[Federal Register Volume 63, Number 209 (Thursday, October 29, 1998)]
[Proposed Rules]
[Pages 57938-57942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28875]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Chapter VII


Prompt Corrective Action

AGENCY: National Credit Union Administration (NCUA).

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The National Credit Union Administration (NCUA) requests 
public comment on development of a system of ``prompt corrective 
action'' to be taken by NCUA when a federally-insured credit union 
becomes undercapitalized. A new provision of the Federal Credit Union 
Act, as added by the Credit Union Membership Access Act, requires the 
NCUA Board to adopt, by regulation, a system of prompt corrective 
action indexed to each of five capital categories which the new 
provision establishes for federally-insured credit unions. Much of the 
system of prompt corrective action either is already prescribed by the 
new provision itself or is required to be comparable with the system 
Congress established for other federally-insured financial institutions 
in 1991. However, Congress has left to NCUA the responsibility to 
develop implementing regulations for certain components of the system 
of prompt corrective action which are unique to credit unions. 
Information and comments from interested parties on these specific 
components will assist NCUA in carrying out its mandate to implement a 
system of prompt corrective action.

DATES: Comments must be received on or before January 27, 1999.

ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail 
or hand-deliver comments to: National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428. Fax comments to (703) 
518-6319. Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Herbert S. Yolles, Deputy Director, 
Office of Examination and Insurance, at the above address or telephone 
(703) 518-6362; or Steven W. Widerman, Trial Attorney, Office of 
General Counsel, at the above address or telephone (703) 518-6557.

SUPPLEMENTARY INFORMATION:

A. Background

    On August 7, 1998, Congress enacted the Credit Union Membership 
Access Act (CUMAA), Pub. L. No. 105-219, 112 Stat. 913 (1998). Section 
103 of CUMAA added a new section 216 to the Federal Credit Union Act 
(FCUA), to be codified as 12 U.S.C. 1790d. New section 216(b)(1) 
requires the NCUA Board to adopt by regulation a system of ``prompt 
corrective action'' to be taken by NCUA when a federally-insured 
``natural person'' credit union becomes undercapitalized. Congress 
requires NCUA's system of prompt corrective action to be ``comparable'' 
to the system it prescribed for the other federally-insured financial 
institutions in 1991 under section 38 of the Federal Deposit Insurance 
Act (FDIA Sec. 38), 12 U.S.C. 1831o, as added by section 131 of the 
Federal Deposit Insurance Corporation Improvement Act, Pub. L. No. 102-
242, 105 Stat. 2236 (1991).
    Many of the regulations that will comprise NCUA's system of prompt 
corrective action are not open to substantive discretion in rulemaking. 
Section 216 (c) through (i) itself prescribes the substance of much of 
NCUA's system of prompt corrective action. To satisfy the requirement 
of ``comparability'' with FDIA Sec. 38, NCUA's regulations will 
generally parallel those adopted by the other Federal banking agencies 
pursuant to FDIA Sec. 38,\1\ to the extent such regulations are 
applicable to credit unions. However, Congress has left to NCUA the 
responsibility for originating implementing regulations for certain 
components of the system of prompt corrective action which are unique 
to credit unions and, thus, were not addressed in FDIA Sec. 38. New 
Sec. 216 (b)(2) and (d). The components on which NCUA seeks comment 
are:
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    \1\ The Federal banking agencies consist of the Federal Reserve 
Board, the Office of Comptroller of the Currency, the Federal 
Deposit Insurance Corporation (FDIC) and the Office of Thrift 
Supervision. New Sec. 216(o)(1) incorporating 12 U.S.C. 1813(z). 
Their Joint Final Rule establishing a system of prompt corrective 
action pursuant to FDIA Sec. 38 is published at 57 FR 44886 (Sept. 
29, 1992).
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    1. The definition of a ``complex'' credit union;
    2. The design of a ``risk-based net worth requirement'' to apply to 
``complex'' credit unions;
    3. The design of an alternative system of prompt corrective action 
for ``new'' credit unions (defined as less than 10 years old and having 
less than $10 million in assets); and
    4. The criteria for an acceptable Net Worth Restoration Plan for 
under-capitalized credit unions.

[[Page 57939]]

    New Sec. 216 (b)(2)(d) and (f)(5). NCUA seeks comment on these 
components. An opportunity to address all of the components of prompt 
corrective action will be provided in 1999 when NCUA issues proposed 
rules for comment.

B. Timetable

    Congress has set a timetable for NCUA to propose for comment, and 
to finally adopt, implementing regulations for section 216. For all 
implementing regulations except those regarding the ``risk-based net 
worth requirement'' for ``complex'' credit unions, NCUA is required to 
propose rules no later than May 26, 1999, and to adopt final rules no 
later than February 7, 2000, which would become effective August 7, 
2000. CUMAA Sec. 301 (d)(1) and (e)(1).
    A different timetable applies to implementing regulations for a 
single component of the prompt corrective action--the ``risk-based net 
worth requirement'' for ``complex'' credit unions. Congress requires 
NCUA to precede its proposed and final implementing rules with an 
Advance Notice of Proposed Rulemaking (ANPR) soliciting public comment 
on the ``risk-based net worth requirement'' only, to be published no 
later than February 3, 1999. CUMAA Sec. 301(d)(2)(A). To fulfill that 
requirement, NCUA publishes this ANPR soliciting public comment not 
only on the ``risk-based net worth requirement'' for ``complex'' credit 
unions, but also on other components of prompt corrective action, 
unique to credit unions, for which Congress has directed NCUA to 
originate implementing regulations. No date is prescribed for proposing 
rules on the ``risk-based net worth requirement,'' but NCUA is required 
to adopt final rules no later than August 7, 2000, which would become 
effective January 1, 2001. CUMAA Sec. 301 (d)(2)(B) and (e)(2).
    Broad public input addressing these components will assist the NCUA 
Board in tailoring a system of prompt corrective action that is 
workable, fair and effective in light of the cooperative character of 
credit unions. See S. Rep. No. 193, 105th Cong., 2d Sess. 14 (1998) (S. 
Rep.).

C. Framework of Section 216

    Like FDIA Sec. 38, new section 216(c) establishes a framework of 
five capital categories based on the ratio of a credit union's net 
worth.\2\ New section 216(e) through (i) then mandates specific prompt 
corrective actions indexed to each of the lower four categories. Most 
such actions impose progressively more stringent restrictions and 
requirements on credit unions; others permit or require NCUA to take 
administrative action, including conservatorship and liquidation.
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    \2\ ``Net worth ratio'' is defined as the ratio of a credit 
union's net worth to its total assets. New Sec. 216(o)(3). The ``net 
worth'' of a credit union (other than a low-income credit union) is 
defined as its retained earnings balance as determined under GAAP. 
New Sec. 216(o)(2)(A). Under GAAP, retained earnings consists of 
undivided earnings, statutory reserves, and other appropriations as 
defined by management or regulatory authorities. AICPA, Audit & 
Accounting Guide: Audits of Credit Unions at Sec. 11.01 (1998).
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    1. Well Capitalized. A credit union is ``well capitalized'' if it 
has a net worth ratio of 7% or greater and, if it meets the definition 
of a ``complex'' credit union, also satisfies an additional ``risk-
based net worth requirement.'' New Sec. 216(c)(1)(A). A ``well 
capitalized'' credit union is not subject to any type of prompt 
corrective action under section 216.
    2. Adequately Capitalized. A credit union is ``adequately 
capitalized'' if it has a net worth ratio of 6% or greater and, if it 
meets the definition of a ``complex'' credit union, also satisfies an 
additional ``risk-based net worth requirement.'' New Sec. 216(c)(1)(B). 
To improve capital, an ``adequately capitalized'' credit union must 
annually set aside as net worth an amount equal to at least 0.4% of its 
total assets. New Sec. 216(e). This is the only prompt corrective 
action required of a credit union that is ``adequately capitalized'' 
but not ``well capitalized.''
    3. Undercapitalized. A credit union is ``undercapitalized'' if it 
has a net worth ratio of less than 6% or, if it meets the definition of 
a ``complex'' credit union, fails to satisfy an additional ``risk-based 
net worth requirement.'' New Sec. 216(c)(1)(C). In addition to annually 
setting aside as net worth an amount equal to at least 0.4% of its 
total assets, an ``undercapitalized'' credit union also must timely 
submit and implement a Net Worth Restoration Plan which is accepted by 
the NCUA Board; must not allow its average total assets to increase 
unless and at a rate permitted by its Plan; and cannot increase the 
total amount of member business loans outstanding at any one time. New 
Sec. 216(f)(1) and (g).
    4. Significantly Undercapitalized. A credit union is 
``significantly undercapitalized'' if it has a net worth ratio of less 
than 4%. However, a credit union which has a net worth ratio of between 
4% and 4.99%, and otherwise would be ``undercapitalized,'' will instead 
be classified ``significantly undercapitalized'' if it has failed to 
timely submit or implement a Net Worth Restoration Plan acceptable to 
the NCUA Board (see infra section E.4.). New Sec. 216(c)(1)(D). A 
``significantly undercapitalized'' credit union is subject to all of 
the same prompt corrective actions as one which is 
``undercapitalized.'' But in addition, NCUA is given the discretion to 
conserve or liquidate that credit union if it finds no reasonable 
prospect that it will become ``adequately capitalized.'' New 
Secs. 206(h)(1)(F) and 207(a)(3)(A)(i) as added by CUMAA 
Sec. 301(b)(1)(A)(iii) and (b)(2)(B).
    5. Critically Undercapitalized. A credit union is ``critically 
undercapitalized'' if it has a net worth ratio of less than 2%. New 
Sec. 216(c)(1)(E). A ``critically undercapitalized'' credit union is 
subject to all of the same prompt corrective actions as one which is 
``significantly undercapitalized'' except that NCUA may now conserve or 
liquidate that credit union regardless whether there is a reasonable 
prospect that it will become ``adequately capitalized.'' New 
Secs. 206(h)(1)(G) and 207(a)(3)(A)(ii) as added by CUMAA 
Sec. 301(b)(1)(A)(iii) and (b)(2)(B). In addition, a ``critically 
undercapitalized'' credit union is subject to a timetable that, absent 
improvement in capital, leads to mandatory conservatorship or 
liquidation. Within 90 days of becoming ``critically 
undercapitalized,'' NCUA must either conserve or liquidate that credit 
union or ``take such other action . . . [that] would better achieve the 
purpose of [section 216], after documenting why the action would better 
achieve that purpose.'' New Sec. 216(i)(1). NCUA's determination to 
take ``such other action'' in lieu of conservatorship or liquidation 
expires in 180 days. If that determination is not renewed, the credit 
union must be conserved or liquidated. New Sec. 216(i)(2). If, after 
two renewals (i.e., 18 months after first becoming ``critically 
undercapitalized''), the credit union remains ``critically 
underapitalized,'' on average, for a full calendar quarter, NCUA must 
liquidate unless the credit union (i) has been complying with a Net 
Worth Restoration Plan since the date it was approved; (ii) has 
positive net income or a sustainable upward trend in earnings; and 
(iii) is viable and not expected to fail. New Sec. 216(i)(3).

D. Required Comparability With FDIA Section 38

1. Comparability

    New section 216 is modeled on section 38 of the Federal Deposit 
Insurance Act, 12 U.S.C. 1831o. Beginning in 1992, that provision 
mandated a system of prompt corrective

[[Page 57940]]

action to apply to all FDIC-insured depository institutions. The 
purpose of prompt corrective action for federally-insured credit unions 
is to resolve problems at the least possible long-term loss to the 
National Credit Union Share Insurance Fund (the Fund). New 
Sec. 216(a)(1). To carry out that purpose, Congress requires the NCUA 
Board to adopt regulations establishing a system of prompt corrective 
action that, in addition to being consistent with section 216, is 
``comparable to section 38 of the Federal Deposit Insurance Act.'' \3\ 
New 216(b)(1)(A); S. Rep. at 12; H.R. Rep. No. 472, 105th Cong., 2d 
Sess. 23 (1998) (H.R. Rep. at 23).
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    \3\ To this end, in developing regulations to implement new 
section 216, the NCUA Board is required to consult with the 
Secretary of the Treasury, the other Federal banking agencies (which 
apply prompt corrective action under FDIA Sec. 38), and State 
officials having jurisdiction over State-chartered, federally-
insured credit unions. CUMAA Sec. 301(c).
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    ``Comparable `` is defined as ``parallel in substance (though not 
necessarily identical in detail) and equivalent in rigor.'' S. Rep. at 
12. NCUA interprets this to mean that its implementing regulations for 
section 216 should parallel those adopted by the Federal banking 
agencies to implement FDIA Sec. 38, to the extent the latter 
regulations apply to credit unions. Conversely, NCUA's regulations will 
exclude prompt corrective actions under FDIA Sec. 38 which are 
inapplicable to credit unions, such as requiring the sale of stock or 
subordinated debt to recapitalize or undergo a merger or acquisition, 
prohibiting the acceptance of deposits from correspondent institutions, 
requiring a bank holding company to obtain approval before making a 
capital distribution, and requiring divestiture of an institution. See 
U.S. Dept. of Treasury, Credit Unions (Washington, D.C. 1997) at 76 
(Treasury Rep.).
    NCUA invites commenters to identify the prompt corrective actions 
under FDIA Sec. 38 which they believe do not apply to credit unions and 
should be excluded from NCUA's implementing regulations, as well as to 
address the components of prompt corrective action under section 216 
which have no analog in FDIA Sec. 38.

2. Report to Congress

    To the extent that NCUA's prompt corrective action regulations are 
not parallel with an applicable provision of FDIA Sec. 38, the NCUA 
Board is required to report that difference to Congress. The report to 
Congress must ``specifically explain . . . how the regulations differ 
from [FDIA Sec. 38], and the reasons for those differences.'' \4\ CUMAA 
Sec. 301(f); S. Rep. at 19; H.R. Rep. at 23. The report to Congress 
must be submitted either when the NCUA Board proposes its regulations 
for all but the ``risk-based net worth requirement'' (on or before May 
26, 1999), or when it finally adopts such regulations (on or before 
February 7, 2000).
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    \4\ The Report to Congress also must explain how NCUA's 
regulations take into account the cooperative character of credit 
unions, i.e., that credit unions are not-for-profit cooperatives 
that do not issue stock, must rely on retained earnings to build net 
worth, and have boards of directors that consist primarily of 
volunteers. New Sec. 216(b)(1)(B).
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E. Components of Prompt Corrective Action Unique to Credit Unions

1. Definition of a ``Complex'' Credit Union

    To be classified either ``well capitalized'' or ``adequately 
capitalized,'' a credit union that is deemed ``complex'' must satisfy a 
prescribed ``risk-based net worth requirement'' in addition to the 
corresponding statutory net worth ratio. New Sec. 216(c)(1)(A)(ii) and 
(B)(ii). Similarly, a credit union that is deemed ``complex'' will be 
classified as ``undercapitalized'' if it fails to meet a prescribed 
``risk-based net worth requirement,'' regardless whether it meets the 
corresponding statutory net worth ratio. New Sec. 216(c)(1)(C)(ii). To 
set up this ``gateway'' for imposing the ``risk-based net worth 
requirement,'' new section 216 requires the NCUA Board to define a 
``complex'' credit union ``based on the portfolios of assets and 
liabilities of credit unions.'' New Sec. 216(d)(1).
    FDIA Sec. 38 gives no guidance in defining a ``complex'' credit 
union because it draws no distinction between ordinary and complex 
depository institutions; indeed, a ``risk-based capital requirement'' 
applies to all such institutions in all but the ``critically 
undercapitalized'' category. Joint Final Rule, 57 FR 44870 (Sept. 28, 
1992). NCUA believes that the definition of a ``complex'' credit union 
should incorporate objective, risk-related numerical standards, derived 
from a credit union's balance sheet. This would serve the interests of 
uniformity and efficiency in two ways. First, credit unions would not 
be subject to unequal treatment as a result of subjective 
``complexity'' determinations by NCUA and State credit union 
supervisors. Second, credit unions would be able to determine for 
themselves where they stand with respect to being deemed ``complex'' or 
not.
    NCUA encourages commenters to address possible criteria for 
defining a credit union as ``complex'' according to the risk level of 
its portfolio of assets and liabilities. The following might be 
considered examples of such criteria:
    (i) Investments. Whether the credit union's securities portfolio is 
subject to NCUA's 300 basis point ``shock test'' required when the sum 
of the fair value of ``certain fixed and variable rate securities'' \5\ 
the credit union holds exceeds its net capital, 12 CFR 703.90(b)-(c);
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    \5\ Such securities are defined as having embedded options; or 
remaining maturities greater than three years; or coupon formulas 
that are related to more than one index or are inversely related to, 
or multiples of, an index. 12 CFR 703.90(b).
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    (ii) Lending. Whether the credit union's portfolio exceeds a 
certain threshold ratio of fixed-rate real estate mortgages;
    (iii) Borrowing. Whether the credit union has exceeded a certain 
threshold ratio of borrowed funds; and
    (iv) CAMEL Components. Whether the ``Capital'' and/or ``Asset'' 
components of the credit union's CAMEL rating are rated ``4'' or ``5.''

2. ``Risk-based Net Worth Requirements''

    For each of the top three capital categories--``well capitalized,'' 
``adequately capitalized'' and ``undercapitalized''--the NCUA Board is 
required to establish a separate ``risk-based net worth requirement'' 
that applies to credit unions that are deemed ``complex.'' New 
Sec. 216(d)(1); compare 12 U.S.C. 1831o(c)(1)(A). The ``risk-based net 
worth requirement'' must ``take account of any material risks against 
which the [6% net worth ratio required to be ``adequately 
capitalized''] may not provide adequate protection.'' New 
Sec. 216(d)(2). To this end, NCUA will consider whether a credit union 
having a 6% net worth ratio is adequately protected against interest 
rate risk, market risks, credit risk, risks posed by contingent 
liabilities, and other relevant risks. S. Rep. at 14. The design of the 
risk-based net worth requirement will reflect a reasoned judgment about 
the actual risks involved. Id.
    FDIA Sec. 38 required the Federal banking agencies to develop a 
``risk-based capital requirement'' to include among the ``relevant 
capital measures'' used to classify insured institutions among the five 
capital categories. 12 U.S.C. 1831o(c)(1). To fulfill that requirement, 
the Federal banking agencies adopted two separate measures which are 
independent of the ``leverage ratio'' (the equivalent of ``net worth 
ratio'')--the ``ratio of total capital to risk-weighted assets'' and 
the ``ratio of

[[Page 57941]]

Tier 1 capital to risk-weighted assets.'' \6\ 57 FR at 44870.
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    \6\ The total risk-based capital ration is set at 500 basis 
points above the leverage ration for the ``well capitalized'' 
category, and at 400 basis points above the leverage ratio for the 
``adequately capitalized'' and ``undercapitalized categories. The 
Tier-1 risk-based capital ratio is set at 100 basis points above the 
leverage ratio for the ``well capitalized'' category, and at the 
same level as the leverage ratio for the ``adequately capitalized'' 
and ``undercapitalized'' categories. 57 FR at 44867.
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    NCUA is considering a ``risk-based net worth requirement'' that 
consists of a basis points (b.p.) add-on to the existing statutory net 
worth ratio for each of the ``well capitalized,'' ``adequately 
capitalized'' and ``undercapitalized'' categories. The amount of the 
add-on would not necessarily be the same for each category. For 
example, a uniform 100 b.p. increase in the net worth ratio for each 
category would be reflected as follows. An otherwise ``well 
capitalized'' credit union (having a net worth ratio of 7% or greater) 
that is deemed ``complex'' would be required to achieve a net worth 
ratio of 8% or greater (7% statutory net worth ratio + 100 b.p. ``risk-
based net worth requirement'') to be classified ``well capitalized.'' 
An otherwise ``adequately capitalized'' credit union (having a net 
worth ratio of 6% or greater) that is deemed ``complex'' would be 
required to achieve a net worth ratio of 7% or greater (6% statutory 
net worth ratio + 100 b.p. ``risk-based net worth requirement'') to be 
classified ``adequately capitalized.'' Conversely, an otherwise 
``undercapitalized'' credit union (having a net worth ratio of less 
than 6%) that is deemed ``complex'' still would be ``undercapitalized'' 
unless it achieved a net worth ratio of 7% (6% statutory net worth 
ratio + 100 b.p. ``risk-based net worth requirement'').
    NCUA invites comment on the concept of supplementing applicable 
statutory net worth ratios, on the notion of establishing risk-weighted 
ratios that are independent of the statutory net worth ratios, as well 
as alternative designs for a ``risk-based net worth requirement.''

3. Alternative Rules for ``New'' Credit Unions

    For ``new'' credit unions, the NCUA Board is required to prescribe 
an alternative system of prompt corrective action to apply in lieu of 
the system prescribed by section 216 for existing credit unions. New 
Sec. 216(b)(2)(A); see also Treasury Rep. at 79. The alternative system 
of prompt corrective action for ``new'' credit unions must be designed 
to:
    (i) Carry out the purpose of section 216, i.e., to solve problems 
at the least possible long-term loss to the Fund;
    (ii) Recognize that new credit unions initially have no net worth, 
and give them reasonable time to accumulate net worth;
    (iii) Create incentives for new credit unions to become adequately 
capitalized by the time they either have been in operation for more 
than 10 years or have more than $10 million in total assets;
    (iv) Impose appropriate restrictions and requirements on new credit 
unions that do not make sufficient progress toward becoming adequately 
capitalized; and
    (v) Prevent evasion of the purpose of section 216 (e.g., an 
existing credit union merges with a smaller, new credit union and 
classifies itself as a ``new'' credit union to avoid the requirements 
of section 216).

New Sec. 216(b)(2)(B).
    Section 216(o)(4) defines a ``new'' credit union as having been in 
operation for less than 10 years and having $10 million or less in 
total assets. This is a significant expansion of the definition in 
section 116 of the FCUA, which CUMAA repeals. CUMAA Sec. 301(g)(3). 
Section 116 defined a ``new'' credit union as having been in operation 
less than 4 years or having assets of less than $500,000. 12 U.S.C. 
1762(a)(2).
    Under section 116, a ``new'' credit union was required to set aside 
10% of gross income until its regular reserve (i.e., capital) reached 
7.5% of total outstanding loans and risk assets, and thereafter to set 
aside 5% of gross income until the regular reserve reached 10% of total 
outstanding loans and risk assets. Id.; see also 12 CFR 702.2(a); U.S. 
Dept. of Treasury, Modernizing The Financial System (Washington, D.C. 
1991) at XIII-3. Under section 216(e), existing credit unions that are 
less than ``well capitalized'' ordinarily are required to annually set 
aside as net worth an amount equal to at least 0.4% of total assets 
until attaining a net worth ratio of 7%.\7\ The conceptual distinction 
between old section 116 and new section 216 is that under the former 
the reserve transfer was calculated as a percentage of gross income, 
under the latter it is calculated as a percentage of total assets.
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    \7\ Section 216(e)(2)(A) gives the NCUA Board the authority to 
adjust the amount of the 0.4% reserve transfer, on a case-by-case 
basis, if necessary to avoid a significant redemption of shares and 
to further the purpose of section 216.
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    NCUA proposes to establish a graduated timetable to allow ``new'' 
credit unions to build capital toward the statutory net worth level for 
each capital category. NCUA solicits comment on whether to adopt the 
same approach as section 216 now mandates for improving the capital of 
existing credit unions--requiring a ``new'' credit union to annually 
set aside as net worth a certain percentage total assets. New 
Sec. 216(e). The percentage of the annual transfer to net worth might 
be reduced progressively as the ``new'' credit union attains a higher 
capital category.

4. Net Worth Restoration Plan

    Any credit union which is ``undercapitalized'', ``significantly 
undercapitalized'' or ``critically undercapitalized'' must, among other 
prompt corrective actions, submit an acceptable Net Worth Restoration 
Plan (the Plan) to the NCUA Board. New Sec. 216(f)(1). The Plan is 
required to be submitted within a reasonable time prescribed by the 
NCUA Board, which must act expeditiously to decide whether the Plan is 
acceptable. New Sec. 216(f)(3). The NCUA Board may accept a Plan only 
if it determines that the Plan ``is based on realistic assumptions and 
is likely to succeed in restoring the net worth of the credit union.'' 
New Sec. 216(f)(5). Apart from this standard, the NCUA Board needs to 
establish criteria for credit unions to rely upon in preparing a Plan 
that will be ``acceptable.''
    FDIA Sec. 38 requires an undercapitalized institution to submit a 
``capital restoration plan'' (capital plan) which specifies:

    (i) Steps the institution will take to become ``adequately 
capitalized'';
    (ii) The levels of capital the institution expects to attain in 
each year that the plan is in effect;
    (iii) How the institution will comply with the prompt corrective 
action restrictions and requirements imposed under FDIA Sec. 38; and
    (iv) The types and levels of activities in which the institution 
will engage.
    12 U.S.C. 1831o(e)(2)(B)(i). To be accepted, a capital plan must 
meet the following statutory criteria:
    (i) Contain the statutorily-required information described 
above;
    (ii) Be based on realistic assumptions and be likely to succeed 
in restoring the institution's capital; and
    (iii) Would not appreciably increase risk (including credit 
risk, interest rate risk, and other types of risk) to which the 
institution is exposed.
    12 U.S.C. 1831o(e)(2)(C)(i). Although FDIA Sec. 38 authorized 
the Federal banking agencies to adopt regulations requiring a 
capital plan to include additional information, the agencies 
declined to do so. 57 FR at 44878.
    Section 216(f)(5) prescribes for a Net Worth Restoration Plan 
only one of FDIA Sec. 38's criteria--that the Plan be based on 
realistic assumptions and be likely to succeed in

[[Page 57942]]

restoring a credit union's capital. NCUA seeks comment on whether to 
add, by regulation, all or a combination of some of the other FDIA 
Sec. 38 content prerequisites and acceptability criteria enumerated 
above, and on the time frame for submitting and implementing a Net 
Worth Restoration Plan. In addition, NCUA welcomes input on this 
model generally, as well as on alternative and/or additional content 
prerequisites and acceptability requirements for credit union Net 
Worth Restoration Plans.

    By the National Credit Union Administration Board on October 22, 
1998.
Becky Baker,
Secretary of the Board.
[FR Doc. 98-28875 Filed 10-28-98; 8:45 am]
BILLING CODE 7535-01-U