[Federal Register Volume 70, Number 145 (Friday, July 29, 2005)]
[Proposed Rules]
[Pages 43794-43796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-14807]



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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 741


Requirements for Insurance

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking and request for comments.

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SUMMARY: NCUA is proposing to amend its rule on the purchase of assets 
and assumption of liabilities by federally-insured credit unions to 
clarify which transfers of assets or accounts require approval by the 
NCUA Board. NCUA is also seeking comments on the provision governing 
nonconforming investments by federally-insured, state-chartered credit 
unions (FISCUs).

DATES: Comments must be received on or before September 27, 2005.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/news/proposed_regs/proposed_regs.html. Follow the instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Proposed Rule Part 741.8'' in the e-mail subject 
line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: Moisette Green, Staff Attorney, Office 
of General Counsel, at the above address or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

A. Background

    The purpose of this amendment is to clarify the scope of Sec.  
741.8. This regulation identifies certain transactions that require 
NCUA approval and some exceptions. The confusion in the current 
regulation results from the fact that the Federal Credit Union Act 
(Act) requires NCUA approval for transactions that are not addressed 
specifically in the regulation. The Act requires prior approval for an 
insured credit union to ``acquire the assets of, or assume liability to 
pay any member accounts in, any other insured credit union.'' 12 U.S.C. 
1785(b)(3). The regulation, however, currently only specifically 
requires approval for ``for acquiring loans or assuming or receiving an 
assignment of deposits, shares or liabilities'' from credit unions or 
other institutions that are not insured by the National Credit Union 
Share Insurance Fund (NCUSIF). 12 CFR 741.8(a) (emphasis added).
    This amendment will clarify that transactions involving the sale or 
purchase of loans or other assets between federally insured credit 
unions (FICUs) do not require NCUA approval. NCUA notes that other 
regulations may limit or otherwise regulate those transactions, for 
example, the member business lending rule, the fixed asset rule, the 
eligible obligations rule, and so forth. 12 CFR Part 723, Sec. Sec.  
701.36, 701.23.
    For those transactions that do require approval, the amendment adds 
a new subsection describing what a credit union seeking approval should 
submit and stating that a request for approval should be sent to the 
appropriate NCUA regional office.
    The Act, in subsections 1785(b)(1) and (3), requires FICUs to 
obtain NCUA approval for various transactions. 12 U.S.C. 1785(b)(1), 
(3). Subsection (b)(1) concerns transactions with credit unions and 
other institutions not insured by NCUSIF. Subsection (b)(3) concerns 
transactions between insured credit unions. In addition to Sec.  741.8, 
these sections in the Act provide the authority for Part 708a, which 
addresses conversions to mutual savings banks, and Part 708b, which 
addresses mergers generally and also conversions to private insurance. 
Section 741.8 also implements these sections to the extent that it 
identifies certain transactions that require NCUA approval.
    The regulatory history of Sec.  741.8 indicates the Board did not 
intend to require approval for certain transactions. In 1990, when 
Sec.  741.8 was first proposed and adopted, NCUA was particularly 
concerned about FICUs acquiring loans or assuming responsibility for 
member or customer accounts from privately insured credit unions or any 
financial institution that was not insured by the NCUSIF. NCUA was 
concerned because this was a period marked by the failure of many 
privately insured credit unions as well as the failure of other 
financial institutions.
    Recently, a FISCU asked whether NCUA approval was required for a 
transfer of one of its branch offices and associated member accounts to 
another FISCU. NCUA regulations are silent regarding the need for NCUA 
approval for the transaction. The proposed amendment clarifies NCUA's 
position.
    Currently, Sec.  741.8 is silent on transfers between two FICUs. It 
requires any FICU to receive Board approval before ``either purchasing 
or acquiring loans or assuming or receiving an assignment of deposits, 
shares, or liabilities'' from any credit union that is not federally 
insured or from any non-credit union financial institution. 12 CFR 
741.8(a). The rule only excludes the purchase of particular student 
loans and real estate secured loans and the assumption of assets 
associated with member retirement accounts or in which the FICU has a 
security interest from the approval requirement.
    The regulatory history of Sec.  741.8 addresses the apparent gap 
under the current rule. In 1990, when first proposed, the current rule 
would have covered transfers of assets, including fixed assets like a 
brick and mortar branch office, in addition to transfers of loans and 
share liabilities and between FICUs. 55 FR 49059 (November 26, 1990). 
The final version of the rule, however, eliminated the requirement for 
Board approval of transfers between FICUs. The NCUA Board determined 
transfers between FICUs did not materially increase risk to the NCUSIF. 
56 FR 35808 (July 29, 1991). Additionally, the Board believed transfers 
between FICUs should not unduly affect the safety and soundness of 
FICUs because of regulations applicable to these credit unions, the 
examination of FICUs for compliance with these regulations, and 
enforcement of the regulations by appropriate regulators. Id. 
Accordingly, NCUA did not require the approval of these individual 
transactions.

B. Discussion

    NCUA is aware of four transactions involving an FICU acquiring the 
assets of another non-liquidating FICU in the past two years. While the 
regulatory history acknowledges asset transfers between FICUs are 
permissible, the proposed regulation clarifies this authority by 
specifically excluding the transfer of assets between FICUs from the 
requirement to receive approval from the NCUA Board.
    The proposed rule continues to except from coverage loan purchases 
involving the packaging of student loans and real estate secured loans 
by a federal credit union (FCU) under to Sec.  701.23(b) of the NCUA 
regulations for sale on the secondary market. These transactions are 
subject to industry standards ensuring safety and soundness. 
Additionally, the window of opportunity to consummate these

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transactions is often limited, and agency review could disadvantage 
FCUs' ability to compete in doing these transactions.
    FCUs have the authority to purchase ``eligible obligations,'' 
including member loans from any source, loans of a liquidating credit 
union, ``student loans, from any source'' and ``real estate-secured 
loans, from any source'' if the student and real estate loans are to be 
packaged for sale on the secondary market. 12 CFR 701.23(b)(1)(i-iv). 
If a purchase of loans from a failed thrift, bank, or credit union 
meets the criteria of an ``eligible obligation'' and other criteria in 
Sec.  701.23 an FCU is permitted to purchase the asset. For this 
reason, the proposed rule does not include specific language regarding 
an FICU's purchase of loans from another FICU.

C. Request for Comments on Sec.  741.3

    NCUA requests comment on revisions to the rules involving special 
reserves for nonconforming and credit union service organization (CUSO) 
investments by FISCUs. Comments from interested parties on these issues 
will assist NCUA in its regulatory review process.
    NCUA is considering removing the requirement for FISCUs to 
establish special reserves under Sec.  741.3(a)(2) for nonconforming 
investments and, in place of the requirement, requiring FISCU's 
nonconforming investments to be investment grade. The reason NCUA is 
considering this change is that some state-chartered credit unions may 
make investments beyond those authorized in the Act or NCUA regulations 
for FCUs, and these investments raise safety and soundness concerns. 
FISCUs are currently required to establish special reserves for these 
investments if their market value is less than book value. This rule 
differs from Generally Accepted Accounting Principles (GAAP). To reduce 
the risk to the NCUSIF and conform to GAAP, the NCUA believes FISCU 
investments should be limited to ``investment grade'' securities. By an 
``investment grade'' security, NCUA means a security that at the time 
of purchase is rated in one of four highest rating categories by at 
least one nationally recognized statistical rating organization, which 
is similar to the definition for ``investment grade'' established by 
the National Association of Securities Dealers. 69 FR 40429 (July 2, 
2004). The NCUA solicits comments on whether the current rule should be 
changed, whether FISCU investments should be limited to investment 
grade, or whether there is some other measure commenters believe would 
be more appropriate.
    Finally, NCUA is considering extending some of the limits in the 
CUSO rule to FISCUs. State-chartered credit unions are not subject to 
the limitations and requirements of Part 712. FCUs can invest in and 
lend to a CUSO only if it is structured as a corporation, limited 
liability company, or limited partnership and primarily serves credit 
unions or their membership. 12 CFR 712.3. In addition to structure 
requirements and investments and loan limits, NCUA requires corporate 
separateness between an FCU and a CUSO. 12 CFR 712.4. NCUA is concerned 
about the potential liability for state-chartered credit unions, and 
the resulting potential liability for the NCUSIF, if their CUSOs do not 
observe corporate separateness. Therefore, NCUA solicits comments on 
whether its regulations should require FISCUs investing in CUSOs to 
comply with the limits on the structure, accounting, audits, NCUA 
access, and corporate separateness addressed in Sec. Sec.  712.3 and 
712.4 to protect the NCUSIF.

Regulatory Procedures

A. 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, or those with under ten 
million dollars in assets. The proposed rule is grounded in NCUA 
concerns about the safety and soundness of the transactions and their 
potential effects on FICUs and the NCUSIF. NCUA has knowledge of only 
four transactions that would be covered by the proposed rule in two 
years. Accordingly, the Board determines and certifies that this 
proposed rule does not have a significant economic impact on a 
substantial number of small credit unions and that a Regulatory 
Flexibility Analysis is not required.

B. Paperwork Reduction Act

    This proposed regulation contains an application requirement. An 
FICU must apply for NCUA's written approval to purchase assets or 
assume liabilities from privately-insured credit unions, other 
financial institutions, or their successors in interest. NCUA has not 
mandated any specific requirements for this application, but 
anticipates it will consist of a letter requesting approval and briefly 
describing the nature of the transaction and any transaction documents 
created in the regular course of business as evidence of an agreement, 
contract or offer of a proposed purchase or assumption.
    NCUA requests public comment on all aspects of the collection of 
information in this proposed rule. NCUA believes that little time will 
be necessary for the development of the application because FICUs may 
use their existing business records to support the approval request. 
NCUA estimates a nominal burden of one hour per FICU and will revisit 
this estimate in light of the comments NCUA receives.
    NCUA will submit the collection of information requirements 
contained in the regulation to the OMB in accordance with the Paperwork 
Reduction Act of 1995. 44 U.S.C. 3507. NCUA will use any comments 
received to develop its new burden estimates. Comments on the 
collections of information should be sent to Office of Management and 
Budget, Reports Management Branch, New Executive Office Building, Room 
10202, Washington, D.C. 20503; Attention: Mark Menchik, Desk Officer 
for NCUA. Please send NCUA a copy of any comments you submit to OMB.
    The likely respondents are FICUs.
    Estimated number of respondents: 5.
    Estimated average annual burden hours per respondent: 1 hour.
    Estimated total annual disclosure and recordkeeping burden: 5.
    NCUA invites comment on:
    (1) The accuracy of NCUA's estimate of the burden of the 
information collections;
    (2) Ways to minimize the burden of the information collections on 
FICUs, including the use of automated collection techniques or other 
forms of information technology; and
    (3) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Recordkeepers are not required to respond to this collection of 
information unless it displays a currently valid Office of Management 
and Budget (OMB) control number. NCUA is currently requesting a control 
number for this information collection from OMB.

C. 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. The proposed rule may have an occasional 
direct affect on the states, the relationship between the national

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government and the states, or on the distribution of power and 
responsibilities among the various levels of government. The proposed 
rule may supersede provisions of state law, regulation or approvals. 
Since the proposed rule might lead to conflicts between the NCUA and 
state financial institution regulators on occasion, comments are 
requested on means and methods to eliminate, or at least minimize, 
potential conflicts in this area. Commenters may wish to provide 
recommendations on the potential use of delegated authority, 
cooperative decision-making responsibilities, certification processes 
of federal standards, adoption of comparable programs by states 
requesting an exemption for their regulated institutions, or other ways 
of meeting the intent of the Executive Order.

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

    The NCUA has determined that this proposed 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).

E. 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 in 12 CFR Part 741

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on July 21, 
2005.
Mary Rupp,
Secretary of the Board.
    For the reasons stated above, NCUA proposes to amend 12 CFR part 
741 as follows:

PART 741--REQUIREMENTS FOR INSURANCE

    1. The authority citation for part 741 is revised to read as 
follows:

    Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31 
U.S.C. 3717.
    2. Revise Sec.  741.8 to read as follows:


Sec.  741.8  Purchase of assets and assumption of liabilities.

    (a) Any credit union insured by the National Credit Union Share 
Insurance Fund (NCUSIF) must receive approval from the NCUA before 
purchasing loans or assuming an assignment of deposits, shares, or 
liabilities from:
    (1) Any credit union that is not insured by the NCUSIF;
    (2) Any other financial-type institution (including depository 
institutions, mortgage banks, consumer finance companies, insurance 
companies, loan brokers, and other loan sellers or liability traders); 
or
    (3) Any successor in interest to any institution identified in 
paragraph (a)(1) or (a)(2) of this section.
    (b) Approval is not required for:
    (1) Purchases of student loans or real estate secured loans to 
facilitate the packaging of a pool of loans to be sold or pledged on 
the secondary market under Sec.  701.23(b)(1)(iii) or (iv) of this 
chapter or comparable state law for state-chartered credit unions, or 
purchases of member loans under Sec.  701.23(b)(1)(i) of this chapter 
or comparable state law for state-chartered credit unions;
    (2) Assumption of deposits, shares or liabilities as rollovers or 
transfers of member retirement accounts or in which a federally-insured 
credit union perfects a security interest in connection with an 
extension of credit to any member; or
    (3) Purchases of assets, including loans, or assumptions of 
deposits, shares, or liabilities by any credit union insured by the 
NCUSIF from another credit union insured by the NCUSIF, except a 
purchase or assumption as a part of a merger under part 708b of this 
chapter.
    (c) A credit union seeking approval under paragraph (a) of this 
section must submit a letter to the regional office with jurisdiction 
for the state where the credit union operates. The letter must request 
approval and state the nature of the transaction and include copies of 
relevant transaction documents. The regional director will make a 
decision to approve or disapprove the request as soon as possible 
depending on the complexity of the proposed transaction. Credit unions 
should submit a request for approval in sufficient time to close the 
transaction.

[FR Doc. 05-14807 Filed 7-28-05; 8:45 am]
BILLING CODE 7535-01-P