[Federal Register Volume 62, Number 6 (Thursday, January 9, 1997)]
[Notices]
[Pages 1358-1360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-141]


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DEPARTMENT OF THE TREASURY

Office of the Secretary


Credit Union Study; Request for Comments

AGENCY: Office of the Secretary, DOT.

SUMMARY: Legislation recently enacted by Congress requires the 
Secretary of the Treasury (Secretary) to conduct a study of credit 
unions and submit a report to Congress by September 30, 1997.
    This notice invites all interested parties to provide their views 
on the topics listed below and on any other issues relating to the 
study that they may wish to bring to our attention. We strongly 
encourage all interested parties to submit comments for the record.

DATES: Comments should be in writing and must be received by February 
28, 1997.

ADDRESSES: Send written comments to: Credit Union Study, Department of 
the Treasury, Room 3025, 1500 Pennsylvania Avenue, NW, Washington, D.C. 
20220.

FOR FURTHER INFORMATION CONTACT: For further information, please 
contact: Joan

[[Page 1359]]

Affleck-Smith, Director, Office of Financial Institutions Policy, at 
(202) 622-2740, or Edward DeMarco, Financial Economist, at (202) 622-
2792.

SUPPLEMENTARY INFORAMTION: Section 2606 of the Omnibus Consolidated 
Appropriations Act for 1997 (Public Law No. 104-208) requires the 
Secretary to conduct a study of corporate credit unions and other 
credit union issues. In conducting the study, the Secretary must 
consult with the National Credit Union Administration (NCUA), the 
Federal Deposit Insurance Corporation (FDIC), and the Office of the 
Comptroller of the Currency (OCC).

Suggested Format of Comments

    Please comment on some or all of the issues under study, as listed 
below.

I. National Credit Union Share Insurance Fund

    In 1970, Congress created the National Credit Union Share Insurance 
Fund (NCUSIF) as a way for credit unions to obtain federal deposit 
insurance. Like the Federal Deposit Insurance Corporation's Bank 
Insurance Fund and Savings Association Insurance Fund, the NCUSIF 
insures each depositor for up to $100,000. However, the NCUSIF is 
structured and administered differently than the insurance funds for 
banks and thrifts. In the legislation, Congress directs the Secretary 
to study specific issues pertaining to the NCUSIF.
    First, the Secretary must evaluate the treatment of the NCUSIF's 
required 1 percent deposit by member credit unions. Legislation enacted 
in 1984 required each credit union to maintain a deposit with the 
NCUSIF equal to 1 percent of its insured shares. Credit unions count 
these deposits as assets while the NCUSIF counts these same funds as 
part of its equity. Congress raises the question of whether or not the 
accounting treatment of the 1 percent deposit is appropriate. Congress 
also requires the Secretary to study how the NCUA uses the deposit 
amounts when determining equity capital ratios.
    Second, the Secretary must analyze the potential for, and potential 
effects of, having some entity other than the NCUA administer the 
NCUSIF.
    We request comments on:
    1. The NCUA's oversight of the NCUSIF;
    2. The desirability of having credit unions expense the 1 percent 
deposit that they maintain at the NCUSIF; and
    3. The advantages and disadvantages of separating the NCUSIF from 
the NCUA.
    We also request responses to the following specific questions 
regarding the NCUSIF:
    4. Does the current accounting treatment of credit unions'' 1 
percent deposit create risks to the NCUSIF, credit unions, or both? In 
particular, what is the risk that large losses in the NCUSIF would 
impair the 1 percent deposit at a time when credit unions were under 
stress?
    5. If you believe that the 1 percent deposit should remain 
refundable (i.e., should continue to be treated as an asset), explain 
why. In particular, identify how such treatment promotes safety and 
soundness and protects the NCUSIF and ultimately the taxpayers. If the 
1 percent deposit remains refundable, how should the deposit be used in 
determining a credit union's equity capital ratio?
    If you believe that the 1 percent deposit should be expensed, 
explain why. In particular, identify how expensing the deposit would 
promote safety and soundness and protect the NCUSIF and ultimately the 
taxpayers. In addition, please describe how the existing deposits 
should be expensed.
    6. The NCUA currently has a single office--the Office of 
Examination and Insurance--handle both examination and share insurance. 
Do any conflicts arise from that structure? Would any such conflicts be 
most properly handled by separating examination and insurance within 
the NCUA or by establishing management and oversight of the NCUSIF 
outside of the NCUA? If the latter, should the NCUSIF be a stand-alone 
agency or incorporated into the FDIC or some other existing federal 
agency? Explain.
    7. What changes, if any, are needed in the NCUA's current oversight 
or operation of the NCUSIF? If you advocate changes, explain why those 
changes are needed. Identify the safety and soundness or taxpayer risk 
issues involved, and how your proposed solution deals with the 
identified problem.

II. Corporate Credit Unions

    The network of corporate credit unions, including U.S. Central 
Credit Union, emerged in the 1970s to meet the liquidity and investment 
demands of the growing number of natural person credit unions. 
Currently, corporate credit unions provide liquidity to member credit 
unions, invest member credit unions' excess funds, and perform check-
clearing and other related transactional services for member credit 
unions. In this study, we will examine, in cooperation with federal 
banking agencies, the ten largest corporate credit unions, including 
examining their investment practices, financial stability, financial 
operations, and financial controls.
    In addition, Congress directed the Secretary to evaluate the NCUA's 
supervision of corporate credit unions. Concern has been raised that, 
at least until recently, the NCUA did not adequately oversee the risk-
taking of corporate credit unions and had no specialized examination 
group to deal with the unique circumstances of corporate credit unions. 
While the NCUA has addressed many of these shortcomings, Congress 
requested an assessment of the NCUA's supervision of corporates today.
    At the time of this notice's publication, the NCUA is finalizing 
substantial changes to its regulation governing corporate credit 
unions, 12 CFR Part 704. The proposed changes to Part 704 would 
significantly alter certain regulatory requirements applicable to 
corporate credit unions. The NCUA received extensive public comments on 
those proposed changes, and we have reviewed those comments. In your 
comments, be careful to distinguish between Part 704 as in effect at 
the time this notice is published and the revised Part 704 proposed by 
the NCUA. Should the NCUA complete the rulemaking process and issue a 
final Part 704 regulation before the comment period for this notice 
ends, you should focus your comments on the new Part 704.
    We request comments on:
    8. The safety and soundness of corporate credit unions; and
    9. The NCUA's supervision of corporate credit unions.
    We also request responses to the following specific questions 
regarding corporate credit unions:
    10. What is the appropriate scope of activities for corporate 
credit unions?
    11. What risks, if any, do corporate credit unions pose today to 
natural person credit unions or to the NCUSIF?
    12. Are the current investment practices of corporate credit unions 
appropriate? Are NCUA regulations and NCUA oversight adequate for the 
risks undertaken by corporate credit unions?

III. NCUA Regulations

    Congress directed the Secretary to examine the NCUA's current 
regulations. In particular, we will focus on NCUA regulations affecting 
(i) the NCUSIF, (ii) corporate credit unions, and (iii) credit union 
safety and soundness.
    At the time of this notice's publication, the NCUA is finalizing 
substantial changes to its regulation governing the investment and 
deposit activities of natural person credit unions

[[Page 1360]]

at 12 CFR Part 703. The proposed changes to Part 703 would 
significantly alter certain regulatory requirements applicable to such 
credit unions. The NCUA received extensive public comments on those 
proposed changes, and we will review those comments. In your comments, 
be careful to distinguish between Part 703 as in effect at the time 
this notice is published and the revised Part 703 proposed by the NCUA. 
Should the NCUA complete the rulemaking process and issue a final Part 
703 regulation before the comment period for this notice ends, you 
should focus your comments on the new Part 703.
    We request comments on:
    13. NCUA regulations in the specified areas.
    We also request responses to the following specific questions 
regarding NCUA regulations:
    14. In order to improve credit unions' safety and soundness, what 
changes, if any, should be made in the Federal Credit Union Act or the 
NCUA's regulations? Explain.
    15. Are there elements of safety and soundness regulation of banks 
and thrifts that, if carried over to credit union regulation, would 
make a meaningful improvement in the NCUA's oversight of credit unions' 
safety and soundness? Explain.

    Dated: December 26, 1996.
Richard S. Carnell,
Assistant Secretary for Financial Institutions.
[FR Doc. 97-141 Filed 1-8-97; 8:45 am]
BILLING CODE 4810-25-P