[Federal Register Volume 67, Number 53 (Tuesday, March 19, 2002)]
[Rules and Regulations]
[Pages 12459-12464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6512]


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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: Final rule.

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SUMMARY: NCUA is revising 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 final amendment is a 
necessary component of NCUA's examination program that will use a risk-
focused approach to examinations and extend the examination cycle for 
credit unions that meet certain criteria. In conjunction with this 
change, we are making two conforming changes to NCUA's prompt 
corrective action rule.

DATES: This rule is effective July 1, 2002.

FOR FURTHER INFORMATION CONTACT: Peter Majka, Data Analysis Officer, 
Office of Examination and Insurance, 1775 Duke Street, Alexandria, VA 
22314, or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    On July 26, 2001, the NCUA Board requested comment on a proposed 
change to Sec. 741.6(a), the provision governing the filing of 
quarterly Financial and Statistical Reports, also known as call reports 
or 5300 Reports. 66 FR 40642 (August 3, 2001). In conjunction with this 
change, the NCUA Board proposed revising its prompt corrective action 
rule to eliminate the requirement of written notice to NCUA of net 
worth changes and the 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.
    NCUA received 65 comments regarding the proposed changes from 34 
federal credit unions, 14 federally-insured state chartered credit 
unions, one non-federally-insured state chartered credit union, one 
unidentified credit union, one individual, nine credit union leagues, 
three credit union trade associations, one bank trade association, and 
one state supervisory authority (SSA).

Summary of Comments

Quarterly Call Reports

    Forty-four of the commenters generally supported the revision to 
Sec. 741.6(a), of which 11 agreed with one or more conditions 
stipulated. Twenty-one commenters objected to the proposed change. 
Overall, many of the commenters expressed concern regarding the 
additional burden quarterly reporting would place on credit unions, 
especially smaller credit unions. Several commenters provided 
suggestions for reducing the additional burden.
    The 33 commenters that supported the changes without qualification 
believed the proposal would: (1) Result in an offsetting time savings 
for credit unions through the Risk Based Examination Scheduling 
Program; (2) help NCUA and the SSAs to identify emerging problems in a 
timely manner; and, (3) permit NCUA and the SSAs to concentrate their 
supervisory resources on those credit unions that represent a risk.
    Negative and qualified commenters expressed concern with the 
additional time and resource burden on credit unions. Thirty of the 
commenters are particularly concerned with the effect on small credit 
unions. Seven commenters noted that smaller credit unions have to work 
harder to compete. They noted that smaller credit unions usually have a 
limited number of staff members and believe the limited resources of 
smaller credit unions could be better used to increase assets and 
services.
    Ten commenters generally did not believe it was necessary for 
credit unions rated a CAMEL Code 1 and 2 to file quarterly call 
reports. Several of the commenters did not believe a credit union's 
financial condition would deteriorate in a 3 to 6 months time frame. 
Two commenters noted that the burden of completing two more call 
reports was more detrimental than having a yearly examination; one of 
which believed examiners and auditors were effective in correcting 
problems and providing guidance. Four of the commenters suggested that 
CAMEL Code 1 and 2 credit unions and those credit unions with a long-
term trend of stability that have been in existence for more than a few 
years should be required to file call reports on a semi-annual basis. 
Three commenters who opposed the proposal noted that the proposed rule 
will result in the additional collection of information for a small 
percentage of the industry's credit union assets and therefore is not 
necessary.
    The NCUA Board believes the requirement for filing quarterly call 
reports is a key element in implementing the Risk Based Examination 
Scheduling and Risk Focused Examination programs. CAMEL Code 1 and 2 
credit unions, no matter the asset size, could be eligible for deferral 
under the Risk Based Examination Program for one examination cycle. 
Quarterly filing enhances NCUA's ability to allocate its resources 
effectively and focus its supervisory efforts on risk regardless of a 
credit union's asset size. NCUA's 2002 operating budget included a 
reduction of approximately 33 full-time equivalent staff positions. The 
deferral of examinations for approximately 1,500 federal credit union 
with assets under $50 million and the implementation of the Risk Based 
Examination Scheduling Program were contributing factors to the 
budgeted staff reductions. In addition, quarterly call reports also 
provide credit unions, the SSAs, and NCUA with the ability to monitor 
trends and expeditiously address emerging concerns in an ever-changing 
economic environment. Overall, the NCUA Board believes the benefits and 
efficiencies derived from the Risk Based Examination Scheduling and 
Risk Focused Examination programs outweigh the burden of two additional 
call reports.
    Several commenters believe the proposal places a burden on state-
chartered credit unions without providing a corresponding benefit. They 
noted that the state regulator sets their exam cycle and that this rule 
may have no effect on their examination cycle or their supervisory 
fees. Two additional commenters stated that the additional call reports 
would put a strain on the SSAs' supervisory resources. They urge NCUA 
to be sensitive to the SSAs' budgetary restraints and work with the

[[Page 12460]]

SSAs to implement quarterly reporting in a manner compatible with their 
budgetary processes.
    Many SSAs are reviewing the possibility of including NCUA's Risk 
Based Examination Scheduling and Risk Focused Examination programs in 
their supervisory programs. The NCUA Board believes a key benefit of 
the Risk Based Examination Scheduling Program is the ability to delay 
examinations for one examination cycle for the well-run, financially 
strong credit unions. The program, if adopted by the SSAs, should 
assist the SSAs in focusing their supervisory resources on areas of 
risk regardless of the credit unions' asset size.
    In addition, as manager of the NCUSIF, NCUA needs quarterly 
financial information from all federally-insured credit unions in order 
to assess risk to the NCUSIF on a timely and ongoing basis.
    Currently, seven state regulators require quarterly call reports 
and some state regulators have NCUA process their credit unions' call 
reports. Each SSA could contact their respective Regional Director for 
assistance, if needed, in gathering and uploading the call reports. 
NCUA will continue to remain sensitive to the SSA's budgetary 
restraints. As noted previously, the NCUA Board, primarily through its 
adoption of the Risk Based Examination Scheduling Program, has been 
able to reduce its staffing needs by approximately 33 full-time 
equivalent positions.
    One commenter did not believe that the benefit the Central 
Liquidity Facility (CLF) would receive from more frequent reporting 
justifies the implementation of quarterly call reports due to the CLF's 
loan volume. The NCUA Board noted in the proposal that the CLF would 
have the most recent financial information to help evaluate a credit 
union's CLF loan request. The NCUA Board did not consider this a 
primary reason for proposing quarterly call reports. The Board 
recognizes that the CLF's loan volume is low. However, the CLF's main 
purpose is to provide emergency liquidity to the credit union system as 
quickly as possible when other traditional liquidity sources are 
unavailable. The Board believes quarterly call reports will expedite 
the loan evaluation process. The ability to quickly provide liquidity 
under emergency circumstances benefits all credit unions.
    Twenty-five commenters suggested NCUA develop a shorter version of 
the call report for credit unions. Most of the commenters recommended 
that credit unions with various asset thresholds ranging from under 
$500,000 to $50 million be permitted to file a short version of the 
call report. Two commenters in support of an abbreviated form for 
smaller credit unions suggested that, if a more complex version is 
needed during the 5300 process, NCUA could e-mail or FAX a copy to the 
credit unions. Seven commenters suggested requiring an abbreviated 
version of the 5300 for the first and third quarters.
    Four commenters opposed the development of a short version of the 
call report. One or more of these commenters stated: (1) A short 
version would not provide timely and complete information for 
identifying emerging trends; (2) a short version is unnecessary; and 
(3) only one format should exist in order to avoid confusion and the 
need for NCUA to provide follow-up for additional information.
    Several years ago, NCUA redesigned the call report with small 
credit unions in mind. NCUA developed a core call report, with 
supporting schedules that provided more detail if required. The NCUA 
Board remains sensitive to this issue. Upon further review and the 
comments received, the NCUA Board has decided to develop a short form 
5300 that does not compromise NCUA's and the SSAs' ability to provide 
adequate supervision. Credit unions with assets of less than $10 
million will be required to file the complete version of the Form 5300 
for the second and the fourth quarters of the year and may file either 
the short version or the long version of the 5300 for the first and 
third quarters of the year.
    Five commenters emphasized the need to minimize the frequency of 
changes to the call report format. One commenter suggested that the 
call report be color coded to provide guidance to credit unions in 
preparing those sections of the call report that apply to their 
operations.
    The NCUA Board remains committed to requiring the minimum 
information needed to provide adequate supervision. The Board believes 
NCUA has a process that works to assure unnecessary information is not 
requested on the call report. NCUA's 5300 Working Group, which includes 
an SSA representative, generally reviews changes to the call report 
once a year. However, changes may need to be made more frequently due 
to regulatory changes. Before implementation, any recommended changes 
go through a review process that considers the burden a change would 
place on credit unions versus the benefit to be gained.
    Several commenters made suggestions regarding the use of 
technology. One commenter stated that quarterly call reporting would 
not be a burden to credit unions if their data systems were automated 
and suggested that NCUA and the credit union industry provide support 
to unautomated filers such as discounts to purchase personal computers. 
With this support, NCUA should establish a timetable to discontinue 
manual remittance of the call report. The NCUA Board does not believe 
it is necessary to impose upon credit unions a requirement to file 
electronic versions of the call report. During the June 30, 2001, call 
report cycle, 9,686 federally-insured credit unions, out of 10,415, 
filed their call reports using the PC 5300 automated system. Credit 
unions need to evolve towards understanding the benefits and 
responsibilities associated with using automated data systems within 
the scope of their operations. Furthermore, the Board believes it would 
be more appropriate for another party, such as a credit union trade 
association, to seek discounts on the purchase of computers for credit 
unions.
    Two commenters suggested that NCUA alleviate the burden of 
submitting call reports by initiating uploads of call reports to its 
database. Currently, NCUA offers credit unions the ability to e-mail an 
electronic version of their completed call report to their examiner or 
SSA for uploading. NCUA staff plans to develop improved methods for 
filing call reports as NCUA's technological capabilities improve.
    One state-chartered credit union commenter suggested the burden for 
credit unions could be reduced by automating the Reserve Sheet into a 
schedule versus a separate remittance sheet. The Reserve Sheet is a 
supplemental schedule required by the credit union's SSA. This 
suggestion should be provided to the credit union's state examiner for 
consideration.
    One commenter questioned to what extent NCUA's AIRES (Automated 
Integrated Regulatory Examination System) Program duplicates the call 
report program. The commenter suggested that an AIRES download be 
created each quarter and the call report be used simply to fill in 
information not available through AIRES. The NCUA Board does not 
believe this is a viable alternative. AIRES only has the capacity to 
download certain financial information from a credit union's data 
system. Any download performed would require an examiner to go on-site 
or receive a diskette that requires an additional download into the 
call report system. Effective September 1, 2002, an examiner will be 
able to download the

[[Page 12461]]

most recent call report information into AIRES for an examination. This 
will help reduce the amount of time needed for an examiner to be on-
site.
    One commenter made two suggestions to mitigate the potential 
financial impact on small credit unions. The first recommendation is 
that NCUA should work with data processors to develop a standard report 
format consistent with available software. The NCUA Board believes the 
credit union industry needs to address this matter with its vendors. 
NCUA can provide the specifications to the vendors upon their request 
and has done so in the past.
    The second recommendation is that NCUA delay the March 2002 
quarterly reporting implementation date until the data processing 
standard report format previously discussed is complete. NCUA is in the 
process of developing a shortened version of the 5300 for use during 
the first and third quarters of the year for credit unions with assets 
of less than $10 million. This short form will not be available until 
the September 2002 reporting cycle, so the NCUA Board is delaying the 
effective date of the final rule to July 1, 2002.
    One commenter suggested that NCUA develop an electronic worksheet 
to reduce the preparation time. The Board does not believe a worksheet 
would assist credit unions in preparing the call report. The call 
report is in an electronic format. The current call report format 
includes detailed summary schedules regarding various general 
operational matters for all credit unions. The Board believes credit 
unions would be best served by requesting their data processing vendors 
to develop any detailed summary reports of the information they need to 
complete the call report.
    Five commenters made suggestions regarding a phase-in process for 
NCUA's implementation of the proposal to help alleviate the burden on 
credit unions not currently required to file quarterly call reports. 
Two suggested that quarterly reporting should be phased in over two or 
three years; one of which suggested that NCUA initially consider only 
those credit unions for the Risk Based Examination Scheduling Program 
that are currently required to file quarterly call reports. One 
suggested that credit unions under $50 million in assets have the 
option of filing on a quarterly basis. In both cases, those credit 
unions filing on a quarterly basis would be considered for an extended 
examination cycle. One commenter suggested that the implementation of 
quarterly reporting should be delayed to allow sufficient time to 
adjust staff and operations.
    Although the Board is delaying effective date of the regulation, 
the Board does not believe the extensive delays suggested by the 
commenters are viable options. The suggestions would delay a smooth 
transition towards the risk-focused approach to supervising credit 
unions. In addition, the savings currently reflected in NCUA's 2002 
operating budget may not be fully realized if the suggestions were 
adopted.
    Three commenters suggested excluding credit unions with assets of 
$10 million or less from quarterly reporting for five years. After five 
years, smaller credit unions should have access to electronic record 
keeping and should be better able to handle the additional record 
keeping requirements.
    The NCUA Board does not agree with these suggestions. The Board 
notes that a credit union must file a quarterly call report to qualify 
for a deferred examination under the Risk Based Examination Scheduling 
Program. Any qualifying credit union would be excluded from receiving 
the benefit of a delayed examination. Reducing the number of credit 
unions qualifying for the program would impact the staff reductions 
projected in NCUA's approved 2002 budget. In addition, quarterly call 
reports are intended to reveal emerging problems through quarterly 
trend analysis so any noted concerns can be addressed in an expeditious 
manner. This applies to all credit unions no matter what their asset 
size, capital position, or CAMEL Code. As previously explained, in an 
effort to ease the burden, the NCUA Board will have staff develop a 
short form 5300 for credit unions with assets of less than $10 million 
that does not compromise NCUA's and the SSAs ability to provide 
adequate supervision for use during the first and third quarters of the 
year.
    Two commenters believed that, instead of quarterly reporting, the 
burden of collecting any needed additional information should be 
shifted to the regulator. One suggested that more on-site contacts be 
scheduled; the other suggested that the regulators receive monthly 
financial statements.
    The NCUA Board does not believe these are viable alternatives. 
These suggestions diminish the economies that will result from 
implementing the Risk Based Examination Scheduling Program. In all 
likelihood, NCUA's current projected reduction in staffing levels may 
not be fully realized if these suggestions were adopted.
    Four commenters conditioned their support of the proposal on the 
implementation of the Risk Based Examination Scheduling Program. 
Another commenter, who agreed with the proposal, voiced the concern 
that, once quarterly call reporting was implemented, the Risk Based 
Examination Scheduling Program may stop and the credit unions would 
still have to file quarterly call reports. The NCUA Board has adopted 
the program through the approval of the 2002 NCUA budget. However, 
quarterly call reporting has benefits other than the potential deferral 
of examinations over one examination cycle. Quarterly reporting 
provides both the credit unions and the regulators the ability to 
timely detect emerging concerns in an ever-changing economic 
environment. NCUA, in cooperation with the SSAs, reviews call report 
requirements at least annually and makes adjustments to the reporting 
requirements after weighing the benefit gained versus the burden that 
additional reporting places on the credit unions.

Notice of Requirement To Report Under Prompt Corrective Action

    Six commenters provided comments regarding the proposed change 
eliminating the requirement of Sec. 702.101(c) for written notice from 
a credit union when its net worth decreases. Four of the commenters 
agreed with the change; two did not agree. The two objecting commenters 
did so because they objected to the proposed rule as a whole.
    The NCUA Board recognizes that the filing of quarterly call reports 
obviates the need for written notice and it is deleting this 
requirement from the rule.

Final Change

    Based on the comments received, the NCUA Board is modifying the 
proposed changes to Sec. 741.6(a). The NCUA Board will have staff 
develop a short form 5300 that may be used by credit unions with assets 
under $10 million for the first and third quarters of each year. In 
addition, the NCUA Board will make the final rule's effective date July 
1, 2002. This effective date will provide NCUA staff with sufficient 
time to develop the short version of the 5300 for use during the year 
2002's third quarter call report cycle and the first and third 
quarters' reporting cycles for each year thereafter.
    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 final amendment will require all federally-insured 
credit unions to file quarterly call reports. Credit unions with assets 
of less than $10 million will be required to file the complete version 
of the Form 5300 for

[[Page 12462]]

the second and the fourth quarters of the year and may file either the 
short or the complete version of the 5300 for the first and third 
quarters of the year.
    This amendment is a necessary component of NCUA's revised 
examination program. The revised 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 
meeting certain risk criteria. Approximately 1,500 federal credit 
unions under $50 million will participate in the extended examination 
cycle program during the 2002 NCUA budget year. Requiring those credit 
unions to file quarterly call reports is an essential part of their 
participation. The credit unions' financial condition must be monitored 
over the examination cycle to identify emerging trends that may impact 
the safety and soundness of the credit unions' operations.
    The second is a risk-focused approach for all examinations. The 
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 conjunction with the change to Sec. 741.6(a), the Board is 
making a technical correction to Sec. 741.6(b) by deleting the 
reference to semi-annual reporting and revising the prompt corrective 
action rule to eliminate the requirement of written notice to NCUA and 
the option of filing a call report for the first and third quarter for 
credit unions that file call reports semi-annually. 12 CFR 702.101(c), 
702.103(b).

Regulatory Procedures

Paperwork Reduction Act

    The NCUA Board has determined that the final rule to require all 
federally-insured credit unions to file call reports on a quarterly 
basis is covered under the Paperwork Reduction Act. NCUA submitted a 
copy of the proposed rule to the Office of Management and Budget (OMB) 
for its review. The OMB Control Number for the call report is 3133-
0004.
    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. Although no commenters specifically commented 
on the paperwork requirements, their comments on the proposed rule 
indirectly addressed some of the issues.
    The NCUA Board estimated in the proposal that it takes a federally-
insured credit union six hours on average to complete a call report. 
The proposal, using the six-hour call report average, estimated the 
rule would result in an additional 100,272 hours of call report 
preparation. Sixteen commenters' reported an average of 10 hours to 
complete a call report. Three of the commenters were credit union trade 
associations that surveyed their membership. NCUA has determined, based 
on the comments and its own research that a more accurate average for 
call report preparation is eight hours. This eight hour average does 
not take into account the fact that the proposed amendments only apply 
to credit unions under $50 million. NCUA's research and the comments 
indicate that the time to prepare a call report decreases with the size 
of the credit union. In addition, the proposal did not include a short 
form option for credit unions under $10 million. This will affect 5,864 
federally-insured credit unions. Since the final amendments only apply 
to credit unions under $50 million and a short form is being created 
for credit unions under $10 million, NCUA concludes that its original 
net burden estimate may have overestimated the additional hours 
resulting from the rule change.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612)(RFA) requires, 
subject to certain exceptions, that NCUA publish an initial regulatory 
flexibility analysis (IRFA) with a proposed rule and a final regulatory 
flexibility analysis (FRFA) with a final rule, unless NCUA certifies 
that the rule will not have a significant economic impact on a 
substantial number of small credit unions. For purposes of the 
Regulatory Flexibility Act, and in accordance with NCUA's authority 
under 5 U.S.C. 601(4), NCUA has determined that small credit unions are 
those with less than one million dollars in assets. See 12 CFR 
Sec. 791.8(a) and NCUA's Interpretive Ruling and Policy Statement, No. 
87-2. NCUA's final rule will apply to approximately 1,489 small credit 
unions, out of 10,316 federally-insured credit unions. Of these 1,489 
small credit unions, approximately 55 of the federally-insured state 
chartered credit unions are already required to file quarterly call 
reports by their respective SSAs.
    At the time of issuance of the proposed rule, NCUA could not make 
such a determination for certification. Therefore, NCUA issued an IRFA 
pursuant to section 603 of the Regulatory Flexibility Act. After 
reviewing the comments submitted in response to the proposed rule, NCUA 
believes it does not have sufficient information to determine whether 
the final rule would have a significant economic impact on a 
substantial number of small credit unions. Therefore, pursuant to 
section 604 of the Regulatory Flexibility Act, NCUA provides the 
following FRFA.
    The FRFA incorporates NCUA's initial findings, as set forth in its 
IRFA, addresses the comments submitted in response to the IRFA, and 
describes the steps NCUA plans to take to minimize the impact on small 
entities. Currently, all federally-insured credit unions, no matter 
their asset size, are required to file call reports semi-annually. The 
current call report contains explicit instructions for completing the 
report. NCUA will continue this practice for the two additional call 
reports required from credit unions with assets under $50 million. We 
believe the instructions meet the requirement to provide guidance to 
small credit unions in complying with this rule, under Section 212 of 
the Small Business Regulatory Enforcement Fairness Act of 1996 (P.L. 
104-121).
1. Statement of Need
    The final 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 Final Change section above. The adoption of the 
final amendment to Sec. 741.6(a) of the NCUA's regulations will account 
for all of the economic impact on small credit unions.

[[Page 12463]]

2. Statement of Objectives and Legal Basis
    The Final Change section above contains this information. The legal 
basis for the final rule is in the Federal Credit Union Act. 12 U.S.C. 
1756 and 1782.
3. Burdens and Cost Upon Small Credit Unions with the Adoption of this 
Rule
    In general, the commenters were concerned with the additional time 
and resource burden that would be placed on credit unions if the 
amendment to the rule were adopted. Thirty of the commenters were 
specifically concerned with the burden that would be placed on small 
credit unions. Seven of the commenters noted that smaller credit unions 
have a limited number of staff members. Several commenters provided 
various opinions as to what credit union asset size they considered as 
``small''. The asset sizes noted varied within the range of less than 
$500,000 to less than $50 million in assets.
    As noted previously, the combined credit union surveys calculated 
eight hours as the average for all credit unions to complete a call 
report. For credit unions with assets of $10 million or less, the 
average time was five hours. One credit union league commenter surveyed 
mostly small credit unions. The league reported six hours as the 
average time to complete a call report. We could not determine from the 
comments provided the average hours calculation for credit unions with 
assets less than one million dollars. However, NCUA calculated three 
hours as the average for credit unions with assets less than two 
million dollars based on its own research. The commenters did not 
provide any specific dollar cost estimates associated with quarterly 
call reporting.
4. Discussion of Significant Alternatives To Alleviate Burden
    In the proposal, NCUA considered the following alternative 
approaches in reducing the burden on smaller credit unions:

a. Federally-Insured Credit Unions With Assets Less Than $10 Million

    NCUA considered revising the regulation to require only federally-
insured credit unions with assets greater than $10 million to file 
quarterly call reports. This alternative was not pursued due to the 
changes in NCUA's examination program. Although the NCUA Board has not 
been persuaded to change its original determination, as discussed 
below, the Board has made some adjustments to the requirements to 
reduce the burden on these credit unions. The NCUA Board has adopted 
the new examination program through its approval of NCUA's 2002 Budget. 
Approximately 950 federal credit unions with assets less than $10 
million have been considered in NCUA's 2002 Budget for examination 
deferral under the Risk Based Examination Scheduling Program. Of these 
950 federal credit unions, approximately 120 have assets less than one 
million dollars. The program permits deferral of an examination for 
every other examination cycle. The NCUA Board believes quarterly 
reporting is necessary to monitor the credit union's financial trends 
during the deferral period. The NCUA Board 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 Final Change 
section.

b. 5300 Short Form

    NCUA originally considered the alternative of requiring a credit 
union with assets of less than $10 million to file a short version of 
the call report during the March and September cycles. The short form 
would reduce the burden for those credit unions. The NCUA Board was 
initially concerned that this alternative may result in insufficient 
trend information when compared to the full semi-annual call report. 
However, upon further review and the comments received, the NCUA Board 
will have staff develop a short form 5300 that does not compromise 
NCUA's and the SSAs' ability to provide adequate supervision for use 
during the first and third quarters of the year.
5. Proposed Reporting, Record Keeping, and Other Compliance 
Requirements
    The information collection requirements imposed by the final rule 
are discussed above in the section on the Paperwork Reduction Act.
6. 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. A final short 
version of the call report will be developed for credit unions with 
assets of $10 million or less. Staff anticipates the short form will be 
available for September 2002 call report cycle. Credit unions meeting 
the asset size requirements will be permitted to use the short form 
during the first and third quarters of each year.
    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.
7. Identification of Duplicative, Overlapping, or Conflicting Federal 
Rules.
    NCUA is unable to identify any federal statutes or rules that 
duplicate, overlap or conflict with the proposed rule; however, NCUA 
has identified seven states that already require their state-chartered 
federally-insured credit unions to file quarterly call reports. 
Although the final rule duplicates those state's requirements, it does 
not impose any significant, additional burden on those federally-
insured 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. The final rule will not 
have substantial direct effect 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.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act (SBREFA) 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, for purposes of SBREFA, this is not a 
major rule.

Treasury and General Government Appropriations Act, 1999

    NCUA has determined that the final 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).

[[Page 12464]]

Agency Regulatory Goal

    NCUA's goal is clear, understandable regulations that impose 
minimal regulatory burdens. The regulatory change is understandable and 
imposes minimal regulatory burden. NCUA requested comments on whether 
the proposed rule change was understandable and minimally intrusive if 
implemented as proposed. No comments were received.

List of Subjects

12 CFR Part 702

    Credit unions, Reporting and record keeping requirements.

12 CFR Part 741

    Bank deposit insurance, Credit unions.

    By the National Credit Union Administration Board on March 13, 
2002.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA is amending 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 this paragraph (b) of this section, or the 
affected credit union's corresponding legal obligations under this 
part.

    3. Amend Sec. 702.103 by removing and reserving 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) and removing the 
words ``or semiannually'' from paragraph (b) 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 or before January 22 (as 
of the previous December 31), April 22 (as of the previous March 31), 
July 22 (as of the previous June 30), and October 22 (as of the 
previous September 30) of each year. Insured credit unions with assets 
of $10 million or greater must file all quarterly reports on Form NCUA 
5300. Insured credit unions with assets of less than $10 million must 
file their first (due April 22) and third (due October 22) quarter 
reports on Form NCUA 5300SF or Form NCUA 5300 and their second (due 
July 22) and fourth (due January 22) quarter reports on Form NCUA 5300.
    (b) Consistency with GAAP. The accounts of financial statements and 
reports required to be filed quarterly under paragraph (a) of this 
section must reflect GAAP if the credit union has assets of $10 million 
or greater, but may reflect regulatory accounting principles other than 
GAAP if the credit union has total assets of less than $10 million 
(except that a federally-insured state-chartered credit union may be 
required by its state credit union supervisor to follow GAAP regardless 
of asset size).
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[FR Doc. 02-6512 Filed 3-18-02; 8:45 am]
BILLING CODE 7535-01-U