[Federal Register Volume 64, Number 101 (Wednesday, May 26, 1999)]
[Proposed Rules]
[Pages 28415-28418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13305]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 64, No. 101 / Wednesday, May 26, 1999 / 
Proposed Rules  

[[Page 28415]]


=======================================================================
-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 741


Requirements for Insurance

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: NCUA is proposing to revise its rules concerning 
capitalization of the share insurance fund through the maintenance of a 
deposit by each insured credit union, payment of an insurance premium, 
and equity distribution. NCUA is proposing these revisions to conform 
its regulation with recent changes to the Federal Credit Union Act.

DATES: The NCUA must receive comments on or before July 26, 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, or you may fax comments 
to (703) 518-6319. Please send comments by one method only. 

FOR FURTHER INFORMATION CONTACT: Dennis C. Winans, Chief Financial 
Officer, Office of the Chief Financial Officer, at the above address or 
telephone: (703) 518-6570; or Regina M. Metz, Staff Attorney, Division 
of Operations, Office of General Counsel, at the above address or 
telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

A. Background

    The Credit Union Membership Access Act (CUMAA) was enacted into law 
on August 7, 1998. Public Law 105-21. Section 302 of CUMAA amends 
section 202 of the Federal Credit Union Act providing for requirements 
for obtaining and maintaining share insurance coverage from the 
National Credit Union Share Insurance Fund (NCUSIF). 12 U.S.C. 1782. 
The revisions concern capitalization of the share insurance fund 
through the maintenance of a one percent deposit by each insured credit 
union, payment of an insurance premium, and distribution of fund 
equity. CUMAA also adds provisions concerning the NCUSIF's equity ratio 
and available assets ratio. The amendments will become effective 
January 1, 2000. Accordingly, NCUA is proposing to revise Sec. 741.4 to 
implement the provisions of section 302 of CUMAA.

B. Section by Section Analysis

Section 741.4(a)  Scope

    The scope of the proposed rule is to implement the requirements of 
Section 202 of the Federal Credit Union Act, as amended by CUMAA. CUMAA 
provides for payment of an insurance premium not more than twice in any 
calendar year, rather than annually, as under the current rule. 
Therefore, the NCUA proposes to change the reference in this paragraph 
from ``payment of an annual insurance premium'' to ``payment of an 
insurance premium.''

Section 741.4(b)  Definitions

    In this paragraph, the NCUA proposes to incorporate CUMAA's 
definitions for the following terms: ``available assets ratio,'' 
``equity ratio,'' ``insured shares,'' and ``normal operating level.'' 
The terms ``available assets ratio'' and ``equity ratio'' are new to 
the regulation. The proposed rule changes some words in the definitions 
for ``available assets ratio'' and ``equity ratio'' from CUMAA to be 
consistent with GAAP terminology. Department of Treasury staff with 
whom NCUA staff discussed these wording changes supports them. Under 
the proposed rule, after January 1, 2000, the NCUA will calculate the 
available assets ratio and equity ratio to determine whether to approve 
an annual distribution of NCUSIF equity to insured credit unions, and 
if so, the amount. Under the proposed rule, the NCUA will also use the 
equity ratio to determine whether to charge insured credit unions an 
insurance premium and if so, the amount. The proposed rule does not 
change the definition of ``insured shares,'' but renumbers it so that 
the list of defined terms remains in alphabetical order. The proposed 
section revises the definition of the ``normal operating level.'' The 
current rule defines normal operating level as 1.3% of the aggregate of 
all insured shares at the end of the insurance year, or such lower 
value as established by the action of the NCUA Board. The proposed rule 
defines normal operating level as an equity ratio, determined by the 
NCUA Board, from 1.2% to 1.5% at the end of the calendar year. As 
required by CUMAA, the proposed rule removes the definition for 
``insurance year.'' The proposed rule adds a new definition for 
``reporting period'' meaning calendar year for credit unions with total 
assets of less than $50 million and semiannual period for credit unions 
with total assets of $50 million or more.
    To aid understanding of the new definitions for available assets 
ratio and equity ratio, the proposed rule contains a representation of 
the calculations in the style of a mathematical formula.

Section 741.4(c)  One Percent Deposit

    This proposed paragraph incorporates the provision of CUMAA that 
requires the NCUA to adjust the deposit amount semiannually for insured 
credit unions with assets of $50 million or more, while retaining the 
annual adjustment requirement for credit unions with less than $50 
million in assets. If the aggregate amount of insured shares of the 
credit union has increased, the adjustment will be an increase in the 
deposit amount. If the aggregate amount of insured shares of the credit 
union has decreased, the adjustment will be a refund to the credit 
union.

Section 741.4(d)  Insurance Premiums

    This proposed paragraph incorporates CUMAA's provision that, as of 
January 1, 2000, insured credit unions will pay an insurance premium to 
the NCUA not more than twice in any calendar year, on the dates the 
Board determines. Under the current rule effective until January 1, 
2000, all insured credit unions must pay to the NCUA an annual 
insurance premium of \1/12\ of one percent of insured shares, unless 
the NCUA Board waives the premium.
    As required by CUMAA, the proposed section requires the NCUA Board, 
as of January 1, 2000, to calculate the amount of the premium not more 
than twice in any calendar year based on the amount of the NCUSIF's 
equity ratio. The NCUA Board may only assess an insurance premium if 
the NCUSIF equity fund ratio is less than 1.3 percent. The premium 
charge must not exceed the amount necessary to restore the equity ratio 
to 1.3 percent. If the amount of the

[[Page 28416]]

equity ratio is less than 1.2 percent, the NCUA Board must assess an 
insurance premium in an amount to restore the equity ratio to 1.2 
percent.

Section 741.4(e)  Distribution of NCUSIF Equity

    This paragraph incorporates the CUMAA provision that requires the 
NCUA Board to make a distribution of NCUSIF equity to insured credit 
unions after each calendar year when NCUSIF's available assets ratio 
exceeds one percent, and the NCUSIF exceeds its normal operating level. 
The current rule provides for a redistribution of NCUSIF equity after 
each insurance year if the NCUSIF exceeds its normal operating level, 
which is defined as 1.3 percent or such lower value as established by 
action of the NCUA Board. CUMAA and the proposed rule revise the 
definition of normal operating level to not less than 1.2 percent and 
not more than 1.5 percent of the aggregate of all insured shares at the 
end of the year as established by action of the NCUA Board. The current 
rule requires the amount of the distribution to reduce the NCUSIF to 
its normal operating level. The proposed rule requires the distribution 
to be an amount that reduces the NCUSIF to its normal operating level 
and to an available assets ratio of not below 1.0 percent. Under the 
proposed rule, the NCUA Board would use the aggregate amount of the 
insured shares from all insured credit unions from the final reporting 
period of the calendar year in calculating the NCUSIF's equity ratio 
and available assets ratio to determine whether to distribute NCUSIF 
equity.
    The Board requests comments on the appropriate percentage for the 
normal operating level for the year 2000.

Section 741.4(f)  Invoices

    This paragraph states that the NCUA will provide copies of invoices 
to all federally insured credit unions in connection with the amount of 
their one percent deposit and any premium payment. The proposed rule 
updates and clarifies the current rule, in addition to incorporating 
changes required under CUMAA.
    The current rule identifies the invoices as Forms 1304, for 
federally insured state-chartered credit unions, and 1305, for federal 
credit unions, and states that Form 1305 includes the annual operating 
fee. The NCUA no longer identifies the invoices as Forms 1304 and 1305. 
Therefore, the proposed rule generally replaces references to Forms 
1304 and 1305 with the word ``invoices'' and states that invoices for 
federal credit unions include any annual operating fee due. The 
proposed rule also includes other small wording changes to update and 
clarify the current rule.
    In addition, the current rule refers to the credit unions' annual 
premium payment. CUMAA changes the term of the premium payment from 
annual to not more than twice in any calendar year. Therefore, the 
proposed rule removes the word ``annual'' where it modifies ``premium 
payment'' to incorporate the changes required under CUMAA.

Sections 741.4(g)  New Charters, (h) Conversion to Federal Insurance, 
and (j) Return of Deposit

    As stated previously, CUMAA removes the term ``insurance year'' 
from Section 202 of the Federal Credit Union Act. CUMAA provides that 
the amount of the one percent deposit will be assessed annually for 
credit unions with total assets of not more than $50 million and 
semiannually for credit unions with total assets of $50 million or 
more. Therefore, the proposed rule conforms with CUMAA by removing the 
words ``insurance year'' where they appear in paragraphs (g) and (h) 
and replacing them with the words ``calendar year.'' The proposed rule 
also conforms with CUMAA by revising the wording in paragraph (h) to 
account for the revisions to paragraph (d) concerning premiums.
    CUMAA and the proposed rule no longer automatically provide for an 
annual premium, but provide that the NCUA Board may assess a premium 
not more than twice in a calendar year. CUMAA also provides that any 
distribution of NCUSIF equity will occur after each calendar year. 
Therefore, the proposed rule conforms with CUMAA by removing the words 
``insurance year'' where they appear in paragraph (j) and replacing 
them with ``calendar year.''

C. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any proposed regulation may 
have on a substantial number of small entities (primarily those under 
$1 million in assets). The NCUA has determined and certifies that this 
proposed rule, if adopted, will not have a significant economic impact 
on a substantial number of small credit unions. Accordingly, the NCUA 
has determined that a Regulatory Flexibility Analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the proposed amendments do not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. As does the current rule, the proposed 
amendments will apply to federal credit unions and federally-insured 
state-chartered credit unions. NCUA has determined that the proposed 
amendments 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 the various levels 
of government.

D. Agency Regulatory Goal

    NCUA's goal is clear, understandable regulations that impose a 
minimal regulatory burden. We request your comments on whether the 
proposed rule is understandable and minimally intrusive if implemented 
as proposed. Commenters should note that CUMAA mandates the changes in 
this regulation.

List of Subjects in 12 CFR Part 741

    Credit unions, Requirements for insurance.

    By the National Credit Union Administration Board on May 19, 
1999.
Becky Baker,
Secretary of the Board.

    For the reasons set forth in the preamble, the National Credit 
Union Administration proposes to amend 12 CFR part 741 as follows:

PART 741--REQUIREMENTS FOR INSURANCE

Subpart A--Regulations That Apply To Both Federal Credit Unions and 
Federally Insured State-Chartered Credit Unions and That Are Not 
Codified Elsewhere in NCUA's Regulations

    1. The authority citation for Subpart A continues to read as 
follows:

    Authority: 12 U.S.C. 1782.

    2. Amend Sec. 741.4 as follows:
    a. In paragraph (a), remove the word ``annual.''
    b. In paragraph (g), remove the words ``insurance year'' from 
wherever they appear and add, in their place, the words ``calendar 
year.''

[[Page 28417]]

    c. In paragraph (j), remove the words ``insurance year'' and add, 
in their place, the words ``calendar year.''
    d. Redesignate paragraph (b)(2) as paragraph (b)(3), revise 
paragraph (b)(1), add new paragraphs (b)(2), (b)(4) and (b)(5), and 
revise paragraphs (c), (d), (e), (f), and (h) to read as follows:


Sec. 741.4  Insurance premium and one percent deposit.

* * * * *
    (b) Definitions. For purposes of this section.
    (1) Available assets ratio means the ratio of:
    (i) The amount determined by subtracting all liabilities of the 
NCUSIF, including contingent liabilities for which no provision for 
losses has been made, from the sum of cash and the market value of 
unencumbered investments authorized under 12 U.S.C. 1783(c), to:
    (ii) The aggregate amount of the insured shares in all insured 
credit unions.
    (iii) Shown as an abbreviated mathematical formula, the available 
assets ratio is:
[GRAPHIC] [TIFF OMITTED] TP26MY99.063

    (2) Equity ratio means the ratio of:
    (i) The amount of NCUSIF's capitalization, meaning insured credit 
unions' one percent capitalization deposits plus the retained earnings 
balance of the NCUSIF (less contingent liabilities for which no 
provision for losses has been made) to:
    (ii) The aggregate amount of the insured shares in all insured 
credit unions.
    (ii) Shown as an abbreviated mathematical formula, the equity ratio 
is:
[GRAPHIC] [TIFF OMITTED] TP26MY99.064

    (3) * * *
    (4) Normal operating level means an equity ratio not less than 1.2 
percent and not more than 1.5 percent, as established by action of the 
NCUA Board.
    (5) Reporting period means calendar year for credit unions with 
total assets of less than $50,000,000 and means semiannual period for 
credit union with total assets of $50,000,000 or more.
    (c) One percent deposit. Each insured credit union shall maintain 
with the NCUSIF during each reporting period a deposit in an amount 
equaling one percent of the total of the credit union's insured shares 
at the close of the preceding reporting period. For credit unions with 
total assets of less than $50,000,000, insured shares will be measured 
and adjusted annually based on the insured shares reported in the 
credit union's semiannual 5300 report due in January of each year. For 
credit unions with total assets of $50,000,000 or more, insured shares 
will be measured and adjusted semiannually based on the insured shares 
reported in the credit union's quarterly 5300 reports due in January 
and July of each year.
    (d) Insurance premium charges. (1) In general. Each insured credit 
union will pay to the NCUSIF, on dates the NCUA Board determines, but 
not more than twice in any calendar year, an insurance premium in an 
amount stated as a percentage of insured shares, which will be the same 
for all insured credit unions.
    (2) Relation of premium charge to equity ratio of NCUSIF. (i) The 
NCUA Board may assess a premium charge only if the NCUSIF's equity 
ratio is less than 1.3 percent and the premium charge does not exceed 
the amount necessary to restore the equity ratio to 1.3 percent.
    (ii) If the equity ratio of NCUSIF falls below 1.2 percent, the 
NCUA Board is required to assess a premium in an amount it determines 
is necessary to restore the equity ratio to, and maintain that ratio 
at, 1.2 percent.
    (e) Distribution of NCUSIF equity. If, as of the end of a calendar 
year, the NCUSIF exceeds its normal operating level and its available 
assets ratio exceeds 1.0 percent, the NCUA Board will make a 
proportionate distribution of NCUSIF equity to insured credit unions. 
The distribution will be the maximum amount possible that does not 
reduce the NCUSIF's equity ratio below its normal operating level and 
does not reduce its available assets ratio below 1.0 percent. The 
distribution will be after the calendar year and in the form determined 
by the NCUA Board. The form of the distribution may include a waiver of 
insurance premiums, premium rebates, or distributions from NCUSIF 
equity in the form of dividends. The NCUA Board will use the aggregate 
amount of the insured shares from all insured credit unions from the 
final reporting period of the calendar year in calculating the NCUSIF's 
equity ratio and available assets ratio for purposes of this paragraph.
    (f) Invoices. The NCUA provides invoices to all federally insured 
credit unions stating any change in the amount of a credit union's one 
percent deposit and the computation and funding of any premium payment 
due. Invoices for federal credit unions also include any annual 
operating fees that are due. Invoices are calculated based on a credit 
union's insured shares as of the most recently ended reporting period. 
The invoices may also provide for any distribution the NCUA Board 
declares in accordance with paragraph (e) of this section, resulting in 
a single net transfer of funds between a credit union and the NCUA.
* * * * *
    (h) Conversion to Federal insurance. An existing credit union that 
converts to insurance coverage with the NCUSIF shall immediately fund 
its one percent deposit based on the total of its insured shares as of 
the close of the month prior to conversion and, if any premiums have 
been assessed in that calendar year, will pay a prorated premium amount 
to reflect the remaining number of months in that calendar year. The 
credit union will be entitled to a prorated share of any distribution 
from

[[Page 28418]]

NCUSIF equity declared subsequent to the credit union's conversion.
* * * * *
[FR Doc. 99-13305 Filed 5-25-99; 8:45 am]
BILLING CODE 7535-01-U