[Federal Register Volume 66, Number 120 (Thursday, June 21, 2001)]
[Proposed Rules]
[Pages 33211-33214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15444]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 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.
 
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 

  Federal Register / Vol. 66, No. 120 / Thursday, June 21, 2001 / 
Proposed Rules  

[[Page 33211]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 700, 701, 712, 715, 723, 725, and 790


Definitions; Organization and Operation of Federal Credit Unions; 
Credit Union Service Corporations; Supervisory Committee Audits and 
Verifications; Member Business Loans; Central Liquidity Facility; 
Description of NCUA

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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

SUMMARY: The NCUA Board is proposing amendments to various rules to 
make technical corrections and add and revise certain definitions. The 
Board is proposing a rule to add a scope section and definitions of 
``paid-in and unimpaired capital and surplus'' and ``unimpaired capital 
and surplus'' to its rule containing definitions. TheBoard also 
proposes to remove obsolete references from this rule and to update its 
rule concerning changes in officials of newly chartered or troubled 
credit unions. The Board proposes to correct a citation in the 
supervisory committee rule and make clarifications to the credit union 
service organization (CUSO) rule and the member business loan rule. In 
addition, the Board proposes to update and clarify the definition for 
``paid-in and unimpaired capital and surplus'' in the Central Liquidity 
Facility (CLF) rule. Finally, the Board proposes to change a reference 
in Part 790 from the ``Office of Community Development Credit Unions'' 
to the ``Office of Credit Union Development.''

DATES: Comments must be received on or before August 20, 2001.

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. You may fax comments to 
(703) 518-6319 or email comments to [email protected]. Please send 
comments by one method only.

FOR FURTHER INFORMATION CONTACT: Regina Metz, Staff Attorney, Division 
of Operations, Office of General Counsel, at the above address or 
telephone: (703) 518-6561, or Herbert S. Yolles, Deputy Director, 
Office of Examination and Insurance, at the above address or telephone: 
(703) 518-6360.

SUPPLEMENTARY INFORMATION:

Background

    NCUA has a policy of continually reviewing its regulations to 
``update, clarify and simplify existing regulations and eliminate 
redundant and unnecessary provisions.'' Interpretive Rulings and Policy 
Statement (IRPS) 87-2, Developing and Reviewing Government Regulations. 
NCUA staff's most recent review of NCUA's regulations revealed that two 
parts contain references related to section 116 of the Federal Credit 
Union Act (FCU Act). 12 CFR 700.1, 701.14. These references are 
obsolete because Congress, when it enacted the Credit Union Membership 
Access Act (CUMAA), repealed section 116 and replaced it with prompt 
corrective action, section 216. P.L. 105-219; 12 U.S.C. 1790d.
    In the definitions part of the regulations, the proposed rule adds 
a scope section and definitions for ``paid-in and unimpaired capital 
and surplus'' and ``unimpaired capital and surplus.'' 12 CFR part 700. 
The proposed rule conforms definitions of paid-in and unimpaired 
capital and surplus in the CUSO and CLF rules to the proposed 
definitions in the definitions part. 12 CFR 712.2(d); 12 CFR 725.2(o). 
The proposed rule also corrects a citation in the supervisory committee 
audit rule and clarifies the member business loan rule by changing a 
reference from ``federally insured credit unions'' to ``federally 
insured state-chartered credit unions.'' 12 CFR 715.2(l), 723.4. The 
proposed rule also updates NCUA's regulations by changing a reference 
in Part 790 from the ``Office of Community Development Credit Unions'' 
to the office's new name, the ``Office of Credit Union Development.''

General Changes to Definitions Part

    Part 700 provides definitions for some terms used throughout NCUA's 
regulations. NCUA's regulations include several parts with their own 
definition provisions, such as the supervisory committee audit rule. 12 
CFR part 715. The proposed rule adds a scope section to part 700 to 
alert readers to the fact that many other definitions appear in the 
particular parts where the terms are used.
    Part 700 currently contains the definitions for ``remaining 
maturity'' and ``gross income.'' 12 CFR 700.1(h); 700.1(j). These 
definitions became obsolete when Congress repealed section 116 of the 
FCU Act, containing statutory reserve requirements for federal credit 
unions. 12 U.S.C. 1762 (repealed Aug. 7, 1998). The proposed rule 
retains the remaining existing definitions and alphabetizes them for 
ease of reference.

``Paid-In and Unimpaired Capital and Surplus'' and ``Unimpaired 
Capital and Surplus''

    The phrases ``paid-in and unimpaired capital and surplus'' and 
``unimpaired capital and surplus'' appear multiple times in the FCU Act 
and NCUA's regulations, often in the context of establishing a limit on 
a federal credit union's financial commitment in an activity. For 
example, a federal credit union's maximum investment in loans to other 
credit unions, loans or investments in CUSOs, and the maximum amount it 
may borrow are based on a percentage of its paid-in and unimpaired 
capital and surplus. 12 U.S.C. 1757(7)(C), 1757(9), 1757(5)(D), 
1757(7)(I); 12 CFR 741.2. By comparison, a federal credit union's 
investment in state and municipal securities, purchase of eligible 
obligations, and interest in a loan participation or total indebtedness 
to one person is limited to a percentage of its unimpaired capital and 
surplus. 12 U.S.C. 1757(7)(K), 1757(13); 12 CFR 701.23(b)(3), 
701.22(b)(1), 701.23(f).
    The Federal Credit Union Bylaws (FCU Bylaws) set out a long-
standing definition for ``paid in and unimpaired capital'' and, also, a 
definition for ``surplus.'' FCU Bylaws, art. XVIII.Sec. 1.(g), (h). The 
FCU Bylaws define ``paid in and unimpaired capital,'' as of a given 
date, as ``the balance of the paid-in share accounts as of such date, 
less any losses that may have been incurred for which there is no 
reserve or which have not been charged against undivided earnings.'' 
FCU

[[Page 33212]]

Bylaws art. XVIII.Sec. 1(g). The FCU Bylaws also state that ``surplus, 
as of a given date means the credit balance of the undivided earning 
account on such date, after all losses have been provided for and net 
earnings or net losses have been added thereto or deducted therefrom, 
as the case may be'' and that ``[r]eserves are not considered as a part 
of the surplus.'' FCU Bylaws art. XVIII.Sec. 1(h).
    A definition for ``paid-in and unimpaired capital and surplus'' in 
relation to the CLF appears in the FCU Act and in the CLF regulation. 
12 U.S.C. 1795a(3); 12 CFR 725.2(o). That definition includes 
``deposits'' in the calculation because the definition applies to 
state-chartered credit unions as well as federal credit unions, and 
some state-chartered credit unions are authorized to hold deposits. 
There is currently no definition solely for ``unimpaired capital and 
surplus'' in the FCU Act, FCU Bylaws, or NCUA regulations.
    NCUA's long-standing interpretation of both ``paid-in and 
unimpaired capital and surplus'' and ``unimpaired capital and surplus'' 
is that both terms generally consist of the paid-in balance of shares 
plus undivided earnings. The distinction between ``paid-in and 
unimpaired capital'' and ``unimpaired capital,'' in the context of 
credit unions, is essentially historical and has no current effect on 
the relevant calculations under NCUA regulations. Under the FCU Act and 
the FCU Bylaws, federal credit unions may permit members to subscribe 
to member shares in installments. 12 U.S.C. 1759(a); FCU Bylaws, art. 
II, art. III. Article III of the FCU Bylaws, currently titled ``Shares 
of Members,'' was titled ``Capital and Liability,'' from the 1930s 
through 1950s. In the early years of credit union development, new 
members would often subscribe to a five-dollar share and pay in 25-cent 
monthly installments. The term ``paid-in and unimpaired capital'' was 
used to clarify that shares that had been subscribed to but not yet 
paid (i.e., future installments) were not included as member capital. 
Because installment payments of shares are in little, if any, use 
today, the distinction has little relevance. In any event, only amounts 
actually paid into share accounts are included under either term. The 
proposed rule defines ``unimpaired capital and surplus'' as meaning the 
same as ``paid-in and unimpaired capital and surplus'' and cross-
references its definition.
    The Board believes it would improve the clarity of NCUA's 
regulations to include definitions for ``paid-in and unimpaired capital 
and surplus'' and ``unimpaired capital and surplus'' in the general 
definitions part of the regulations. The proposed definition for 
``paid-in and unimpaired capital and surplus'' is a refined statement 
of the definitions currently in the FCU Bylaws, but does not change the 
meaning of those definitions or the agency's long-standing 
interpretation. Placement of the definitions in the regulations will 
provide easier and more logical access to users of the regulations than 
having the definitions solely in the FCU Bylaws. In addition, the Board 
believes the proposed rule simplifies the definitions by using 
appropriate accounting terminology familiar to persons who are 
referring to the regulations. Proposed 12 CFR 700.1(f), (j).
    The proposed definition for paid-in and unimpaired capital and 
surplus is shares plus post-closing, undivided earnings. The term 
``post-closing'' is simpler terminology that a credit union person, an 
examiner, and an accounting professional would understand to encompass 
the closing of the books and posting of all relevant and required 
period losses to undivided earnings. Post-closing undivided earnings 
incorporates and means the same as the language in the Bylaw provisions 
that define surplus (``after all losses have been provided for and net 
earnings or net losses have been added thereto or deducted therefrom'') 
and define unimpaired capital (``less any losses that may have been 
incurred for which there is no reserve or which have not been charged 
against undivided earnings'').
    The proposed definition further clarifies the meaning of paid-in 
and unimpaired capital and surplus by including the statement that: 
``This does not include regular reserves or special reserves required 
by law, regulation or special agreement between the credit union and 
its regulator or share insurer.'' This may seem redundant since the 
term ``undivided earnings'' already excludes those regular and special 
reserves. However, the Board believes that this statement will lessen 
possible confusion by distinguishing between ``retained earnings,'' in 
the prompt corrective action rule, which include regular and special 
reserves, and ``undivided earnings'' which do not include them. The 
term ``retained earnings'' is used in the prompt corrective action rule 
in the definition of the term ``net worth.'' 12 CFR 702.2(f). The 
prompt corrective action rule requires federally insured credit unions 
to maintain regular and special reserves in 12 CFR 702.401.

Amendment to Definition of ``Paid-In and Unimpaired Capital and 
Surplus'' in the CUSO Rule

    NCUA's CUSO regulation currently states that ``paid-in and 
unimpaired capital and surplus means shares and undivided earnings.'' 
12 CFR 712.2(d). As noted previously, the term is relevant because a 
federal credit union's lending or investment in CUSOs is limited as a 
percentage of its paid-in and unimpaired capital and surplus. 12 U.S.C. 
1757(5)((D); 12 CFR 712.2(b); 12 U.S.C. 1757(7)(I); 12 CFR 712.2(a).
    The Board believes it is helpful to keep a definition for paid-in 
and unimpaired capital and surplus in the CUSO rule for easy reference. 
The proposed definition in Sec. 712.2(d) conforms the CUSO provision so 
that it mirrors the new proposed definition in the general definition 
part. The proposed rule revises the current rule into two subsections 
for further clarity, stating the requirement for GAAP accounting for 
investments and loans as a separate subsection.

Amendment to Definition of ``Paid-In and Unimpaired Capital and 
Surplus'' in the CLF Rule

    The CLF is a mixed-ownership government corporation created to 
improve the general financial stability of credit unions by meeting 
their liquidity needs. 12 CFR 725.1. Both state and federally chartered 
credit union may become members. 12 CFR 725.3.
    The Board proposes to revise the current definition in the CLF rule 
for paid-in and unimpaired capital and surplus. The current CLF rule 
combines the Bylaw definition for paid-in and unimpaired capital with 
the Bylaw definition of surplus and is substantively identical to those 
provisions. 12 CFR 725.2(o). The proposed rule essentially would 
conform this definition to the definition provided in the general 
definitions part with the exception that deposits are included. As 
noted previously, deposits are included because some state-chartered 
credit unions are authorized to accept deposits. The proposed rule 
states that paid-in and unimpaired capital and surplus means shares and 
deposits plus post-closing, undivided earnings. The definition further 
states that the term does not include regular reserves or special 
reserves required by law, regulation or special agreement between the 
credit union and its regulator or share insurer.

Technical Amendments to Sec. 701.14

    Section 701.14 requires a credit union that is newly chartered or 
in troubled

[[Page 33213]]

condition to report any changes in its board of directors, committee 
members, or senior executive officers to NCUA. NCUA first issued this 
regulation in 1990 and updated it in 1999. 55 FR 43084, Oct. 26, 1990; 
64 FR 28715, May 27, 1999. The proposed rule deletes the two obsolete 
references in Sec. 701.14 to section 116 of the FCU Act and replaces 
them with references to section 216 of the FCU Act, prompt corrective 
action.

Technical Amendments to Sec. 715.2

    Part 715 contains the rules for federally insured credit unions for 
supervisory committees' audits and verifications. Section 715.2(l) 
refers to the definition of supervisory committee in section 111(b) of 
the FCU Act. The citation for that provision was incorrect and should 
be 12 U.S.C. 1761(b).

Technical Amendments to Sec. 723.4

    Part 723 contains the rules for federally insured credit unions' 
member business loans. If a federal credit union has granted a member 
business loan, paragraphs (a) through (g) of NCUA's general lending 
rule, Sec. 701.21, also apply to the loan to the extent that the 
paragraphs are not inconsistent with the member business loans rule. 12 
CFR 723.4. If a federally insured state-chartered credit union has 
granted a member business loan, paragraphs (a) through (g) of 
Sec. 701.21 do not apply unless the credit union is required to comply 
with them under part 741. The Board proposes to clarify Sec. 723.4 by 
changing the reference in the section from ``federally insured credit 
unions'' to ``federally insured state-chartered credit unions.''

Technical Amendments to Sec. 790.2(b)(13)

    The proposed rule updates NCUA's regulations by changing a 
reference in part 790 from the ``Office of Community Development Credit 
Unions'' to the office's new name, the ``Office of Credit Union 
Development.''

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small entities (primarily those under one 
million dollars in assets). The proposed rule will not have a 
significant economic impact on a substantial number of small credit 
unions, and therefore, a regulatory flexibility analysis is not 
required.

Paperwork Reduction Act

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

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their 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 proposed rule would not have substantial 
direct effects 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 proposed rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. We request your comments on 
whether the proposed rule is understandable and minimally intrusive.

List of Subjects

12 CFR Part 700

    Credit unions, Definitions.

12 CFR Part 701

    Credit unions.

12 CFR Part 712

    Credit unions, Credit union service organizations.

12 CFR Part 715

    Audits, Credit unions, Supervisory committees.

12 CFR Part 723

    Credit, Credit unions.

12 CFR Part 725

    Credit unions, Liquidity.

12 CFR Part 790

    Credit unions.

    By the National Credit Union Administration Board on June 14, 
2001.
Becky Baker,
Secretary of the Board.
    Accordingly, the NCUA proposes to amend 12 CFR parts 700, 701, 715, 
723, 725, and 790 as follows:

PART 700--DEFINITIONS

    1. The authority citation for part 700 continues to read as 
follows:

    Authority: 12 U.S.C. 1752, 1757(6), 1766.
    2. Redesignate current Sec. 700.1 as Sec. 700.2 and add a new 
Sec. 700.1 to read as follows:


Sec. 700.1  Scope.

    The definitions in Sec. 700.2 apply to terms used in this chapter. 
Many additional definitions appear in the parts where the terms are 
used.
    3. In newly designated Sec. 700.2:
    A. Remove paragraphs (h) and (j);
    B. Redesignate paragraphs (e), (f), (g) and (i) as paragraphs (g), 
(h), (i) and (e) respectively; and
    C. Add new paragraphs (f) and (j).


Sec. 700.2  Definitions.

* * * * *
    (f) Paid-in and unimpaired capital and surplus means shares plus 
post-closing, undivided earnings. This does not include regular 
reserves or special reserves required by law, regulation or special 
agreement between the credit union and its regulator or share insurer. 
``Paid-in and unimpaired capital and surplus'' for purposes of the 
Central Liquidity Facility is defined in Sec. 725.2(o) of this chapter.
* * * * *
    (j) Unimpaired capital and surplus means the same as ``paid-in and 
unimpaired capital and surplus,'' as defined in paragraph (f) of this 
section.
* * * * *

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

    4. The authority citation for part 701 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, and 1789. Section 701.6 is also 
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by 
15 U.S.C. 1601 et seq., 42 U.S.C. 1861 and 42 U.S.C. 3601-3610. 
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

    5. In Sec. 701.14, revise paragraphs (b)(3)(ii) and (b)(4)(ii) to 
read as follows:

[[Page 33214]]

Sec. 701.14  Change in official or senior executive officer in credit 
unions that are newly chartered or are in troubled condition.

* * * * *
    (b) * * *
    (3) * * *
    (ii) Has been granted assistance as outlined under sections 208 or 
216 of the Federal Credit Union Act.
    (4) * * *
    (ii) Has been granted assistance as outlined under sections 208 or 
216 of the Federal Credit Union Act.
* * * * *

PART 712--CREDIT UNION SERVICE ORGANIZATIONS (CUSOs)

    6. The authority citation for part 712 continues to read as 
follows:

    Authority: 12 U.S.C. 1756, 1757(5)(d) and (7)(I), 1766, 1782, 
1784, 1785, and 1786.

    7. Amend Sec. 712.2 by revising paragraph (d) to read as follows:


Sec. 712.2  How much can an FCU invest in or loan to CUSOs, and what 
parties may participate?

* * * * *
    (d) Measurement for calculating regulatory limitation. For purposes 
of paragraphs (a) and (b) of this section:
    (1) Paid-in and unimpaired capital and surplus means shares plus 
post-closing, undivided earnings (this does not include regular 
reserves or special reserves required by law, regulation or special 
agreement between the credit union and its regulator or share insurer); 
and
    (2) Total investments in and total loans to CUSOs will be measured 
consistent with GAAP.
* * * * *

PART 715--SUPERVISORY COMMITTEE AUDITS AND VERIFICATIONS

    8. Revise the authority citation for part 715 to read as follows:

    Authority: 12 U.S.C. 1761(b), 1761d, 1782(a)(6).

    9. Amend Sec. 715.2(l) by revising the first sentence to read as 
follows:


Sec. 715.2  Definitions used in this part.

* * * * *
    (l) Supervisory committee refers to a supervisory committee as 
defined in Section 111(b) of the Federal Credit Union Act, 12 U.S.C. 
1761(b). * * *
* * * * *

PART 723--MEMBER BUSINESS LOANS

    10. The authority citation for part 723 continues to read as 
follows:

    Authority: 12 U.S.C. 1756, 1757, 1757A, 1766, 1785, 1789.

    11. Amend Sec. 723.4 by revising the second sentence to read as 
follows:


Sec. 723.4  What are the other applicable regulations?

    * * * Except as required by part 741 of this chapter, federally 
insured state-chartered credit unions are not required to comply with 
the provisions of Sec. 701.21(a) through (g).

PART 725--NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY 
FACILITY

    12. The authority citation for part 725 continues to read as 
follows:

    Authority: 12 U.S.C. 1795-1795f.

    13. Amend Sec. 725.2 by revising paragraph (o) to read as follows:


Sec. 725.2  Definitions.

* * * * *
    (o) Paid-in and unimpaired capital and surplus means shares and 
deposits plus post-closing, undivided earnings. This does not include 
regular reserves or special reserves required by law, regulation or 
special agreement between the credit union and its regulator or share 
insurer.
* * * * *

PART 790--DESCRIPTION OF NCUA; REQUESTS FOR AGENCY ACTION

    14. The authority citation for part 790 continues to read as 
follows:

    Authority: 12 U.S.C. 1766, 1789, 1795f.

    15. Amend Sec. 790.2(b)(13) by revising the heading to read as 
follows:


Sec. 790.2  Central and regional office organization.

* * * * *
    (b) * * *
    (13) Office of Credit Union Development. * * *
* * * * *
[FR Doc. 01-15444 Filed 6-20-01; 8:45 am]
BILLING CODE 7535-01-P