[Federal Register Volume 68, Number 104 (Friday, May 30, 2003)]
[Rules and Regulations]
[Pages 32355-32357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13343]


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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 amending its involuntary liquidation regulation to designate 
swap agreements (swaps) as qualified financial contracts (QFCs). 
Treatment of swaps as QFCs will limit swap counterparty exposure when a 
federally-insured credit union is placed into involuntary liquidation 
or a conservatorship and thereby encourage entities to engage in swaps 
with federally-insured credit unions. Treatment of swaps as QFCs will 
also help preserve market stability.

EFFECTIVE DATES: This rule is effective June 30, 2003.

ADDRESSES: National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.

FOR FURTHER INFORMATION CONTACT: Paul Peterson, Staff Attorney, Office 
of General Counsel, at the above address or telephone: (703) 518-6555.

SUPPLEMENTARY INFORMATION:

A. Background

    On February 20, 2003, NCUA issued a proposed rule that would add 
Sec.  709.13 to NCUA's involuntary liquidation regulation to designate 
swaps as QFCs. 68 FR 8860, February 26, 2003; 12 CFR part 709.
    As discussed in the preamble to the proposed rule, section 207 of 
the Federal Credit Union Act (FCU Act) contains provisions concerning 
the treatment of QFCs in liquidation or conservatorship. 12 U.S.C. 
1787(c)(3), (8). Generally, these QFC provisions enable a QFC 
counterparty to exercise its contractual rights to terminate and net 
QFCs and protect itself against the selective assumption of QFCs by a 
liquidating agent or conservator. QFC treatment limits counterparty 
exposure and preserves market stability when a credit union with QFCs 
enters liquidation or conservatorship.
    Section 207 of the FCU Act also provides that ``the term `qualified 
financial contract' means any securities contract, forward contract, 
repurchase agreement, and any similar agreement that the [NCUA] Board 
determines by regulation to be a qualified financial contract for 
purposes of this paragraph.'' 12 U.S.C. 1787(c)(8)(D)(i). The Board has 
determined that swaps are similar to those agreements enumerated in the 
FCU Act's definition and should be recognized as QFCs. See H.R. Rep. 
No. 101-484 at 1 (recognizing that swaps are ``similar'' to forward 
contracts, securities contracts, and repurchase agreements), to 
accompany Pub. L. 101-311 (Bankruptcy: Swap Agreements and Forward 
Contracts), reprinted in 1990 U.S.C.C.A.N. 223. This Board 
determination that swaps receive QFC treatment will provide greater 
certainty about the treatment of swaps if a federally-insured credit 
union is placed into involuntary liquidation or a conservatorship and 
will encourage

[[Page 32356]]

counterparties to engage in swaps with credit unions. This final rule 
also parallels the Federal Deposit Insurance Act's treatment of swaps 
involving banks. 12 U.S.C. 1821(e)(8)(D)(i), (vi), (vii).
    As stated in the preamble to the proposed rule, the Board has 
determined that it will exercise its discretion as liquidating agent or 
conservator and provide swaps with QFC treatment if there is a 
liquidation or conservatorship involving swaps before this final rule 
is effective.

B. Comments

    The Board received thirteen comment letters on the proposed rule: 
five from corporate credit unions, three from natural person credit 
unions, and five from credit union trade organizations.
    All thirteen commenters expressed support for designating swaps as 
QFCs. Nine of the thirteen commenters recommended that the language of 
the proposed rule be amended to clarify that any master agreement 
involving swaps will be treated as a swap. The Board agrees with this 
recommended clarification and has added language to the final rule 
paralleling a similar provision in the Federal Deposit Insurance Act. 
12 U.S.C. 1821(e)(8)(D)(vii).
    One commenter asked that the new rule state explicitly that any 
conservator or liquidating agent of a credit union would be obligated 
to recognize all of the rights of QFC counterparties set out in section 
207(c)(8)(A) of the FCU Act. 12 U.S.C. 1787(c)(8)(A). This commenter 
believes section 207(c)(8)(A) of the FCU Act contains an erroneous 
cross-reference to section 207(c)(12) of the FCU Act and that adoption 
of the commenter's proposed language would cure this error. 12 U.S.C. 
1787(c)(12). The Board agrees that this cross-reference to section 
207(c)(12) is erroneous. The correct cross-reference should be to 
section 207(c)(10), as indicated by comparison with parallel provisions 
in the Federal Deposit Insurance Act. 12 U.S.C. 1787(c)(8)(A) and 
1821(e)(8)(A). Although the Board cannot issue a regulation for 
purposes of correcting a statute, the Board will limit its discretion 
when acting as a liquidating agent or conservator to allow 
counterparties to exercise their rights under section 207(c)(8)(A) as 
if that section contained a cross-reference to section 207(c)(10), not 
section 207(c)(12). The Board also notes the House of Representatives 
recently approved a bill that would, if enacted into law, correct this 
error. Bankruptcy Abuse Prevention and Consumer Protection Act of 2003, 
H.R. 975, Title IX (Toomey Amendment).
    Another commenter asked that the Board also designate commodity 
contracts as QFCs. The proposed rule did not address commodity 
contracts, and, therefore, they are beyond the scope of this final 
rule. Furthermore, the Board notes that natural person federal credit 
unions do not currently have the authority to enter into commodity 
contracts and that corporate credit unions may not enter into commodity 
contracts unless specifically authorized to engage in commodity 
contracts under their expanded authorities. See 12 CFR part 703 and 12 
CFR part 704, Appendix B, Part IV.

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 credit unions (those under one million 
dollars in assets). The Board believes it unlikely that any small 
federally-insured credit unions engage in swaps. Accordingly, the Board 
believes that the final rule would 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 this final 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 final rule would not have substantial 
direct effects on the states, on the connection 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 final 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 final rule would 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).

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. NCUA has recommended to The Office of 
Management and Budget that it determine that this final rule is not a 
major rule, and is awaiting its determination.

Agency Regulatory Goal

    NCUA's goal is clear, understandable regulations that impose 
minimal regulatory burden. NCUA requested comment on whether the 
proposed rule met this standard. No commenters addressed the issue.

List of Subjects in 12 CFR Part 709

    Credit unions, Liquidations.

    By the National Credit Union Administration Board on May 22, 
2003.
Becky Baker,
Secretary of the Board.

0
Accordingly, 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

0
1. The authority citation for part 709 continues to read as follows:

    Authority: 12 U.S.C. 1757, 12 U.S.C. 1766, 12 U.S.C. 1767, 12 
U.S.C. 1786(h), 12 U.S.C. 1787, 12 U.S.C. 1788, 12 U.S.C. 1789, 12 
U.S.C. 1789a.


0
2. Add Sec.  709.13 to read as follows:


Sec.  709.13  Treatment of swap agreements in liquidation or 
conservatorship.

    The Board has determined that a swap agreement, as defined in the 
Federal Deposit Insurance Act at 12 U.S.C. 1821(e)(8)(D)(vi), is a 
qualified financial contract for purposes of the special treatment for 
qualified financial contracts provided in 12 U.S.C. 1787(c).

[[Page 32357]]

Any master agreement for any swap agreement, together with all 
supplements to such master agreement, will be treated as one swap 
agreement.

[FR Doc. 03-13343 Filed 5-29-03; 8:45 am]
BILLING CODE 7535-01-P