[Federal Register Volume 66, Number 37 (Friday, February 23, 2001)]
[Rules and Regulations]
[Pages 11229-11230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-4361]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 66, No. 37 / Friday, February 23, 2001 /
Rules and Regulations
[[Page 11229]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 709
Involuntary Liquidation of Federal Credit Unions and Adjudication
of Creditor Claims Involving Federally-Insured Credit Unions in
Liquidation
AGENCY: National Credit Union Administration.
ACTION: Interim final rule with request for comments.
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SUMMARY: The National Credit Union Administration (NCUA) is adopting a
rule clarifying that as conservator or liquidating agent of a
federally-insured credit union, the NCUA Board (Board) will honor a
claim for prepayment fees by a Federal Home Loan Bank under the
circumstances set forth in the rule.
DATES: Effective February 23, 2001. NCUA welcomes comments on this
interim final rule. Comments must be received on or before April 24,
2001.
ADDRESSES: Comments should be directed to Becky Baker, Secretary of the
Board. Mail or hand-deliver comments to: National Credit Union
Administration, 1775 Duke Street, Alexandria, VA 22314-3428. You may
also fax comments to (703) 518-6319 or e-mail comments to
[email protected]. Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: Chrisanthy J. Loizos, Staff Attorney,
Division of Operations, Office of General Counsel, at the above address
or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION: Federally-insured credit unions (FICUs) are
eligible for membership at the Federal Home Loan Bank in their district
provided they meet certain statutory requirements. 12 U.S.C.
1422(12)(B), 1424. As members of a Federal Home Loan Bank, FICUs may
receive long term, secured advances for the purpose of providing funds
for residential loans. See 12 U.S.C. 1430(a). Under the Affordable
Housing Program, Federal Home Loan Banks ``subsidize the interest rate
on advances to members engaged in lending for long term, low-and
moderate-income, owner-occupied and affordable rental housing at
subsidized interest rates.'' 12 U.S.C. 1430(j). Federal Home Loan Banks
also make advances to members that undertake community-oriented
mortgage lending. 12 U.S.C. 1430(i). Under the Community Investment
Program, advances to members are ``priced at the cost of consolidated
Federal Home Loan Bank obligations of comparable maturities, taking
into account reasonable administrative costs.'' Id. Therefore, these
advances may be available to members at costs lower than alternative
sources of funds.
The Board, when acting as conservator or liquidating agent of any
FICU, has the power to disaffirm or repudiate contracts or leases (i)
to which the credit union is a party; (ii) the performance of which the
conservator or liquidating agent, in the conservator's or liquidating
agent's discretion, determines to be burdensome; and (iii) the
disaffirmance or repudiation of which the conservator or liquidating
agent determines, in the conservator's or liquidating agent's
discretion, will promote the orderly administration of the credit
union's affairs. 12 U.S.C. 1787(c)(1). Repudiation of a contract
relieves the Board from performing any unperformed obligations
remaining under the contract. Repudiation also entitles the other party
to the contract to a claim for damages, which are limited by statute to
actual direct compensatory damages determined as of the date of the
appointment of the liquidating agent or conservator. See 12 U.S.C.
1787(c)(3).
The Federal Credit Union Act establishes an exception to the
Board's authority to repudiate contracts entered into by an FICU before
the Board is appointed the FICU's conservator or liquidating agent. The
Board may not repudiate a contract regarding an extension of credit
from any Federal Home Loan Bank to an FICU. 12 U.S.C. 1787(c)(13).
This rule, Sec. 709.12, sets forth the circumstances under which
the Board, as conservator or liquidating agent, will honor a claim for
prepayment fees by a Federal Home Loan Bank (Bank) when an FICU in
conservatorship or liquidation has an outstanding extension of credit
with the Bank. The rule tracks one used by the Federal Deposit
Insurance Corporation (FDIC) when federally-insured banks with
extensions of credit from a Federal Home Loan Bank are conserved or
placed in receivership. See 12 CFR 360.2(e). Like the Board, the FDIC
has the statutory authority to repudiate contracts when appointed
conservator or receiver for a federally-insured bank under section
11(e) of the Federal Deposit Insurance Act. 12 U.S.C. 1821(e).
Likewise, the Federal Deposit Insurance Act also carves out an
exception for extensions of credit from any Federal Home Loan Bank. 12
U.S.C. 1821(e)(13)(A). By providing these exceptions for Federal Home
Loan Banks in both the Federal Credit Union Act and the Federal Deposit
Insurance Act, Congress recognized that they have a unique role as
special lenders to depository institutions.
Prepayment fees are an integral part of the operations of Federal
Home Loan Banks because they issue long term obligations in order to
make prudent long term advances to members. The prepayment of long term
advances can result in losses to a Bank, depending upon reinvestment
opportunities available at the time of such prepayment. 54 FR 19155,
May 4, 1989. The rule allows the payment of a prepayment fee to the
Bank if set forth in a written contract, provided: (1) That the fee
does not exceed the present value of any economic loss suffered by the
Bank; and, (2) the collateral is sufficient to pay in full the
principal and interest due on secured advances and the applicable
prepayment fee.
Interim Final Rule
The NCUA Board is issuing this rule as an interim final rule
because there is a strong public interest in assuring that FICUs are in
the same position as other depository institutions that obtain advances
from Federal Home Loan Banks as soon as possible. This interim rule
benefits FICUs with no additional burden by giving them the opportunity
to receive advances from Federal Home Loan Banks at a lower cost of
funds than may be available from alternative sources. Accordingly, for
good cause,
[[Page 11230]]
the Board finds that, pursuant to 5 U.S.C. 553(b)(3)(B), notice and
public procedures are impracticable, unnecessary, and contrary to the
public interest; and, pursuant to 5 U.S.C. 553(d)(3), the rule shall be
effective immediately and without 30 days advance notice of
publication. Although the rule is being issued as an interim final rule
and is effective immediately, the NCUA Board encourages interested
parties to submit comments.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any regulation may have on
a substantial number of small entities. For purposes of this analysis,
credit unions under $1 million in assets will be considered small
entities.
The NCUA Board has determined and certifies that this rule will not
have a significant economic impact on a substantial number of small
entities. This rule allows FICUs that are members of Federal Home Loan
Banks to receive advances at lower rates of interest for the benefit of
their members without any additional regulatory burden or expense to
credit unions. Accordingly, the NCUA has determined that a Regulatory
Flexibility Analysis is not required.
Paperwork Reduction Act
NCUA has determined that this rule does not increase paperwork
requirements under the Paperwork Reduction Act of 1995 and regulations
of the Office of Management and Budget.
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 has
determined that this is not a major rule.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their regulatory actions on state and local
interests. In adherence to fundamental federalism principles, NCUA, an
independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order. This rule will apply to
some state-chartered credit unions, but it will not have 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. NCUA has
determined that this rule does not constitute a policy that has
federalism implications for purposes of the executive order.
Agency Regulatory Goal
NCUA's goal is to promulgate clear and understandable regulations
that impose minimal regulatory burden. We request your comments on
whether this rule is understandable and minimally intrusive.
List of Subjects in 12 CFR Part 709
Credit unions, Liquidations.
By the National Credit Union Administration Board, on February
15, 2001.
Becky Baker,
Secretary of the Board.
For the reasons stated above, NCUA amends 12 CFR part 709 as
follows:
PART 709--INVOLUNTARY LIQUIDATION OF FEDERAL CREDIT UNIONS AND
ADJUDICATION OF CREDITOR CLAIMS INVOLVING FEDERALLY-INSURED CREDIT
UNIONS IN LIQUIDATION
1. The authority citation for part 709 continues to read as
follows:
Authority: 12 U.S.C. 1757, 1766, 1767, 1786, 1787, 1788, 1789,
1789a.
2. Amend Sec. 709.0 by revising the first sentence to read as
follows:
Sec. 709.0 Scope.
The rules and procedures in this part apply to charter revocations
of federal credit unions under 12 U.S.C. 1787(a)(1)(A), (B), the
involuntary liquidation and adjudication of creditor claims in all
cases involving federally-insured credit unions, the treatment by the
Board as conservator or liquidating agent of financial assets
transferred in connection with a securitization or participation or of
public funds held by a federally-insured credit union, and the
allowance of prepayment fees to Federal Home Loan Banks under specified
conditions. * * *
3. Add Sec. 709.12 to part 709 to read as follows:
Sec. 709.12 Prepayment Fees to Federal Home Loan Bank.
The Board as conservator or liquidating agent of a federally-
insured credit union in receipt of any extension of credit from a
Federal Home Loan Bank will allow a claim for a prepayment fee by the
Bank if:
(a) The claim is made pursuant to a written contract that provides
for a prepayment fee but the prepayment fee allowed by the Board will
not exceed the present value of the loss attributable to the difference
between the contract rate of the secured borrowing and the reinvestment
rate then available to the Bank; and
(b) The indebtedness owed to the Bank is secured by sufficient
collateral in which a perfected security interest in favor of the Bank
exists or as to which the Bank's security interest is entitled to
priority under section 306(d) of the Competitive Equality Banking Act
of 1987, 12 U.S.C. 1430(e) footnote (1), or otherwise so that the
aggregate of the outstanding principal on the advances secured by the
collateral, the accrued but unpaid interest on the outstanding
principal and the prepayment fee applicable to the advances can be paid
in full from the amounts realized from the collateral. For purposes of
this paragraph, the adequacy of the collateral will be determined as of
the date the prepayment fees are due and payable under the terms of the
written contract.
[FR Doc. 01-4361 Filed 2-22-01; 8:45 am]
BILLING CODE 7535-01-P