[Federal Register Volume 66, Number 150 (Friday, August 3, 2001)]
[Proposed Rules]
[Pages 40642-40645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19101]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 702 and 741


Prompt Corrective Action; Requirements for Insurance

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking and request for comment.

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SUMMARY: NCUA proposes to amend its rule concerning financial and 
statistical reports to require all federally-insured credit unions to 
file quarterly Financial and Statistical Reports with NCUA. Currently, 
only federally-insured credit unions with assets over $50 million must 
file these reports quarterly. All other federally-insured credit unions 
are required to file these reports semi-annually. The proposed 
amendment is a necessary component of NCUA's proposed examination 
program that will use a risk-focused approach to examination and extend 
the examination cycle for credit unions that meet certain criteria. If 
adopted, NCUA plans to implement the change for the March 31, 2002, 
call report cycle.

DATES: Comments must be received on or before November 1, 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. Fax 
comments to (703) 518-6319. E-mail comments to [email protected]. 
Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Peter Majka, Data Analysis Officer, 
Office of Examination and Insurance, at the above address or telephone 
number: (703) 518-6360 or Mary F. Rupp, Staff Attorney, Office of 
General Counsel, at the above address or telephone number: (703) 518-
6540.

SUPPLEMENTARY INFORMATION:

Proposed Change

    The NCUA Board proposes revising Sec. 741.6(a), the provision 
governing the filing of quarterly Financial and Statistical Reports, 
also known as call reports or 5300 reports. 12 CFR 741.6(a). Currently, 
this section requires all federally-insured credit unions with assets 
in excess of $50 million to file a quarterly call report with NCUA. All 
other federally-insured credit unions file semiannually. The proposed 
amendment will require all federally-insured credit unions to file 
quarterly call reports.
    This amendment is a necessary component of NCUA's proposed 
examination program. The proposed examination program has two new 
features. The first is risk based examination scheduling that will 
result in an extended examination cycle program for credit unions that 
meet certain risk criteria. Some credit unions

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under $50 million, that are currently not required to file quarterly 
call reports, may be eligible for participation in the extended 
examination cycle program. Requiring those credit unions to file 
quarterly call reports is an essential part of their participation.
    The second is a risk-focused approach for all examinations. The 
proposed risk-focused approach will focus the examination process on 
those operational areas that represent the greatest risk to the credit 
union. The process includes evaluating the credit union's financial 
trend information and management's ability to identify and adapt to 
changing economic, competitive, technological, and other factors.
    These two features will permit NCUA to adjust the examination 
process for a select number of credit unions based on workload demands 
in relation to available resources and the risk the credit unions 
represent to the National Credit Union Share Insurance Fund. Both 
features will result in better use of available resources and reduce 
the amount of NCUA on-site contact time needed to assess the overall 
financial health of federally-insured credit unions. Quarterly 
financial information will provide NCUA the ability to administer these 
approaches successfully through off-site review of a credit union's 
financial trends to detect emerging problems.
    In addition, requiring all federally-insured credit unions to file 
quarterly call reports will provide NCUA and the State Supervisory 
Authorities (SSAs) with timely and complete financial data to use in 
supervising their credit unions. It will also enable NCUA, the SSAs, 
and other federal regulatory agencies, as applicable, to: identify 
emerging trends and monitor current trends in individual federally-
insured credit unions and the credit union industry as a whole; make 
more efficient use of their time during on-site contacts and 
examinations, resulting in more time available for analysis and 
communication with credit union officials; and monitor a federally-
insured credit union's net worth position more readily for Prompt 
Corrective Action purposes and eliminate the need for a credit union to 
notify NCUA and the SSA of its net worth change when required. 12 CFR 
702.101(c).
    In conjunction with the change to Sec. 741.6(a), the Board is 
revising the prompt corrective action rule to eliminate the requirement 
of written notice to NCUA and the voluntary option of filing a call 
report for the first and third quarter for credit unions that file call 
reports semi-annually. 12 CFR part 702.
    The quarterly filing requirement will also provide the Central 
Liquidity Facility with the most recent financial information to 
process member emergency liquidity requests and allow all federally-
insured credit unions to monitor their individual trends more 
frequently. It also enhances NCUA's ability to monitor its strategic 
plan goals for credit unions' safety and soundness, membership growth 
and member services as required by the Public Law 103-62--Government 
Performance and Results Act of 1993 and OMB Circular A-11-Section 200.

Regulatory Procedures

Paperwork Reduction Act

    The NCUA Board has determined that the proposed rule to require all 
federally-insured credit unions to file call reports on a quarterly 
basis is covered under the Paperwork Reduction Act. NCUA is submitting 
a copy of this proposed rule to the Office of Management and Budget 
(OMB) for its review.
    Currently, only federally-insured credit unions with assets in 
excess of $50 million must file quarterly call reports with NCUA. All 
other federally-insured credit unions are required to file a semiannual 
call report.
    The NCUA Board estimates it takes a federally-insured credit union 
6 hours on average to complete a call report. By adopting the proposed 
rule, the NCUA Board also estimates that an additional 8,758 of the 
current 10,316 federally-insured credit unions would be required to 
file two additional call reports during the calendar year. This results 
in an additional 105,096 hours for call report preparation. However, 
seven SSAs already require their credit unions to file quarterly call 
reports. Based on this, the NCUA Board estimates that the proposed rule 
will have an estimated net burden of 100,272 additional hours.
    The Paperwork Reduction Act of 1995 and OMB regulations require 
that the public be provided an opportunity to comment on the paperwork 
requirements, including an agency's estimate of the burden of the 
paperwork requirements. The NCUA Board invites comment on: (1) Whether 
the paperwork requirements are necessary; (2) the accuracy of NCUA's 
estimate on the burden of the paperwork requirements; (3) ways to 
enhance the quality, utility, and clarity of the paperwork 
requirements; and (4) ways to minimize the burden of the paperwork 
requirements. The time required by a federally-insured credit union to 
complete the call report will depend on the complexity of its 
operations. The NCUA Board is especially interested in receiving 
comments on the actual hours it takes a credit union to complete its 
call report based on its asset size and complexity of operations. The 
actual hours should exclude the time associated with the month-end 
closing and the preparation of the monthly financial statements.
    Comments should be sent to: OMB Reports Management Branch, New 
Executive Office Building, Room 10202, Washington, DC 20503; Attention: 
Alex T. Hunt, Desk Officer for NCUA. Please send NCUA a copy of any 
comments you submit to OMB.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA) requires an 
agency to publish an initial regulatory flexibility analysis with this 
proposed rule, except to the extent provided in the RFA, whenever the 
agency is required to publish a general notice of proposed rulemaking 
for a proposed rule. The Board cannot, at this time, determine whether 
the proposed rule would have significant economic impact on a 
substantial number of small entities as defined by the RFA. Therefore, 
pursuant to subsections 603(b) and (c) of the RFA, the Board provides 
the following initial regulatory flexibility analysis.
1. Reasons for Proposed Rule
    The proposed amendment will provide NCUA and the SSAs with timely 
and complete financial data to be used in supervising their credit 
unions as discussed in the SUPPLEMENTARY INFORMATION section above. The 
adoption of the proposed amendment to Sec. 741.6(a) of the NCUA's 
regulations will account for all of the economic impact on small credit 
unions.
2. Statement of Objectives and Legal Basis
    The SUPPLEMENTARY INFORMATION section above contains this 
information. The legal basis for the proposed rule is in the Federal 
Credit Union Act. 12 U.S.C. 1756 and 1782.
3. Estimate of Small Credit Unions to Which the Rule Applies
    The proposed rule would apply to all federally-insured credit 
unions. Small credit unions are those with less than $1,000,000 in 
assets. There are approximately 1,489 small credit unions. Of these 
1,489 small credit unions, 55 of the federally-insured state chartered 
credit unions are already required to file quarterly call reports.

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4. Proposed Reporting, Record Keeping, and Other Compliance 
Requirements
    The information collection requirements imposed by the proposed 
rule are discussed above in the section on the Paperwork Reduction Act.
5. General Requirements
    The proposed rule will require all federally-insured credit unions 
to file quarterly call reports. The call reports are based on financial 
and other information relevant to a federally-insured credit union's 
operations. Federally-insured credit unions with assets of $50 million 
or more are already required to file quarterly reports. All other 
credit unions are required to file semi-annual call reports. The 
quarterly call report would be the same report format required on a 
semi-annual basis. Requiring quarterly call reports is a sound business 
practice that would provide: (1) A more cost effective supervisory 
effort when coupled with NCUA's proposed examination approaches; and 
(2) a quarterly operational monitoring tool for the credit unions.
    Some small credit unions may incur additional cost in preparing the 
two additional call reports, but the cost of doing so is unknown. NCUA 
seeks any information or comments on the costs associated with 
preparing the two additional call reports.
6. Identification of Duplicative, Overlapping, or Conflicting Federal 
Rules
    NCUA is unable to identify any federal statutes or rules which 
duplicate, overlap or conflict with the proposed rule, however, NCUA 
has identified seven states that require their state chartered 
federally-insured credit unions to file quarterly call reports. 
Although the proposed rule is duplicative of those state's 
requirements, it does not impose any significant, additional burden on 
those federally-insured credit unions.
7. Discussion of Significant Alternatives
    NCUA considered revising the regulation to require only federally-
insured credit unions with assets in excess of $10 million to file 
quarterly call reports. This alternative was not pursued due to 
proposed changes in NCUA's examination program. Quarterly reporting is 
a key element to the success of these programs. If the proposal were 
not adopted, consideration would need to be given to excluding these 
credit unions from the extended examination cycle approach that defers 
an examination for one cycle. This results in an examination being 
conducted every other year. This period of time is too great without 
the benefit of quarterly trend analysis. NCUA believes the burden of 
the additional hours it takes a credit union to prepare two additional 
call reports is outweighed by the advantages outlined in the Proposed 
Change section.
    NCUA also considered the alternative of requiring a credit union 
with assets of less than $10 million to file a short version of the 
Form 5300 during the March and September cycles. This alternative would 
result in additional programming changes and two different call report 
formats. Credit unions, at present, are only required to prepare those 
sections of the call report that are pertinent to their operations. A 
short version of the Form 5300 could result in insufficient trend 
information when compared to the full semi-annual call report.
    NCUA welcomes comment on any significant alternatives, consistent 
with NCUA's goal of adjusting the examination program and without 
causing undue risk to the National Credit Union Share Insurance Fund, 
that would minimize the impact on small credit unions.

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), 
voluntary complies with the executive order. This proposed rule, if 
adopted, will not have substantial direct effects on the states, on the 
relationship between the national government and states, or on the 
distribution of power and responsibilities among the various levels of 
government. NCUA has determined the proposed rule does not constitute a 
policy that has federalism implications for purposes of the executive 
order.

Treasury and General Government Appropriations Act, 1999

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

Agency Regulatory Goal

    NCUA's goal is clear. The proposed regulatory change is 
understandable and imposes minimal regulatory burden. NCUA requests 
comments on whether the proposed rule change is understandable and 
minimally intrusive if implemented as proposed.

List of Subjects

12 CFR Part 702

    Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 741

    Bank deposit insurance, Credit unions.

    By the National Credit Union Administration Board on July 26, 
2001.
Becky Baker,
Secretary of the Board.
    Accordingly, NCUA proposes to amend 12 CFR parts 702 and 741 as 
follows:

PART 702--PROMPT CORRECTIVE ACTION

    1. The authority citation for part 702 continues to read as 
follows:

    Authority: 12 U.S.C. 1766(a), 1790(d).

    2. Amend Sec. 702.101 by revising paragraph (c) to read as follows:


Sec. 702.101  Measures and effective date of net worth classification.

* * * * *
    (c) Notice by credit union of change in net worth category. (1) 
When filing a Call Report, a federally-insured credit union need not 
otherwise notify the NCUA Board of a change in its net worth ratio that 
places the credit union in a lower net worth category; and (2) Failure 
to timely file a Call Report as required under this section in no way 
alters the effective date of a change in net worth classification under 
paragraph (b) of this section, or the affected credit union's 
corresponding legal obligations under this part.
    3. Amend Sec. 702.103 by removing paragraph (b).

PART 741--REQUIREMENTS FOR INSURANCE

    4. The authority citation for part 741 continues to read as 
follows:

    Authority: 12 U.S.C. 1757, 1766(a), and 1781-1790; Pub.L. 101-
73.

    5. Amend Sec. 741.6 by revising paragraph (a) to read as follows:


Sec. 741.6  Financial and statistical and other reports.

    (a) Each operating insured credit union must file with the NCUA a 
quarterly Financial and Statistical Report on Form NCUA 5300, on or 
before January 22 (as of the previous December 31), April 22 (as of the 
previous March 31), July 22 (as of the

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previous June 30), and October 22 (as of the previous September 30) of 
each year.
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[FR Doc. 01-19101 Filed 8-2-01; 8:45 am]
BILLING CODE 7535-01-P