 
                ratio is less than 1.2 percent, the Board 
                shall, subject to subparagraph (B), assess a 
                premium charge in such an amount as the Board 
                determines to be necessary to restore the 
                equity ratio to, and maintain that ratio at, 
                1.2 percent.
          (3) Distributions from fund required.--
                  (A) In general.--The Board shall effect a pro 
                rata distribution to insured credit unions 
                after each calendar year if, as of the end of 
                that calendar year--
                          (i) any loans to the fund from the 
                        Federal Government, and any interest on 
                        those loans, have been repaid;
                          (ii) the fund's equity ratio exceeds 
                        the normal operating level; and
                          (iii) the fund's available assets 
                        ratio exceeds 1.0 percent.
                  (B) Amount of distribution.--The Board shall 
                distribute under subparagraph (A) the maximum 
                possible amount that--
                          (i) does not reduce the fund's equity 
                        ratio below the normal operating level; 
                        and
                          (ii) does not reduce the fund's 
                        available assets ratio below 1.0 
                        percent.
                  (C) Calculation based on certified 
                statements.--In calculating the fund's equity 
                ratio and available assets ratio for purposes 
                of this paragraph, the Board shall determine 
                the aggregate amount of the insured shares in 
                all insured credit unions from insured credit 
                unions certified statements under subsection 
                (b) for the final reporting period of the 
                calendar year referred to in subparagraph (A).
          (4) Timeliness and accuracy of data.--In calculating 
        the available assets ratio and equity ratio of the 
        fund, the Board shall use the most current and accurate 
        data reasonably available.

           *       *       *       *       *       *       *

  [(h) For the purposes of this section--
          [(1) the term ``insurance year'' means the period 
        beginning on January 1 and ending on the following 
        December 31, both dates inclusive, unless otherwise 
        prescribed by the Board;
          [(2) the term ``normal operating level'', when 
        applied to the Fund, means an amount equal to 1.3 per 
        centum of the aggregate amount of the insued shares in 
        all insured credit unions, or such lower level as the 
        Board may determine; and
          [(3) the term ``insured shares'' when applied to this 
        section includes share, share draft, share certificate 
        and other similar accounts as determined by the Board, 
        but does not include amounts in excess of the insured 
        account limit set forth in section 207(c)(1).]
  (h) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) Available assets ratio.--The term ``available 
        assets ratio'', when applied to the fund, means the 
        ratio of--
                  (A) the amount determined by subtracting--
                          (i) direct liabilities of the fund 
                        and contingent liabilities for which no 
                        provision for losses has been made, 
                        from
                          (ii) the sum of cash and the market 
                        value of unencumbered investments 
                        authorized under section 203(c), to
                  (B) the aggregate amount of the insured 
                shares in all insured credit unions.
          (2) Equity ratio.--The term ``equity ratio'', when 
        applied to the fund, means the ratio of--
                  (A) the amount of fund capitalization, 
                including insured credit unions' 1 percent 
                capitalization deposits and the fund's retained 
                earnings balance (net of direct liabilities of 
                the fund and contingent liabilities for which 
                no provision for losses has been made), to
                  (B) the aggregate amount of the insured 
                shares in all insured credit unions.
          (3) Insured shares.--The term ``insured shares'', 
        when applied to this section, includes share, share 
        draft, share certificate, and other similar accounts as 
        determined by the Board, but does not include amounts 
        exceeding the insured account limit set forth in 
        section 207(c)(1).
  (4) Normal operating level.--The term ``normal operating 
level'', when applied to the fund, means an equity ratio 
specified by the Board, which shall be not less than 1.2 
percent and not more than 1.5 percent.

                  examination of insured credit unions

  Sec. 204. (a) * * *

           *       *       *       *       *       *       *

  (f) Access to Liquidity.--The Board shall--
          (1) periodically assess the potential liquidity needs 
        of each insured credit union, and the options that the 
        credit union has available for meeting those needs; and
          (2) periodically assess the potential liquidity needs 
        of insured credit unions as a group, and the options 
        that insured credit unions have available for meeting 
        those needs.
  (g) Sharing Information With Federal Reserve Banks.--The 
Board shall, for the purpose of facilitating insured credit 
unions' access to liquidity, make available to the Federal 
reserve banks (subject to appropriate assurances of 
confidentiality) information relevant to making advances to 
such credit unions, including the Board's reports of 
examination.

           *       *       *       *       *       *       *


SEC. 215. SERVING PERSONS OF MODEST MEANS WITHIN THE FIELD OF 
                    MEMBERSHIP OF CREDIT UNIONS.

  (a) Continuing and Affirmative Obligation.--The purpose of 
this section is to reaffirm that insured credit unions have a 
continuing and affirmative obligation to meet the financial 
services needs of persons of modest means consistent with safe 
and sound operation.
  (b) Evaluation by the Board.--The Board shall, before the end 
of the 12-month period beginning on the date of the enactment 
of the Credit Union Membership Access Act--
          (1) prescribe criteria for periodically reviewing the 
        record of each insured credit union in providing 
        affordable credit union services to all individuals of 
        modest means (including low- andmoderate-income 
individuals) within the field of membership of such credit union; and
          (2) provide for making the results of such review 
        publicly available.
  (c) Additional Criteria for Community Credit Unions 
Required.--The Board shall, by regulation--
          (1) prescribe additional criteria for annually 
        evaluating the record of any insured credit union which 
        is organized to serve a well-defined local community, 
        neighborhood, or rural district in meeting the credit 
        needs and credit union service needs of the entire 
        field of membership of such credit union; and
          (2) prescribe procedures for remedying the failure of 
        any insured credit union described in paragraph (1) to 
        meet the criteria established pursuant to such 
        paragraph, including the disapproval of any application 
        by such credit union to expand the field of membership 
        of such credit union.
  (d) Emphasis on Performance, Not Paperwork.--In evaluating 
any insured credit union under this section, the Board shall--
          (1) focus on the actual performance of the insured 
        credit union; and
          (2) not impose burdensome paperwork or recordkeeping 
        requirements.

SEC. 216. PROMPT CORRECTIVE ACTION

  (a) Resolving Problems to Protect Fund.--
          (1) Purpose.--The purpose of this section is to 
        resolve the problems of insured credit unions at the 
        least possible long-term loss to the National Credit 
        Union Share Insurance Fund.
          (2) Prompt corrective action required.--The Board 
        shall carry out the purpose of this section by taking 
        prompt corrective action to resolve the problems of 
        insured credit unions.
  (b) Regulations.--The Board shall implement subsection (a) of 
this section by prescribing regulations, after public notice 
and opportunity for comment, which--
          (1) establish criteria and procedures for classifying 
        credit unions as ``well capitalized'', ``adequately 
        capitalized'', ``undercapitalized'', ``significantly 
        undercapitalized'', or ``critically undercapitalized'';
          (2) specify a series of graduated regulatory 
        enforcement actions that may be imposed upon any credit 
        union which fails to meet the requirements for 
        classification as an adequately capitalized credit 
        union, including--
                  (A) the submission of net worth restoration 
                plans;
                  (B) earnings retention requirements;
                  (C) prior written approval by the Board for 
                certain activities such as branching and entry 
                into new lines of business; and
                  (D) the appointment of a conservator or 
                liquidating agent in appropriate circumstances;
          (3) establish reasonable net worth requirements, 
        including risk-based net worth requirements in the case 
        of complex credit unions, for various categories of 
        credit unions and prescribe the manner in which net 
        worth is calculated (for purposes of such requirements) 
        with regard to various types of investments, including 
        investments in corporate credit unions, taking into 
        account the unique nature and role of credit unions;
          (4) establish criteria for reclassifying the capital 
        classifications of credit unions that engage in unsafe 
        or unsound practices; and
          (5) are generally comparable with the prompt 
        corrective action provisions set forth in section 38 of 
        the Federal Deposit Insurance Act, taking into account 
        the distinct capital structure, cooperative nature, and 
        other characteristics of credit unions.

           *       *       *       *       *       *       *

                              ----------                              


            SECTION 18 OF THE FEDERAL DEPOSIT INSURANCE ACT

  Sec. 18. (a) * * *

           *       *       *       *       *       *       *

  (t) Conversions Involving Former Credit Unions.--
          (1) In general.--Notwithstanding any other provision 
        of law--
                  (A) an insured credit union may not convert 
                into an insured depository institution; and
                  (B) an insured depository institution which 
                resulted from a prior conversion of an insured 
                credit union into such insured depository 
                institution may not convert from the mutual 
                form to the stock form and may not convert from 
                1 form of depository institution into another,
        unless the appropriate Federal banking agency for the 
        insured depository institution which results from any 
        such conversion reviews the conversion and determines 
        that the requirements of paragraphs (2) and (3) have 
        been met.
          (2) Prohibition on economic benefit from conversion 
        for credit union officers, directors, and committee 
        members.--An individual who is or, at any time during 
        the 5-year period preceding any conversion described in 
        paragraph (1), was a director, committee member, or 
        senior management official of an insured credit union 
        described in subparagraph (A) or (B) of such paragraph 
        (in connection with such conversion) may not receive 
        any economic benefit as a result of the conversion with 
        regard to the shares or interests of such director, 
        member, or officer in the former insured credit union 
        or in any resulting insured depository institution.
          (3) Acknowledgement and attestation by officers, 
        directors, and committee members.--Any insured credit 
        union or insured depository institution which is 
        seeking to engage in a conversion which is subject to 
        this subsection shall submit--
                  (A) a written acknowledgement, in such form 
                and manner as the appropriate Federal banking 
                agency may prescribe, by every individual who 
                is subject to the prohibition contained in 
                paragraph (2), that such individual is aware of 
                such prohibition; and
                  (B) an attestation that the conversion under 
                review will not result in a violation of such 
                prohibition.
          (4) Definitions.--For purposes of this subsection, 
        the following definitions shall apply:
                  (A) Insured credit union.--The term ``insured 
                credit union'' has the meaning given to such 
                term in section 101(7) of the Federal Credit 
                Union Act.
                  (B) Senior management official.--The term 
                ``senior management official'' means a chief 
                executive officer, an assistant chief executive 
                officer, a chief financial officer, and any 
                other senior executive officer (as defined by 
                the appropriate Federal banking agency pursuant 
                to section 32(f)).
                              ----------                              


                 SECTION 19 OF THE FEDERAL RESERVE ACT

  Sec. 19. (a) * * *
  (b) Reserve Requirements.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Supplemental reserves.--(A) * * *

           *       *       *       *       *       *       *

          [(C) The supplemental reserve authorized under 
        subparagraph (A) shall be maintained by the Federal 
        Reserve banks in an Earnings Participation Account. 
        Except as provided in subsection (c)(1)(A)(ii), such 
        Earnings Participation Account shall receive earnings 
        to be paid by the Federal Reserve banks during each 
        calendar quarter at a rate not more than the rate 
        earned on the securities portfolio of the Federal 
        Reserve System during the previous calendar quarter. 
        The Board may prescribe rules and regulations 
        concerning the payment of earnings on Earnings 
        Participation Accounts by Federal Reserve banks under 
        this paragraph.]

           *       *       *       *       *       *       *

          (12) Earnings on reserves.--
                  (A) In general.--Balances maintained at a 
                Federal reserve bank by or on behalf of a 
                depository institution to meet the reserve 
                requirements of this subsection applicable with 
                respect to such depository institution shall 
                receive earnings to be paid by the Federal 
                reserve bank at least once each calendar 
                quarter at a rate not to exceed the rate earned 
                on the securities portfolio of the Federal 
                Reserve System during the preceding quarter.
                  (B) Regulations relating to payments and 
                distributions.--The Board may prescribe 
                regulations concerning--
                          (i) the payment of earnings in 
                        accordance with this paragraph;
                          (ii) the distribution of such 
                        earnings to the depository institutions 
                        which maintain balances at such banks 
                        or on whose behalf such balances are 
                        maintained; and
                          (iii) the responsibilities of 
                        depository institutions, Federal home 
                        loan banks, and the National Credit 
                        Union Administration Central Liquidity 
                        Facility with respect to the crediting 
                        and distribution of earnings 
                        attributable to balances maintained, in 
                        accordance with subsection (c)(1)(B), 
                        in a Federal reserve bank by any such 
                        entity on behalf of depository 
                        institutions which are not member 
                        banks.
  (c)(1) Reserves held by a depository institution to meet the 
requirements imposed pursuant to subsection (b) shall, subject 
to such rules and regulations as the Board shall prescribe, be 
in the form of--
          (A) balances maintained for such purposes by such 
        depository institution in the Federal Reserve bank of 
        which it is a member or at which it maintains an 
        account, except that (i) the Board may, by regulation 
        or order, permit depository institutions to maintain 
        all or a portion of their required reserves in the form 
        of vault cash, except that any portion so permitted 
        shall be identical for all depository institutions, and 
        (ii) vault cash may be used to satisfy any supplemental 
        reserve requirement imposed pursuant to subsection 
        (b)(4), except that all such vault cash shall be 
        excluded from any computation of earnings pursuant to 
        subsection [(b)(4)(C)] (b); and

           *       *       *       *       *       *       *


                      ADDITIONAL VIEW OF RON PAUL

    While I strongly support the expansion of the field of 
membership for credit unions, the new regulations imposed upon 
them demonstrate a decision to follow the wrong path to ``level 
the playing field'' with banks and other financial 
institutions. A better approach would have been to lead the 
congress towards less taxes and less regulation. H.R. 1151, The 
Credit Union Membership Access Act, as amended by the 
committee, follows a path of more regulations and leads toward 
higher taxes on credit unions while the Financial Freedom Act, 
H.R. 1121, which I introduced a year ago, lowers taxes and 
regulations on banks. While H.R. 1151 does not impose new, 
direct taxes on credit unions, I fear that that day is just 
around the corner.
    The estimated, aggregate cost of bank regulation 
(noninterest expenses) on commercial banks was $125.9 billion 
in 1991, according to ``The Cost of Bank Regulation: A Review 
of the Evidence,'' Board of Governors of the Federal Reserve 
System (Staff Study 171 by Gregory Elliehausen, April 1998). It 
reports that studies estimate that this figure amounts to 12 
percent to 13 percent of noninterest expenses. These estimates 
only include a fraction of the ``most burdensome'' regulations 
that govern the industry; it adds, ``The total cost of all 
regulations can only be larger.''
    These regulations, under which the credit unions will now 
suffer a greater burden with the passage of this bill, impose a 
disproportionate burden on smaller institutions. These 
increased, and unfairly imposed, regulations will stifle the 
possibility of new entrants into the financial sector and 
contribute to a consolidation and fewer market participants of 
the industry. As the introduction of new entrants into the 
market becomes more costly, smaller institutions will face a 
marginally increased burden and will be more likely to 
consolidate. ``The basic conclusion is similar for all of the 
studies of economies of scale: Average compliance costs for 
regulations are substantially greater for banks at low levels 
of output than for banks at moderate or high levels of 
output,'' the Staff Study concludes.
    Smaller banks face the highest compliance cost in relation 
to total assets, equity capital and net income before taxes, 
reveals ``Regulatory Burden: The Cost to Community Banks,'' a 
study prepared for the Independent Bankers Association of 
America by Grant Thornton, January 1993. For each $1 million in 
assets, banks under $30 million in assets incur almost three 
times the compliance cost of banks between $30-65 million in 
assets. This regulation almost quadruples costs on smaller 
institutions to almost four times when compared to banks over 
$65 million in assets. These findings are consistent for both 
equity capital and net income measurements, according to the 
report.
    The IBAA study identifies the Community Reinvestment Act as 
the most burdensome regulation with the estimated cost of 
complying with CRA exceeding the next most burdensome 
regulation by approximately $448 million or 77%. Respondents to 
the IBAA study rated the CRA as the least beneficial and useful 
of the thirteen regulatory areas surveyed. In short, this bill 
takes the most costly and least beneficial and useful 
regulation on banks and adds a similar, new regulation on 
credit unions. Reducing the most costly, and least beneficial 
and useful regulation on the banks would have been a better 
approach.
    In addition to all of the problems associated with the 
obligations and requirements that the government regulations 
impose on the productive, private sectors of the economy, the 
regulations amount to a government credit allocation scheme. As 
Ludwig von Mises explained well in The Theory of Money and 
Credit in 1912, governmental credit allocation is a 
misdirection of credit which leads to malinvestment and 
contributes to an artificial boom and bust cycle. Nobel 
laureate Frederick A. Hayek and Murray Rothbard expounded on 
this idea.
    The unintended consequences of the passage of this bill, as 
written, will be to stifle the formation of new credit unions, 
consolidate current credit unions into larger ones better able 
to internalize the cost of the additional regulations, and 
lower productivity and economic growth due to the misallocation 
of credit. This increased burden must ultimately be passed on 
to the consumer. The increased costs on credit unions this bill 
imposes will lead to a reduction of access to credit unions, 
higher fees and higher rates. These provisions are anti-
consumer. The marginal consumers, those who currently can only 
receive a loan from a credit union without the burden of CRA, 
are the ones who will suffer under that provision of this bill. 
I hope that the bill can be improved as the process continues 
and lead to less regulations and other taxes on banks rather 
than more regulations and other taxes on credit unions.

                                                          Ron Paul.