[Federal Register Volume 66, Number 150 (Friday, August 3, 2001)]
[Rules and Regulations]
[Pages 40574-40575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19102]


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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: Final rule.

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SUMMARY: The National Credit Union Administration (NCUA) is issuing a 
final 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: The rule is effective September 4, 2001.

FOR FURTHER INFORMATION CONTACT: Chrisanthy J. Loizos, Staff Attorney, 
Division of Operations, Office of General Counsel, National Credit 
Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428 
or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION: The Board issued an interim final rule 
addressing a statutory exception to the Board's repudiation powers, 
when acting as a conservator or liquidating agent, for extensions of 
credit from a Federal Home Loan Bank to a federally-insured credit 
union. 66 FR 11229 (Feb. 23, 2001). The final rule is identical to the 
interim final rule except for one minor technical amendment that 
corrects an inaccurate statutory citation.
    Federally-insured credit unions (FICUs) are eligible for membership 
at the Federal Home Loan Bank (FHLB) in their district provided they 
meet certain statutory requirements. 12 U.S.C. 1422(12)(B), 1424. As a 
member of an FHLB, an FICU may obtain a variety of advances for the 
purpose of providing funds for housing loans. See 12 U.S.C. 1430(a), 
(j).
    The Board, when acting as a conservator or liquidating agent of an 
FICU, has the discretion to disaffirm or repudiate contracts or leases 
(i) to which the FICU is a party; (ii) the performance of which the 
Board determines to be burdensome; and (iii) the disaffirmance or 
repudiation of which the Board determines will promote the orderly 
administration of the FICU's affairs. 12 U.S.C. 1787(c)(1). 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 FHLB 
to an FICU. 12 U.S.C. 1787(c)(13).
    The final rule sets forth the circumstances under which the Board, 
as conservator or liquidating agent, will honor a claim for prepayment 
fees by an FHLB when an FICU has an outstanding extension of credit 
with the FHLB. The rule allows the payment of a prepayment fee to an 
FHLB 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 
FHLB; and, (2) the collateral is sufficient to pay in full the 
principal and interest due on secured advances and the applicable 
prepayment fee.
    The rule tracks one used by the Federal Deposit Insurance 
Corporation (FDIC) when federally-insured banks with extensions of 
credit from an FHLB 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 bank 
under section 11(e) of the Federal Deposit Insurance Act, but it is 
prohibited from repudiating extension of credit agreements with FHLBs. 
12 U.S.C. 1821(e).

Comments

    The comment period ended on April 24, 2000. The Board received 
eight comments on the interim final rule. One credit union, one 
national credit union trade group, three state credit union leagues, 
one corporate credit union, one corporate credit union trade group and 
an association representing state regulators nationwide submitted 
comments. Of the commenters who commented on the general merits of the 
rule, all supported the Board's adoption of the rule. One commenter 
noted that the statutory provision that prohibits the Board from 
repudiating terms of a loan agreement with a FHLB is adequate without a 
rule. Two commenters stated that the rule places credit unions on equal 
footing with other depository institutions that obtain advances from 
FHLBs. One commenter specifically mentioned that prior to the rule, 
certain FICUs could not obtain long-term advances from the FHLB in 
their district.
    Five commenters requested the Board extend the application of the 
rule to loan advances from corporate credit unions. One expressed 
concern that the rule shows a preference for FHLBs, but acknowledged 
that the rule is consistent with the statutory prohibition. This 
commenter noted that corporate credit

[[Page 40575]]

unions, like FHLBs, make long-term advances to members and may suffer 
opportunity or real losses from prepayments. Two commenters asked that 
the Board recognize the role of corporates, in the credit union 
movement and as liquidity providers for natural-person credit unions, 
by honoring their claims for prepayment fees.
    The Board may consider the comments regarding extensions of credit 
by corporate credit unions in another rulemaking. The Board issued 
Sec. 709.12 as an interim final rule based on having made the requisite 
findings for issuance of an interim final rule as required by the 
Administrative Procedure Act. 5 U.S.C. 553. The Board believes an 
amendment of Part 709 limiting the Board's authority as conservator or 
liquidating agent to repudiate corporate credit union advances would 
require an opportunity for public notice and comment.

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.

List of Subjects in 12 CFR Part 709

    Credit unions, Liquidations.

    By the National Credit Union Administration Board, on July 26, 
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. Revise Sec. 709.12 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), 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. 01-19102 Filed 8-2-01; 8:45 am]
BILLING CODE 7535-01-P