[Federal Register Volume 59, Number 221 (Thursday, November 17, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28366]


[[Page Unknown]]

[Federal Register: November 17, 1994]


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NATIONAL CREDIT UNION ADMINISTRATION

 

Guidelines for the Supervisory Review Committee

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed Interpretive Ruling and Policy Statement 94-2 (IRPS 
94-2).

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SUMMARY: The Riegle Community Development and Regulatory Improvement 
Act of 1994 (the Act) requires that NCUA and the federal banking 
agencies each establish an appeals process within the Agency to review 
material supervisory determinations made with respect to insured 
institutions. The NCUA Board proposes that the review process be 
carried out by a supervisory review committee consisting of senior 
staff members. This proposal sets forth the types of issues that are 
eligible for review by the committee as well as the composition, 
structure and procedures for the proposed committee. The Board requests 
comment on the committee concept as well as all other aspects of the 
proposal.

DATES: Comments must be postmarked or received by December 19, 1994.

ADDRESSES: Send written comments to Becky Baker, Secretary to the 
Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, VA 22314 or comments via the electronic bulletin board to 
Becky Baker at 703-518-6480.

FOR FURTHER INFORMATION CONTACT:
Hattie M. Ulan, Special Counsel to the General Counsel, at the above 
address or telephone 703-518-6540.

SUPPLEMENTARY INFORMATION: 

Background

    The Riegle Community Development and Regulatory Improvement Act of 
1994, Public Law 103-325 (the Act) was signed into law on September 23, 
1994. Section 309 of the Act requires, among other things, that the 
NCUA and the federal banking agencies each establish an independent 
appellate process to review material supervisory determinations. The 
Act requires that the agencies provide the public with notice and 
opportunity to comment on proposed guidelines for the appellate process 
within 90 days of the Act's passage. The Act requires further that each 
agency's appellate process be established not later than 180 days after 
the Act's passage.
    The Act defines the terms ``material supervisory determinations'' 
and ``independent appellate process.'' Material supervisory 
determinations are defined to include determinations relating to (1) 
examination ratings; (2) adequacy of loan loss reserve provisions; and 
(3) loan classifications on loans that are significant to a credit 
union. The definition specifically excludes determinations made by NCUA 
to appoint a conservator or liquidating agent or a decision made under 
Section 212 of the FCU Act (12 U.S.C. 1790a) concerning NCUA approval 
of officials of newly chartered or troubled credit unions.
    Independent appellate process is defined as a review by an agency 
official who does not report, directly or indirectly, to the agency 
official who made the determination that is being reviewed. The Act 
also requires that the agencies ensure that appeals be heard and 
decided expeditiously and that safeguards exist for protecting the 
appellant from retaliation by agency examiners.
    In order to carry out the requirements of the Act, the NCUA Board 
proposes the establishment of a supervisory review committee composed 
of several senior NCUA personnel. The Board believes the committee will 
provide at least the following benefits for NCUA and credit unions:
     Ensure more consistent application of supervisory policy 
throughout the Agency.
     Enhance the level of fairness and due process afforded to 
credit unions and others who are involved in supervisory disputes with 
NCUA.
     Reduce the number of cases that can only be resolved 
through judicial proceedings.
     Provide a more comprehensive and accurate record in those 
cases that do result in such proceedings.
    The Board requests comment on all aspects of this proposal, 
including the advisability of meeting the statutory requirements 
through the establishment of a committee; whether the process should be 
established by policy statement (as proposed here) or regulation; the 
types of disputes subject to the committee's jurisdiction; the 
composition of the committee's membership; and the procedural workings 
of the committee. Certain of these issues are discussed in greater 
detail below.

Supervisory Disputes

    As noted above, the Act sets forth the material supervisory 
determinations subject to the review process. Included are 
determinations related to (1) examination ratings; (2) adequacy of loan 
loss reserves; and (3) loan classifications on loans that are 
significant to the credit union.
    The Board understands the reference to ``examination'' rating to 
mean a credit union's CAMEL rating. CAMEL is a rating system that 
provides a numerical score, from 1 through 5 (with 1 being the highest 
score), in each of five key areas of a credit union's management and 
financial performance, as well as a composite score. The five rated 
areas--capital adequacy, asset quality, management, earnings and 
liquidity--provide the basis for the CAMEL acronym.
    It should be noted that CAMEL is intended and used mainly as an 
internal supervisory tool by NCUA, to assist the agency in determining 
how and where to devote its supervisory resources. It is not a public 
rating and it does not necessarily reflect the level of service a 
credit union provides to its members.
    The Board proposes that only a credit union's composite CAMEL 
rating be appealable, but requests comment on whether the individual 
component ratings (capital, assets, management, earnings and liquidity) 
should also be subject to appeal. In either case, the Board proposes 
that only ratings of 4 and 5 be subject to appeal. Credit unions with 
CAMEL ratings of 4 and 5 are treated differently than those with 
ratings of 1, 2, or 3. They are generally under much closer 
supervision. They are often subject to letters of understanding and 
agreement. All new officials of credit unions with a 4 or 5 CAMEL 
rating are subject NCUA approval pursuant to Section 701.14 of the NCUA 
Regulations. The Board believes that credit unions subject to these 
special supervisory and regulatory procedures are the credit unions 
whose examination ratings should be subject to the appeal process. 
Comment is requested on whether additional composite ratings should be 
subject to the appeal process.
    The Board also requests comment on how it should define classified 
loans that are ``significant'' to the credit union. Should this be left 
to the discretion of the credit union? Should it be determined by the 
loan amount as a percentage of reserves? Or is some other definition 
more appropriate.
    Finally, with respect to disputes subject to review, the Board 
proposes to limit the review process to those three categories set 
forth in the Act and identified above. The Board requests comment, 
however, on any other specific disputes that should be subject to the 
committee's review.

Timing of Committee Involvement

    The Board proposes that the committee assume jurisdiction over a 
supervisory determination only when the credit union establishes that 
it has been unsuccessful in attempting to resolve the matter with the 
credit union's examiner and the appropriate regional office. The Board 
does not intend by this requirement to establish a series of regional 
reviews (e.g. Director of Supervision, to Associate Regional Director, 
to Regional Director), but only that the credit union demonstrate that 
an effort was made to resolve the matter with the regional office and 
an official stationed in the regional office has said no.
    The Board believes that any earlier involvement by the committee 
would be disruptive of the established organizational structure of the 
NCUA and the relationships between credit unions and their regional 
offices. Also, in order to remain flexible and avoid unnecessary 
bureaucracy, the Board would prefer not to establish specific time 
frames for resolving issues at the regional level. The Board welcomes 
comment on these issues, however, and is committed to both preserving 
the regional chain of command and avoiding unnecessary delays.

Committee Composition and Procedures

    The committee will be comprised of senior agency staff. The Board 
proposes that the committee be comprised of five regular members. The 
members of the committee will consist of the Executive Director, the 
General Counsel, the Director of the Office of Examination and 
Insurance, a specified Regional Director, and one additional senior or 
Board staff member. The regional member will be rotated on a periodic 
basis (proposed policy is to rotate every two years), and an alternate 
Regional Director will be named to consider matters arising in the 
regular member's region. The Executive Director will serve as the 
chairperson of the committee.
    Regular committee meetings will be scheduled four times a year. 
Special meetings may be called and regular meetings may be canceled 
based on the workload of the committee. Each committee member will have 
one vote, the chairperson will only vote in the case of a tie, and a 
quorum will be required to conduct business.
    All appeals will be submitted in writing. An appeal may be made by 
letter, addressed to the Chairman of the Supervisory Review Committee, 
National Credit Union Administration, 1775 Duke Street, Alexandria, VA 
22314-3428. The appeal need only include the name of the credit union, 
the determination being appealed, and the reasons for the appeal. 
Appellants will be encouraged, however, to provide as much detail and 
supporting documentation as possible, in order to expedite the appeal 
process.
    Personal appearances will not be a regular part of the process. 
Appellants may request personal appearances, but the final decision 
will be made by the committee.
    NCUA is committed to the Act's mandate that appeals be decided 
expeditiously. It is proposed that the following timing requirements 
apply. Credit unions must submit their appeal within 30 days of the 
regional office's decision. Once a complete package of information is 
submitted, the committee will make a determination on the appeal within 
90 days.
    The committee may request more information from either the 
appealing party or the regional office. Committee requests for more 
information must be made within 30 days of receipt of the appeal. The 
information must be submitted to the committee within 15 days of 
receipt of the committee request. The 90 days to make a determination 
will not begin to run until the expiration of the time allotted to 
submit more information. Although these time requirements should be 
sufficient in most cases, they are subject to adjustment by the 
committee, either on its own or upon request of the appellant or the 
region involved.
    Each determination by the committee will be submitted in writing to 
the NCUA Board. The Board will review the determination within seven 
working days. Board members will each sign indicating whether they 
agree with the committee's determination. If a majority of the Board 
members agree, the determination will be final and the parties will be 
notified. If a majority of the Board members do not agree, the matter 
will be considered by the Board on final appeal.
    The Board welcomes comment on both the composition and procedural 
aspects of the committee.

Miscellaneous Issues

    Section 309 of the Act requires that each of the agencies ensure 
that safeguards exist for protecting the appellant from retaliation by 
agency examiners. The proposal notes that credit unions can seek 
redress from alleged retaliation through NCUA's Office of Inspector 
General. The Board will expeditiously and firmly address any cases of 
retaliation or abuse. The Board requests comment on any other steps it 
should take to protect and reassure appellants.
    The Act requires that the appellate process be available at insured 
institutions that the agency supervises. Accordingly, the supervisory 
review process will be open to all federally insured credit unions. The 
committee will however, only consider appeals of material supervisory 
determinations made by NCUA. the committee will consult with the state 
supervisory authority in appropriate cases involving federally insured 
state chartered credit unions.

Regulatory Procedures

Regulatory Flexibility Act

    The NCUA Board certifies that the proposed IRPS, if made final, 
will not have a significant impact on a substantial number of small 
credit unions. The appeal procedure set forth in the proposal applies 
equally to all credit unions. The appeal procedure is not mandatory. 
Only those credit unions wishing to appeal certain regional decisions 
are subject to its provisions. It is not anticipated that small credit 
unions will use the appeal procedure any more or less than large credit 
unions. Accordingly, the NCUA Board has determined that a Regulatory 
Analysis is not required.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. The proposed IRPS will apply to all 
federally insured credit unions, as required by the Act. It may have a 
direct effect on the states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. However, the 
Act requires that this process apply to FISCUs.

Paperwork Reduction Act

    The proposed IRPS, if adopted, will impose paperwork requirements 
on an appealing credit union. The paperwork requirements will be 
submitted to the Office of Management and Budget (OMB) for review under 
the Paperwork Reduction Act. Written comments on the paperwork 
requirements should be forwarded directly to the OMB Desk Officer 
indicated below at the following address: OMB Reports Management 
Branch, New Executive Office Building, Room 10202, Washington, DC 
20530, Attn. Milo Sunderhauf. NCUA will publish a notice in the Federal 
Register once OMB action is taken on the submitted requirement.

    By the National Credit Union Administration Board on November 
10, 1994.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA proposes IRPS 94-2:

Interpretive Ruling and Policy Statement 94-2--Supervisory Review 
Committee

    Section 309 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 requires that NCUA establish an independent 
intra-agency appellate process to review material supervisory 
determinations. The NCUA Board hereby establishes a supervisory review 
committee to implement Section 309.
    The committee shall consist of five regular members of NCUA's 
senior staff: the Executive Director, the Director of the Office of 
Examination and Insurance, the General Counsel, one Regional Director, 
and one additional senior staff or Board staff member. An alternate 
Regional Director shall be appointed to consider matters arising in the 
member Regional Director's region. The term of committee service for 
the Regional Director, alternate Regional Director and additional 
member is two years. These members may be appointed for additional 
terms. All other members will serve permanently.
    The Executive Director shall serve as the chairperson of the 
committee and shall only vote in the case of a tie. All other members 
shall have one vote. At least three members will be present at each 
committee meeting. A majority vote is required for action on an appeal. 
Regular committee meetings shall be held four times a year. Meetings 
via teleconference are acceptable. Regular meetings may be canceled and 
special meetings may called by the Executive Director.
    Appeals may be made by all federally insured credit unions. The 
committee shall hear appeals of material supervisory determinations 
made by the NCUA. Such determinations are limited to: (1) composite 
CAMEL rating of a 4 or 5; (2) adequacy of loan loss reserve provisions; 
and (3) loan classifications on loans that are significant to a credit 
union. A determination is appealable only after a decision has been 
made by an official of the appropriate NCUA Regional Office.
    Appeals shall be submitted in writing to the Chairman of the 
committee, within 30 days of the regional office's decision. Appeals 
shall be mailed or delivered to Chairman, Supervisory Review Committee, 
NCUA, 1775 Duke Street, Alexandria, VA 22314-3428. Appeals may be made 
by letter, which shall include the name of the appellant credit union, 
the supervisory determination being appealed and the reasons for the 
appeal. Appellants are encouraged to submit all information and 
supporting documentation relevant to the matter in dispute.
    The committee may request additional information from the appellant 
and/or the regional office within 30 days of its receipt of the appeal. 
The information must be submitted to the committee within 15 days of 
receipt of the committee request. The committee shall make a 
determination on the appeal within 90 days from the date of the receipt 
of an appeal by the committee or of its receipt of any requested 
additional information.
    The time requirements set forth above are subject to adjustment by 
the committee, either on its own or upon request of the appellant or 
the region involved.
    The committee's determination shall be submitted in writing to the 
NCUA Board. Within seven working days, each Board member will sign 
indicating whether they agree with the committee's determination. If a 
majority of the Board members agree, the determination shall be final 
and the parties so notified. If a majority of the Board members do not 
agree, the parties will be notified, and the Board will proceed with 
the final appeal.
    Appellants can seek redress from alleged retaliation through NCUA's 
Office of Inspector General.

[FR Doc. 94-28366 Filed 11-16-94; 8:45 am]
BILLING CODE 7535-01-P-M