[Federal Register Volume 63, Number 42 (Wednesday, March 4, 1998)]
[Rules and Regulations]
[Pages 10518-10519]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5452]



[[Page 10518]]

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708b


Mergers of Federally-Insured Credit Unions; Voluntary Termination 
or Conversion of Insured Status

AGENCY: National Credit Union Administration (``NCUA'').

ACTION: Final rule.

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SUMMARY: The final rule amends the disclosure forms in NCUA's 
regulations relating to mergers and voluntary termination or conversion 
of insured status. The amendments inform the members that, if their 
credit union converts to nonfederal insurance, the private insurance 
fund insuring their accounts is not backed by the full faith and credit 
of the United States government. It also informs the members that, if 
their credit union terminates insurance, their shares, excluding those 
covered for one year, are no longer insured by the federal government 
or any other entity.

DATES: The rule is effective April 1, 1998.

FOR FURTHER INFORMATION CONTACT: Mary F. Rupp, Staff Attorney, Office 
of General Counsel, 1775 Duke Street, Alexandria, Virginia 22314-3428 
or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    On November 24, 1997, the NCUA Board requested comments on proposed 
changes to part 708b of its regulations. 62 FR 64187 (December 4, 
1997). Part 708b sets forth the procedures and disclosure requirements 
for credit unions proposing to terminate insurance or convert to 
private insurance.
    Sections 708b.301(a)(1) and (b)(1) contain the form notices that 
are sent to the members if a credit union is seeking to terminate 
federal insurance. The proposal amended the notices by clarifying that, 
if the credit union fails, the members' shares are no longer insured by 
the federal government or any other entity.
    Sections 708b.302(a)(1), (a)(2), (b)(1) and (b)(2) contain the form 
notices and ballots that are sent to the members if a credit union is 
seeking to convert from federal to nonfederal insurance. The proposal 
added a sentence to the notice and ballot explaining that NCUA 
insurance is backed by the full faith and credit of the United States 
government and that the private insurance the member will receive if 
the credit union converts is not backed by the United States 
government.

Summary of Comments

    The NCUA Board received 11 comments on the proposal: two from 
private insurers; three from credit union trade groups; three from 
state leagues; and three from credit unions. Ten of the 11 commenters 
generally supported the disclosure requirements. Six fully supported 
them and four had some suggested changes to the disclosure language. 
Two of the six that fully supported the proposal were the private 
insurers. Both private insurers stated that the proposed disclosures 
are fair, consistent with existing law, and in the best interest of the 
members.
    Two of the commenters suggested that the rule allow credit unions 
to describe in the disclosure some of the positive aspects of the 
private insurer. The NCUA Board does not object to the credit union 
disclosing in another document positive aspects of the private insurer 
but believes that the disclosure and ballot should be limited to the 
key facts that distinguish private insurance from federal insurance.
    Two of the commenters believe that proposed Secs. 708b.302(a)(2) 
and (b)(2) give the impression that federal insurance is better than 
private insurance. One commenter suggests deleting the language at the 
end of each of those sections that states, unlike private insurance, 
federal insurance is backed by the full faith and credit of the United 
States government. The NCUA Board believes it is important that the 
members are aware of this fundamental difference between the two types 
of insurance.
    Two of the commenters take exception to the implication that NCUA's 
federal insurance is backed by the full faith and credit of the United 
States government. One commenter acknowledges that ultimately it is 
backed by the United States government, but believes that the steps 
leading to that backing should be disclosed. The NCUA Board stands by 
the statement that the National Credit Union Share Insurance Fund is 
backed by the United States government and believes that the focus of 
the disclosure should be on this point. Competitive Equality Banking 
Act of 1987, Pub. L. No. 100-86, section 901 (1987).
    The negative commenter objects to the disclosures as they apply to 
the insurance provided by PROSAD-COOP which insures the shares of 
credit unions chartered under local law in Puerto Rico. The commenter 
states that PROSAD-COOP is guaranteed by the government of Puerto Rico. 
That statement is incorrect. Puerto Rican law provides only for the 
Secretary of the Treasury to lend funds to PROSAD in a limited amount. 
Contrary to the contention of the commenter that raised this issue, 
PROSAD's position with respect to the Puerto Rican government is quite 
different than the National Credit Union Share Insurance Fund's 
position with respect to the United States government. There is 
specific statutory authority in the Competitive Equality Banking Act of 
1987 providing that the National Credit Union Share Insurance Fund is 
backed by the full faith and credit of the United States government.

Final Rule

    Based on the comments and the Board's continued belief that the 
information as stated in the proposed rule must be disclosed in order 
for a member to make an informed vote on the proposed transaction, the 
Board has adopted the proposed rule as its final rule. Disclosure of 
this information is consistent with the disclosure requirements 
Congress imposes on credit unions lacking federal insurance.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires the NCUA to prepare an 
analysis to describe any significant economic effect any regulation may 
have on a substantial number of small credit unions, meaning those 
under $1 million in assets. The NCUA Board has determined and certifies 
that the final rule will not have a significant economic impact on a 
substantial number of small credit unions. The reasons for this 
determination are that the proposed rule requires the addition of two 
sentences to the disclosure form used by credit unions converting to 
nonfederal insurance. The addition of these two sentences will not 
increase the costs of the conversion and therefore will not create a 
financial burden. Accordingly, the NCUA Board has determined that a 
Regulatory Flexibility Analysis is not required.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. The final amendments will apply to all 
federally insured credit unions. The final amendments are not designed 
or intended to interfere with the state regulation of state chartered 
institutions. However, the Board is modeling this rule on federal 
legislation that specifically applies to state chartered credit unions. 
The NCUA Board has determined that the final amendments

[[Page 10519]]

are not likely to have any direct effect on states, the relationship 
between the states, or the distribution of power and responsibilities 
among the various levels of government.

Paperwork Reduction Act

    The final rule requires the credit union to provide to its members 
information provided by NCUA. The Paperwork Reduction Act does not 
apply to disclosures that are directives for a person to disclose 
information completely supplied by the agency. 5 CFR 1320.3(c)(2).

Congressional Review

    Awaiting OMB determination.

List of Subjects in 12 CFR Part 708b

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on February 
25, 1998.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA amends 12 CFR part 708b as follows:

PART 708b--MERGERS OF FEDERALLY-INSURED CREDIT UNIONS; VOLUNTARY 
TERMINATION OR CONVERSION OF INSURED STATUS

    1. The authority citation for part 708b continues to read as 
follows:

    Authority: 12 U.S.C. 1766, 1785, 1786, 1789.

    2. In section 708b.301, paragraph (a)(1) is amended by revising the 
second paragraph of the Notice of Proposal to Terminate Federal 
Insurance and paragraph (b)(1) is amended by revising the third 
paragraph of the Notice of Proposal to Merge and Terminate Federal 
Insurance to read as follows:


Sec. 708b.301  Termination of insurance.

    (a) * * *
    (1) Notice of Proposal to Terminate Federal Insurance. 
* * * * *
    If approved, any deposits made by you after the date of 
termination, either new deposits or additions to existing accounts, 
will not be insured by the NCUA or any other entity. In the event 
the credit union fails, these deposits are not insured by the 
federal government. No provision has been made for alternative 
insurance, therefore, these deposits will be uninsured.
* * * * *
    (b) * * *
    (1) Notice of Proposal to Merge and Terminate Federal Insurance.
* * * * *
    Any deposits made by you after the effective date of the merger, 
either new deposits or additions to existing accounts, will not be 
insured by the NCUA or any other entity. In the event the credit 
union fails, these deposits are not insured by the federal 
government. No provision has been made for alternative insurance, 
therefore, these deposits will be uninsured. Accounts in the merging 
Credit Union on the date of the merger, up to a maximum of $100,000 
for each member, will continue to be insured, as provided in the 
Federal Credit Union Act, for one (1) year after the close of 
business on the date of the merger, but any withdrawals after the 
close of business on that date will reduce the insurance coverage by 
the amount of the withdrawal.
* * * * *
    3. In Section 708b.302, paragraph (a)(1) is amended by adding two 
sentences at the end of the second paragraph of the Notice of Proposal 
to Convert to Nonfederally-Insured Status, paragraph (a)(2) is amended 
by adding a sentence at the end of the second paragraph of the ballot, 
paragraph (b)(1) is amended by adding two sentences at the end of the 
second paragraph of the Notice of Proposal to Merge and Convert to 
Nonfederally-Insured Status and paragraph (b)(2) is amended by adding a 
sentence at the end of the second paragraph of the ballot to read as 
follows:


Sec. 708b.302  Conversion of insurance.

    (a) * * *
    (1) Notice of Proposal to Convert to Nonfederally-Insured Status 
* * * * *
    * * * The insurance provided by the National Credit Union 
Administration, an independent agency of the United States, is 
backed by the full faith and credit of the United States government. 
The private insurance you will receive from ____________________ is 
not guaranteed by the federal or any state government.

    (2) * * *
    * * * The private insurance provided by ____________________ is 
not backed by the full faith and credit of the United States 
government as is the federal insurance provided by the National 
Credit Union Administration.
* * * * *
    (b) * * *
    (1) Notice of Proposal to Merge and Convert to Nonfederally-Insured 
Status 
* * * * *
    * * * The insurance provided by the National Credit Union 
Administration, n independent agency of the United States, is backed 
by the full faith and credit of the United States government. The 
private insurance you will receive from ____________________ is not 
guaranteed by the federal or any state government.

    (2) * * *
    * * * The private insurance provided by ____________________ is 
not backed by the full faith and credit of the United States 
government as is the federal insurance provided by the National 
Credit Union Administration.
* * * * *
[FR Doc. 98-5452 Filed 3-3-98; 8:45 am]
BILLING CODE 7535-01-U