[Federal Register Volume 64, Number 200 (Monday, October 18, 1999)]
[Rules and Regulations]
[Pages 56148-56151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26753]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 741
RIN 3133-AC22
Requirements for Insurance
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: NCUA is issuing a final rule that revises NCUA 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 making these
revisions to conform its regulation with changes to the Federal Credit
Union Act required under the Credit Union Membership Access Act
(CUMAA).
DATES: This rule is effective January 1, 2000.
ADDRESSES: National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
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:
Background
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 to the
Federal Credit Union Act will become effective January 1, 2000.
Accordingly, on May 27, 1999, NCUA issued a proposed rule with request
for comments revising Sec. 741.4 to implement the provisions of section
302 of CUMAA. 64 FR 28415 (May 26, 1999). The Board also requested
comments on the level at which it should set the normal operating level
of the NCUSIF for the year 2000. After reviewing the comments, the NCUA
Board is adopting the final rule unchanged from the proposed rule.
Summary of Comments
NCUA received 18 comment letters: 12 from credit unions, four from
credit union trade associations, and two from bank trade associations.
General Comments
Although CUMAA specifically mandates most of the amendments in the
proposed rule, NCUA received several comments on these statutorily
required provisions. NCUA also received several other comments that
fell outside the scope of the proposed rule and we have noted this in
the specific sections below. The majority of relevant comments were
recommendations concerning the NCUSIF's normal operating level. These
comments are discussed in the section on the normal operating level
below.
Section 741.4(c) One Percent Deposit
This paragraph incorporates the provision of CUMAA that requires
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. NCUA received two comments on this paragraph. The first comment
from a bank trade association suggested that credit unions be required
to expense the one percent ``deposit insurance premium'' and to exclude
the premium from both assets and net worth when assessing capital
adequacy. This comment mistakenly identifies the one percent insurance
deposit as a ``premium'' and is outside the scope of this regulation.
The nature of the one percent insurance deposit is established by
statute. 12 U.S.C. 1782a(c)(1). The second commenter on this paragraph,
a state credit union league, suggested that NCUA adjust the one percent
deposit amount semiannually for all credit unions regardless of size.
NCUA is not adopting this suggestion; it would exceed the requirements
of CUMAA and, further, create accounting burdens for both the NCUSIF
and insured credit unions. Including credit unions with less than $50
million in assets in the semiannual calculation would have only a
minimal impact on the NCUSIF.
Section 741.4(d) Insurance Premium Charges
As required by CUMAA, the 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 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. The NCUA Board will require staff to
report annually on the issue of an insurance premium charge after the
availability of the December 31 Call Report data.
The NCUA received four comment letters on insurance premium
charges: one from a bank trade association and three from credit
unions. Three comment letters concerned requirements mandated by CUMAA
over which NCUA has no discretion.
[[Page 56149]]
One comment letter from a credit union suggested that NCUA calculate
the equity ratio semiannually for large credit unions when the one
percent deposit amount is computed, allowing premiums to be assessed.
This has been NCUA's approach and is permitted under the proposed and
final regulation.
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.
One commenter suggested that the NCUA Board calculate the available
assets ratio and equity ratio twice yearly, allowing equity to be
distributed to credit unions, but CUMAA mandates that NCUA calculate
and make the equity distribution after each calendar year. Under the
final rule, 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 to determine whether to distribute NCUSIF
equity. The NCUA Board will require staff to report annually on the
issue of an equity distribution after the availability of the December
31 Call Report data.
One commenter requested that NCUA give each credit union a choice
of its preferred form of the distribution of the fund equity but
provided no business reason for doing so. CUMAA and the final rule
permit NCUA to determine the form of equity distributions to the credit
unions from the NCUSIF, including a waiver of insurance premiums,
premium rebates, or distributions from NCUSIF equity in the form of
dividends. As a practical matter, if a premium is to be assessed in a
year following a year for which a dividend is to be paid, NCUA's
practice is to net the amounts so that a credit union will receive
either a dividend or a premium depending on its circumstances. Both
premiums and dividends are calculated on the basis of insured shares
for a specific period, therefore, the form of a distribution of the
fund equity for a specific period should be the same for all insured
credit unions.
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 final rule
updates and clarifies the current rule, in addition to incorporating
changes required under CUMAA. Three commenters suggested that the final
rule establish a deadline from the invoice date for credit unions to
adjust their one percent deposit amounts and forward their premium
payments. Two of these commenters recommended 30 calendar days and one
recommended 60 days. NCUA's current practice is to provide credit
unions with a specific calendar due date on invoices that is
approximately 45 calendar days after sending the invoice. This practice
provides the NCUA with more flexibility than would a regulatory
deadline and has worked well because there is no need for the credit
union to calculate when the due date is, so NCUA sees no need to
establish a regulatory deadline at this time.
Normal Operating Level for Year 2000
In the proposed rule, the Board requested comments on the
appropriate percentage, 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,
for the normal operating level for the year 2000. Ten of the sixteen
commenters on this issue, including the two national credit union trade
associations, recommended that NCUA keep the normal operating level for
the year 2000 at 1.3 percent, its current level. Four commenters
suggested that NCUA lower the normal operating level for the year 2000
below 1.3 percent, with one of these commenters recommending that NCUA
increase the percent gradually over five years. The remaining two
commenters suggested that NCUA raise the normal operating level above
1.3 percent, with one of these commenters recommending that NCUA
increase the percent gradually over five years and one over ten years.
The NCUA Board has decided to set the normal operating level for the
year 2000 at 1.3 percent.
NCUA received various other general comments about the normal
operating level. Six of the sixteen commenters on this issue
recommended that any increase in the normal operating level should be
in small increments gradually over a period of years. Two of the
sixteen commenters suggested that NCUA establish a long-term policy for
operation and soundness of the NCUSIF and the normal operating level.
Two commenters suggested that NCUA should conduct a thorough study on
the NCUSIF's performance, including investment income, loss record, and
whether the amount allocated for provision for credit union losses is
on target. NCUA does conduct this type of research on a continual basis
regarding the NCUSIF. Five commenters recommended that NCUA not base it
decisions on the NCUSIF on how the other financial regulatory agencies
manage their funds, because credit unions have a different type and
amount of risk than banks.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any final 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
final rule 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 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 amendments
will apply to federal credit unions and federally-insured state-
chartered credit unions. NCUA has determined that the 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.
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final rule as defined by Section 551 of the Administrative
Procedures Act. 5 U.S.C. 551. The Office of Management and Budget is
reviewing this rule to determine that it is not major for purposes of
the Small Business Regulatory Enforcement Fairness Act of 1996.
List of Subjects in 12 CFR Part 741
Bank deposit insurance, Credit unions.
[[Page 56150]]
By the National Credit Union Administration Board on October 6,
1999.
Becky Baker,
Secretary of the Board.
For the reasons set forth in the preamble, the National Credit
Union Administration amends 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 part 741 continues to read as
follows:
Authority: 12 U.S.C. 1757, 1766, and 1781-1790.
Section 741.4 is also authorized by 31 U.S.C. 3717.
Sec. 741.4 [Amended]
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.''
c. In paragraph (j), remove the words ``insurance year'' and add,
in their place, the words ``calendar year.''
d. Remove paragraph (b)(3), 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] TR18OC99.001
(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.
(iii) Shown as an abbreviated mathematical formula, the equity
ratio is:
[GRAPHIC] [TIFF OMITTED] TR18OC99.002
* * * * *
(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
[[Page 56151]]
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 NCUSIF equity declared subsequent to the credit union's
conversion.
* * * * *
[FR Doc. 99-26753 Filed 10-15-99; 8:45 am]
BILLING CODE 7535-01-U