[Federal Register Volume 62, Number 248 (Monday, December 29, 1997)]
[Rules and Regulations]
[Pages 67549-67550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33750]



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 Rules and Regulations
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  Federal Register / Vol. 62, No. 248 / Monday, December 29, 1997 / 
Rules and Regulations  

[[Page 67549]]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 725


Central Liquidity Facility

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The National Credit Union Central Liquidity Facility (the 
Facility), a mixed-ownership government corporation within the NCUA, 
serves as a liquidity source for its member credit unions. The NCUA 
Board is issuing this rule to permit the Facility to take, in lieu of a 
blanket security interest, a first priority security interest in 
specific assets of the credit union with a net book value at least 
equal to 110% of the amounts owed on the Facility advance or Agent 
loan. The final rule will provide credit unions with greater 
flexibility in their normal operations while ensuring that the Facility 
is adequately protected for any loans that it makes.

DATES: Effective January 28, 1998.

FOR FURTHER INFORMATION CONTACT: Herbert S. Yolles, President, National 
Credit Union Central Liquidity Facility, 1775 Duke Street, Alexandria, 
VA 22314-3428. Telephone Number (703) 518-6391 or (703) 518-6363.

SUPPLEMENTARY INFORMATION:

A. Background

    Public Law 96-630, Title XVIII, 12 U.S.C. 1795, et seq., enacted in 
1979, created the Facility. Its purpose is to improve general financial 
stability by meeting the liquidity needs of credit unions and thereby 
encourage savings, support consumer and mortgage lending, and provide 
basic financial resources to all segments of the economy.
    Most credit unions are members of a corporate credit union. In 
addition, credit unions are now eligible for Federal Home Loan Bank 
membership. Both corporate credit unions and Federal Home Loan Banks 
require that a credit union provide collateral for borrowing. In 
addition, credit unions may also borrow from other financial 
institutions and are required to provide collateral for such 
borrowings. While multiple security agreements are not prohibited under 
the current regulation, the presence of competing security interests 
could result in the Facility being under-collateralized for any 
advances.

B. Comments

    Twenty-six comment letters were received. Of these, eleven were 
received from corporate credit unions, eleven from natural person 
credit unions and four from credit union associations. All twenty-six 
concurred with the final rule change. One natural person credit union 
commented that the requirement to provide collateral with a net book 
value of at least 110 percent of the amount owed appeared to be 
excessive. They recommend that NCUA establish a loan-to-value ratio of 
100 percent unless an assessment of risk, i.e., as indicated by the 
credit union's last examination, indicated the need for a lower loan-
to-value. The Board continues to believe that collateral with a net 
book value of at least 110 percent of the amount owed is needed to 
adequately protect the Facility.
Collateral--Net Book Value
    Currently, Section 725.19 requires that the Facility secure each 
loan with a blanket security interest in all of the assets of the 
member credit union. The final rule gives the Facility the option of 
taking either a blanket security interest or a first priority security 
interest in specific collateral of the credit union with a net book 
value at least equal to 110% of the amounts owed on the Facility 
advance or Agent loan. This requirement will permit a credit union to 
provide collateral to other lenders and still have the ability to 
borrow from the Facility, so long as it has other assets with 
sufficient net book value to support the Facility advance or Agent 
loan. It also will permit the Facility to accept a security interest in 
all assets of the credit union as collateral for a Facility advance to 
a Regular member. However, the net book value of the assets will still 
have to be at least equal to 110% of the amounts owed on the Facility 
advance or Agent loan.

Superior Perfected Interest

    In calculating the value of the assets covered by the security 
interest, assets in which any third party has a superior perfected 
interest will be excluded.
Section 208 Assistance
    The final rule also expressly authorizes the Facility to accept the 
guarantee of the National Credit Union Share Insurance Fund as 
collateral for borrowings by a credit union. This provision facilitates 
advances by the Facility to credit unions receiving assistance under 
Section 208 of the Federal Credit Union Act.

Regulatory Procedures

Regulatory Flexibility Act

    The NCUA Board certifies that this final rule will not have a 
significant impact on a substantial number of small credit unions 
(those under $1 million in assets). The final rule will make it easier 
for credit unions to obtain loans from both Facility and other sources. 
Accordingly, a regulatory flexibility analysis was not required.

Paperwork Reduction Act

    The final rule has no information collection requirements; 
therefore, no Paperwork Reduction Act analysis was required.

Executive Order 12612

    The NCUA Board has determined that the final rule will not have a 
substantial direct effect on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among various levels of government.

List of Subjects in 12 CFR Part 725

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on December 
18, 1997.
Becky Baker,
Secretary of the Board.

    For the reasons set forth in the preamble, NCUA amends 12 CFR part 
725 as set forth below:

[[Page 67550]]

PART 725--NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY 
FACILITY

    1. The authority citation for part 725 continues to read as 
follows:

    Authority: Secs. 301-307 Federal Credit Union Act, 92 Stat. 
3719-3722 (12 U.S.C. 1795-1795f).

    2. Section 725.19 is revised to read as follows:


Sec. 725.19  Collateral requirements.

    (a) Each Facility advance and each Agent loan shall be secured by a 
first priority security interest in collateral of the credit union with 
a net book value at least equal to 110% of all amounts due under the 
applicable Facility advance or Agent loan, or by guarantee of the 
National Credit Union Share Insurance Fund.
    (b) The Facility may accept as collateral for each Facility advance 
to a Regular member, a security interest in all assets of the Regular 
member; provided however, that the value of any assets in which any 
third party has a perfected security interest that is superior to the 
security interest of the Facility shall be excluded for purposes of 
complying with the requirements of paragraph (a) of this section.
    (c) The Facility may accept as collateral for each Facility advance 
to an Agent member, a security interest in the Agent loans for which 
the Facility advance was made; provided however, that the collateral 
for such Agent loan meets the requirements of paragraph (a) of this 
section.

[FR Doc. 97-33750 Filed 12-24-97; 8:45 am]
BILLING CODE 7535-01-P