[Federal Register Volume 74, Number 141 (Friday, July 24, 2009)]
[Proposed Rules]
[Pages 36618-36628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17310]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 741

RIN 3133-AD63


National Credit Union Share Insurance Fund Premium and One 
Percent Deposit

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: Section 741.4 of NCUA's rules describes the procedures for the 
capitalization and maintenance of the National Credit Union Share 
Insurance Fund (NCUSIF). The current rule, however, does not adequately 
address how credit unions that enter or depart the NCUSIF system in a 
given calendar year are affected by any NCUSIF premium or deposit 
replenishment assessments in that same year. Due to the unprecedented 
level of NCUSIF expenses in 2009, which required the NCUA to announce 
both such assessments, NCUA is now proposing amendments to Sec.  741.4 
to clarify these procedures. The proposal makes other minor changes to 
741.4 and conforming changes to Sec.  701.6 relating to the payment of 
operating fees by Federal credit unions.

DATES: Comments must be received by August 24, 2009.

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/RegulationsOpinionsLaws/proposed_regs/proposed_regs. html. Follow the 
instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Insurance Premium and One Percent Deposit'' 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.
    Public inspection: All public comments are available on the 
agency's Web site at http://www.ncua.gov/RegulationsOpinionsLaws/comments as submitted, except as may not be possible for technical 
reasons. Public comments will not be edited to remove any identifying 
or contact information. Paper copies of comments may be inspected in 
NCUA's law library, at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an e-mail to OGC [email protected].

FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Staff Attorney, 
Office of General Counsel, National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-
6540; and Paul Peterson, Director, Applications Section, Office of 
General Counsel, National Credit Union Administration, at the same 
address and telephone number.

SUPPLEMENTARY INFORMATION:

A. Background

    Congress created the National Credit Union Share Insurance Fund 
(NCUSIF) in 1970 to provide share insurance coverage to all Federal 
credit unions and to those State chartered credit unions that apply and 
meet minimum qualification standards. The NCUSIF provides insurance 
coverage for each of an insured credit union's members, similar to the 
coverage provided by the Federal Deposit Insurance Corporation's 
(FDIC's) Deposit Insurance Fund (DIF).
    Unlike the DIF, however, the NCUSIF was not capitalized at its 
inception by tax revenues. From 1971 through 1980, the capital of the 
NCUSIF was established solely through the annual insurance premium 
contributions of insured credit unions. During the period from 1971 
through the end of calendar year 1980, the capital of the fund (i.e.,

[[Page 36619]]

equity as a percentage of insured shares) grew, but the years 1981-1983 
saw a reversal of this trend, due to both record share growth in 
insured credit unions and liquidation and problem credit union 
expenses. As an alternative to the premium approach to establishing a 
strong and viable insurance fund, the NCUA Board developed a 
legislative proposal which, with the support of the entire credit union 
system, Congress enacted in 1984. The NCUSIF was then capitalized with 
a deposit by each credit union of an amount equaling one percent of the 
credit union's total insured shares.
    As required by the 1984 legislation, and subsequent amendments in 
1998, NCUA maintains the NCUSIF's equity ratio at a percentage between 
1.2% and 1.5%, but no greater than the normal operating level as 
established from time to time by the Board. If the NCUSIF's equity 
ratio exceeds this normal operating level at the end of any given year, 
NCUA will, generally, distribute any excess funds to insured credit 
unions. If the NCUSIF's equity ratio falls below 1.2%, the NCUSIF must 
assess a premium, and if the ratio falls below 1.0%, depleting the one 
percent deposit provided by each credit union, the NCUSIF must also 
assess an amount sufficient to replenish the one percent deposit.
    In 1984, the Board adopted a rule establishing procedures for the 
capitalization and maintenance of the NCUSIF. 49 FR 40561 (Oct. 17, 
1984). The rule, originally codified at 12 CFR 741.5 but now located in 
Sec.  741.4, dealt broadly with five issues: (1) The funding of the one 
percent deposit, (2) the return of the deposit, (3) the use of the 
deposit by the NCUSIF and its replenishment by insured credit unions, 
(4) the insurance agreement, and (5) NCUA reports to Congress.
    The content of Sec.  741.4 today is much the same as its 1984 
counterpart, having been modified only slightly in the past 25 years. 
For example, while the current rule addresses some issues associated 
with the expense and replenishment of the one percent deposit, it does 
not contain much detail on this issue.\1\ In addition, the current rule 
does not adequately address how credit unions that enter or depart the 
NCUSIF system, such as through insurance or bank conversions, are 
affected by NCUSIF premium or deposit replenishment assessments in that 
same calendar year. Due to the unprecedented level of NCUSIF expenses 
in 2009, which required the NCUA to announce both premium and deposit 
replenishment assessments, NCUA is now proposing amendments to Sec.  
741.4 to clarify these issues and other related issues.
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    \1\ The preamble to the proposed rule in 1984 stated:
    The legislation provides that the NCUSIF may utilize the deposit 
funds if necessary to meet its expenses, in which case the amount 
used is to be expensed and replenished by insured credit unions in 
accordance with procedures established by the Board. Given the 
history of the Fund and the condition of insured credit unions, it 
seems unnecessary to anticipate at this time any possible 
utilization of the deposit funds to meet the Fund's expenses. This 
authority is clearly intended to meet a catastrophic economic set of 
circumstances, as evidenced by the fact that it can only be 
exercised after the Fund has utilized all investment income and all 
of its 0.3% nondeposit equity. Thus, ample time would exist for 
development of expense and replenishment procedures and guidelines. 
Accordingly, such procedures are not proposed at this time.
    49 FR 30740 (Aug. 1, 1984).
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B. Relevant Statutory Provisions

    The Federal Credit Union Act contains several relevant provisions 
on the return and replenishment of the one percent deposit and the 
timing and amount of NCUSIF premiums. These provisions are set forth 
below.
    With regard to the deposit, Section 202(c)(1)(A) of the Act states:

    Each insured credit union shall pay to and maintain with the 
National Credit Union Share Insurance Fund a deposit in an amount 
equaling 1 per centum of the credit union's insured shares. * * *

12 U.S.C. 1782(c)(1)(A). Section 202(c)(1)(B) of the Act also states:

    (i) The deposit shall be returned to an insured credit union in 
the event that its insurance coverage is terminated, it converts to 
insurance coverage from another source, or in the event the 
operations of the fund are transferred from the National Credit 
Union Administration Board.
    (ii) The deposit shall be returned in accordance with procedures 
and valuation methods determined by the Board, but in no event shall 
the deposit be returned any later than one year after the final date 
on which no shares of the credit union are insured by the Board.
    (iii) The deposit shall not be returned in the event of 
liquidation on account of bankruptcy or insolvency.
    (iv) The deposit funds may be used by the fund if necessary to 
meet its expenses, in which case the amount so used shall be 
expensed and shall be replenished by insured credit unions in 
accordance with procedures established by the Board.

12 U.S.C. 1782(c)(1)(B). With regard to the premium, Section 202(c)(2) 
of the Act states:

    (A) In general. Each insured credit union shall, at such times 
as the Board prescribes (but not more than twice in any calendar 
year), pay to the Fund a premium charge for insurance in an amount 
stated as a percentage of insured shares (which shall be the same 
for all insured credit unions).
    (B) Relation of premium charge to equity ratio of fund. The 
Board may assess a premium charge only if--
    (i) the Fund's equity ratio is less than 1.3 percent; and
    (ii) the premium charge does not exceed the amount necessary to 
restore the equity ratio to 1.3 percent.
    (C) Premium charge required if equity ratio falls below 1.2 
percent. If the Fund's equity ratio is less than 1.2 percent, the 
Board shall, subject to subparagraph (B), assess a premium charge in 
such an amount as the Board determines to be necessary to restore 
the equity ratio to, and maintain that ratio at, 1.2 percent.

12 U.S.C. 1782(c)(2). Section 206(d)(3) of the Act also states:

    In the event of a conversion of a credit union from status as an 
insured credit union under this Act under subsection (a)(2) of this 
section, premium charges payable under section 202(c) of this Act 
shall be reduced by an amount proportionate to the number of 
calendar months for which the converting credit union will no longer 
be insured under this Act . * * *

12 U.S.C. 1786(d)(3). Subsection (a)(2) in the quotation above refers 
to the conversion from a federally-insured credit union to a 
nonfederally-insured credit union.

C. Proposed Amendments to Section 741.4

    The proposal includes several amendments to clarify the NCUSIF 
premium and deposit replenishment obligations and procedures for credit 
unions and other entities that enter or depart from NCUSIF coverage. 
Most of these proposed amendments are located in Sec.  741.4(i), 
Conversion to Federal insurance, and Sec.  741.4(j), Conversion from, 
or termination of, Federal share insurance. The Board is, however, also 
proposing minor changes to other paragraphs in Sec.  741.4. A 
paragraph-by-paragraph description and discussion of all the proposed 
amendments follows.

Paragraph (a)--Scope

    Section 741.4 provides for the capitalization and maintenance of 
the NCUSIF. The proposal does not change the scope of Sec.  741.4, and 
the proposal does not amend this paragraph.

Paragraph (b)--Definitions

    The proposal includes three amendments to the existing definitions.
    The proposal amends the definition of insured shares to include, 
for a credit union or other entity that is not federally insured, the 
amount of deposits of shares that would have been insured by the NCUSIF 
had the institution been federally insured on the date of measurement. 
This amended definition is necessary for calculating

[[Page 36620]]

NCUSIF premiums, deposit replenishments, and equity distributions for 
entities that enter the NCUSIF insurance system.
    The proposal adds a definition of the term premium/distribution 
ratio as the number of full remaining months in the calendar year 
following the date of the institution's conversion or merger, divided 
by 12. This term is used in the NCUSIF premium, deposit replenishment, 
and equity distribution calculations involving credit unions and other 
entities that enter the NCUSIF insurance system. The ratio represents 
the fraction of the year that an institution entering the NCUSIF system 
was insured by the NCUSIF.
    The proposal also adds a definition of the term modified premium/
distribution ratio as one minus the premium/distribution ratio. This 
term is used in the NCUSIF premium, deposit replenishment, and equity 
distribution calculations involving credit unions that depart the 
NCUSIF insurance system. This ratio represents the fraction of the year 
that an institution departing the NCUSIF system was insured by the 
NCUSIF.
    Also, the proposal deletes the paragraph numbers in the current 
version, consistent with Office of the Federal Register drafting 
recommendations for definitions sections that list the terms defined in 
alphabetical order.

Paragraph (c)--One Percent Deposit

    This paragraph describes the one percent deposit requirement and 
the periodic adjustments based on changes in insured shares. For credit 
unions with less than $50 million in assets, the adjustments occur 
after the annual reporting period ending on December 31. For credit 
unions with $50 million or more in assets, the adjustments occur after 
the semiannual reporting periods ending on June 30 and December 31 each 
year.
    The proposal does not amend this paragraph.

Paragraph (d)--Insurance Premium Charges

    Paragraph (d)(1) provides that the Board may assess premium 
charges, in an amount stated as a percentage of insured shares, no more 
than twice annually. Subparagraph (d)(2)(i) states the relation of the 
premium charge to the equity ratio. The proposal does not amend these 
provisions.
    Subparagraph (d)(2)(ii) states that if the ratio of the NCUSIF 
falls below 1.2 percent, the NCUA Board is required to assess a premium 
in an amount it determines necessary to restore the equity ratio to, 
and maintain that ratio at, 1.2 percent. This provision is confusing 
because it does not delineate between premium assessments and 
assessments to replenish the one percent deposit as required by Sec.  
202 of the Federal Credit Union Act. Accordingly, the proposal amends 
subparagraph(d)(2)(ii) to read as follows:

    If the equity ratio of the NCUSIF falls to between 1.0 and 1.2 
percent, the NCUA Board is required to assess a premium in an amount 
it determines is necessary to restore the equity ratio to, and 
maintain that ratio at, at least 1.2 percent. If the equity ratio of 
the NCUSIF falls below 1.0 percent, the NCUA Board is required to 
assess a deposit replenishment charge in an amount it determines is 
necessary to restore the equity ratio to 1.0 percent and to assess a 
premium charge in an amount it determines is necessary to restore 
the equity ratio to, and maintain the ratio at, at least 1.2 
percent.

Paragraph (e)--Distribution of NCUSIF Equity

    This paragraph describes the mandatory year-end distribution of 
NCUSIF equity when the NCUSIF exceeds both its normal operating level 
and its available assets ratio as described in Sec.  202(c)(3) of the 
Federal Credit Union Act. The proposal does not amend this paragraph.

Paragraph (f)--Invoices

    This paragraph describes invoices for premiums and deposit 
adjustments. For clarity, the proposal amends this paragraph to 
specifically include invoices for deposit replenishment.

Paragraph (g)--New Charters

    This paragraph permits new charters to delay the funding of their 
one percent deposit until the year following their chartering. The 
proposal does not amend this paragraph.

Paragraph (h)--Depletion of One Percent Deposit

    The proposal adds a new paragraph(h) to read as follows:

    Depletion of one percent deposit. All or part of the one percent 
deposit may be used by the NCUSIF if necessary to meet its expenses, 
and the fund will expense the amount so used. The NCUSIF may invoice 
credit unions in an amount necessary to replenish the one percent 
deposit at any time following the effective date of the depletion, 
but must invoice credit unions no later than the adjustment 
described in paragraph (c) of this section based on insured shares 
as of December 31 of the year of the depletion.

    The first sentence of this provision restates the Board's authority 
under Sec.  202(c)(1)(B)(iv) of the Federal Credit Union Act. The 
second sentence clarifies that NCUA may invoice insured credit unions 
for the deposit replenishment at any time after the deposit has been 
depleted, but requires that NCUA send the invoice no later than the 
date NCUA first adjusts the deposit for changes in insured share levels 
in the year following the depletion.
    The proposal takes the current paragraph (h), entitled Conversion 
to Federal Insurance, expands on that paragraph, and incorporates it 
into the proposed paragraph (i). This is discussed further below.

Paragraph (i)--Conversion to Federal Insurance

    The proposal amends paragraph (i) to address, in detail, how a 
nonfederally insured credit union that converts to Federal insurance is 
affected by a NCUSIF declaration of a premium assessment, deposit 
replenishment assessment, or an equity distribution. Paragraph (i)(1) 
addresses a direct conversion to Federal insurance, and paragraph 
(i)(2) addresses an indirect conversion through the merger of a 
nonfederally insured credit union or entity into a federally insured 
credit union. The term ``merger'' includes not only mergers but also 
purchase and assumption transactions in which the continuing credit 
union obtains all, or substantially all, of the assets of the other 
entity. The current paragraph (i), entitled Mergers of nonfederally 
insured credit unions, is expanded and subsumed into the proposed 
paragraph (i)(2).
    This proposed paragraph (i), along with the proposed paragraph (j), 
constitute the most significant and complex of the proposed amendments 
to Sec.  741.4. Accordingly, the discussion below is detailed and 
includes hypotheticals illustrating each subparagraph.
    Proposed paragraph (i)(1) addresses a direct conversion to NCUSIF 
insurance. Proposed paragraph (i)(1)(i) provides that:

    A credit union or other institution that converts to insurance 
coverage with the NCUSIF will: (i) Immediately fund its one percent 
deposit based on the total of its insured shares as of the last day 
of the most recently ended reporting period prior to the date of 
conversion. * * *

    To illustrate the application of this provision, consider the 
following hypothetical. Assume Main Street Credit Union completes its 
conversion from nonfederal to Federal insurance on May 15 of Year One. 
Assume further that Main Street credit union had 1,000 insured shares 
for the end of month in December of the previous year (Year zero), 
1,100 insured shares at the end of

[[Page 36621]]

May, the month of conversion, and 1,200 insured shares at the end of 
June. This information is presented in this Table A: \2\
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    \2\ Although Main Street Credit Union was not Federally insured 
as of December 31 of Year Zero, proposed 741.4(b)(3) provides that 
``For a credit union or other entity that is not Federally insured, 
`insured shares' means, for purposes of this section only, the 
amount of deposits or shares that would have been insured by the 
NCUSIF under part 745 had the institution been Federally insured on 
the date of measurement.''

                                                     Table A
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                                                                                End of month,
                                                              End of month,     May, Year One
                                                             December,  Year       (month         End of month,
                                                                  Zero           conversion      June, Year One
                                                                                 completed)
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Main Street Credit Union's Federally Insured Shares.......             1,000             1,100             1,200
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    Proposed paragraph (i)(1)(i) requires that on the date of its 
conversion, Main Street fund its one percent deposit based on ``the 
total of its insured shares as of the last day of the most recently 
ended reporting period prior to the date of conversion.'' Since Main 
Street has less than $50,000,000 in assets, its reporting period is 
annual, and ends on December 31. 12 CFR 741.4(b)(6) (definition of 
``reporting period''). Main Street had $1,000 in insured shares on that 
date, and one percent of that is $10, and so that is the amount Main 
Street must immediately remit to the NCUSIF to establish its one 
percent deposit.
    Proposed paragraph (i)(1)(ii) provides that:

    A credit union or other institution that converts to insurance 
coverage with the NCUSIF will: * * * (ii) If the NCUSIF assesses a 
premium in the calendar year of conversion, pay a premium based on 
the institution's insured shares as of the last day of the most 
recently ended reporting period preceding the invoice date times the 
institution's premium/distribution ratio. * * *

    To illustrate the application of paragraph (i)(1)(ii), take the 
same facts in hypothetical A related to the conversion of Main Street 
from nonfederal to Federal insurance. Now, further assume that on the 
previous March 15, NCUA had declared a premium assessment, and on 
September 15 following the conversion NCUA sent out the invoices for 
the March 15 assessment. Also assume that Main Street had grown to 
1,300 insured shares at the end of September, the month the invoices 
were sent to Main Street and other credit unions. This information is 
presented in this Table B:

                                                     Table B
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                                                              End of month,
                                            End of month,     May, Year One                       End of month
                                           December,  Year       (month         End of month,   September,  Year
                                                Zero           conversion      June, Year One      One (month
                                                               completed)                         invoice sent)
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Main Street Credit Union's Federally                 1,000             1,100             1,200             1,300
 Insured Shares.........................
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    Paragraph (i)(1)(ii) requires Main Street pay a premium based on 
the institution's ``insured shares as of the last day of the most 
recently ended reporting period preceding the invoice date times the 
institution's premium/distribution ratio.'' Again, because Main Street 
is under $50 million in assets, the most recently ended reporting 
period preceding the September 15 invoice date is all the way back to 
December of Year Zero, when Main Street had $1,000 in shares. Main 
Street's ``premium/distribution ratio,'' as defined in proposed Sec.  
741.4(b)(5), is ``the number of full remaining months in the calendar 
year following the date of the institution's conversion or merger 
divided by 12.'' Since Main Street completed its conversion in May, 
there are seven full months remaining in the calendar year (June 
through December), and Main Street's premium/distribution ratio is 
seven divided by 12. Accordingly, Main Street's premium will be 
assessed on $1,000 times seven divided by 12, or about $583.\3\ Note 
that if Main Street's assets had exceeded $50 million as of June 30, it 
would have had semiannual reporting periods under Sec.  741.4(b)(6), 
and its ``insured shares as of the last day of the most recently ended 
reporting period preceding the invoice date'' would have been its 
insured shares as of June 30, Year One, and not as of December 31, Year 
Zero.
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    \3\ Main Street's actual premium charge will be this $583 
divided by the aggregate insured shares of all Federally insured 
credit unions times the aggregate premium for all Federally insured 
credit unions.
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    Proposed paragraphs (i)(1)(iii) and (iv) describe the 
responsibility of a credit union or other entity converting to Federal 
insurance to replenish a depleted NCUSIF deposit, as follows:

    A credit union or other institution that converts to insurance 
coverage with the NCUSIF will * * * (iii) If the NCUSIF declares, in 
the calendar year of conversion but on or before the date of 
conversion, an assessment to replenish the one-percent deposit, pay 
nothing related to that assessment; (iv) If the NCUSIF declares, at 
any time after the date of conversion through the end of that 
calendar year, an assessment to replenish the one-percent deposit, 
pay a replenishment amount based on the institution's insured shares 
as of the last day of the most recently ended reporting period 
preceding the invoice date. * * *

    Paragraph (i)(1)(iii) clarifies that a converting credit union has 
no responsibility to pay anything toward the replenishment of a 
depleted deposit that is declared on or before the date of conversion, 
even if NCUA sends out invoices related to the depletion after the date 
of conversion. Paragraph (i)(1)(iv) requires that a converting credit 
union replenish its deposit with regard to a depletion declared after 
the date of conversion through the end of the calendar year. Again, 
assume the same facts for Main Street as in Table B, but that the 
deposit depletion was announced in June, after Main Street converted, 
and that NCUA sent the invoices in September.

[[Page 36622]]



                                                     Table B
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                                                              End of month,
                                            End of month,     May, Year One                       End of month
                                           December,  Year       (month         End of month,   September,  Year
                                                Zero           conversion      June, Year One      One  (month
                                                               completed)                         invoice sent)
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Main Street Credit Union's Federally                 1,000             1,100             1,200             1,300
 Insured Shares.........................
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    Main Street would receive an invoice amount ``based on the [Main 
Street's] insured shares as of the last day of the most recently ended 
reporting period preceding the invoice date.'' Since Main Street has 
less than $50 million in shares, the most recently ended reporting 
period preceding the September invoice date was December 31, Year Zero, 
and it would pay for the replenishment based on $1,000 in insured 
shares. If Main Street, however, had had $50 million or more in assets 
on June 30, its most recently ended reporting period preceding the 
invoice date would have been the semiannual period ending on June 30, 
and Main Street would have used its insured shares as of June 30 to 
calculate the replenishment amount due to the NCUSIF.
    Under the Federal Credit Union Act, distributions, if any, are 
declared once a year, early in the year, based on excess funds in the 
NCUSIF as of the prior December 31. Proposed paragraph (i)(1)(v) 
describes the right of a credit union or other entity converting to 
Federal insurance to receive a distribution from the NCUSIF, 
specifically:

    (1) A credit union or other institution that converts to 
insurance coverage with the NCUSIF will: * * * (v) If the NCUSIF 
declares a distribution in the year following conversion based the 
NCUSIF's equity at the end of the year of conversion, receive a 
distribution based on the institution's insured shares as of the end 
of the year of conversion times the institution's premium/
distribution ratio. With regard to distributions declared in the 
calendar year of conversion but based on the NCUSIF's equity at the 
end of the preceding year, the converting institution will receive 
no distribution.

    To illustrate how proposed paragraph (i)(1)(v) works, assume that 
Main Street Credit Union converts to Federal insurance in May of Year 
One, and that the NCUA declares a distribution in January of Year Two 
based on the NCUSIF equity as of December 31 of Year One. Then Main 
Street will be entitled to a pro rata portion of the distribution, 
calculated on its insured shares as of December 31 of Year One times 
its premium/distribution ratio. Since it converted in May of Year One, 
and there were seven full months remaining in Year One at on the date 
of conversion, Main Street's premium/distribution ratio under proposed 
Sec.  741.4(b)(6) equals seven divided by 12.
    On the other hand, if the NCUA declared a distribution a year 
earlier, that is, in January of Year One based on the NCUSIF's equity 
ratio as of December 31 in Year Zero, then under proposed paragraph 
(i)(1)(v) Main Street would receive no part of this distribution. Main 
Street is not entitled to any part of this distribution because Main 
Street, which completed its conversion in Year One, did not contribute 
in any way to the excess funds in the NCUSIF as of the end of Year 
Zero.
    While proposed paragraph (i)(1), and the examples given above, 
involve the conversion of a credit union or entity directly to Federal 
insurance with the NCUSIF, such conversions can also happen indirectly 
through the merger of a nonfederally insured credit union or entity 
into a federally insured credit union.
    Proposed paragraph (i)(2) addresses the NCUSIF premiums, deposit 
replenishments, and distributions in this context.
    Proposed paragraph (i)(2)(i) provides that:

    (2) A federally insured credit union that merges with a 
nonfederally-insured credit union or other non-federally insured 
institution (the ``merging institution''), where the federally-
insured credit union is the continuing institution, will: (i) 
Immediately on the date of merger increase the amount of its NCUSIF 
deposit by an amount equal to one percent of the merging 
institution's insured shares as of the last day of the merging 
institution's most recently ended reporting period preceding the 
date of merger * * *.

    To illustrate this provision, and the other provisions of paragraph 
(i)(2) related to mergers of nonfederally insured entities into 
federally-insured credit unions, consider the following hypothetical. 
Nonfederally-insured Credit Union A merges into federally-insured 
Credit Union B on August 15 of Year One. The relevant insured shares of 
Credit Union A and Credit Union B at various dates before and after the 
merger are reflected in Table D:

                                                     Table D
----------------------------------------------------------------------------------------------------------------
                                                                                End of month      End of month
                                            End of month      End of month    August, Year One  September,  Year
                                           December,  Year   June, Year One     (month merger      One  (month
                                                Zero                             completed)       invoice sent)
----------------------------------------------------------------------------------------------------------------
Credit Union A insured shares...........             1,000             1,100               N/A               N/A
Credit Union B insured shares...........             9,000             9,900            12,900            14,000
----------------------------------------------------------------------------------------------------------------

    Proposed paragraph (i)(2)(i) requires that Credit Union B, the 
continuing credit union, immediately increase the amount of its deposit 
with the NCUSIF in an amount ``equal to one percent of the merging 
institution's insured shares as of the last day of the merging 
institution's most recently ended reporting period preceding the date 
of merger.'' Since Credit Union A, the merging institution, has less 
than $50 million in assets, its reporting period is the calendar year, 
and its most recently ended reporting period preceding the August 
merger date is December 31 in Year Zero. Credit Union A had $1,000 in 
insured shares on that date. Accordingly, Credit Union B, the 
continuing credit union, must immediately increase the amount of its 
deposit with the NCUSIF by one percent

[[Page 36623]]

of $1,000, or $10. Note that if Credit Union A had been a larger credit 
union, with $50 million or more in assets on June 30 in Year One, then 
Credit Union B would have used Credit Union A's insured shares as of 
June 30 in this calculation.
    Proposed paragraph (i)(2)(ii), relating to NCUSIF premium 
assessments, provides that the continuing institution will:

    (ii) With regard to any NCUSIF premiums assessed in the calendar 
year of merger, pay a two-part premium, with one part calculated on 
the merging institution's insured shares as described in 
subparagraph (1)(ii) above, and the other part calculated on the 
continuing institution's insured shares as of the last day of its 
most recently ended reporting period preceding the date of merger. * 
* *

    Paragraph (i)(2)(ii) provides for a two-part calculation, with the 
first part relating to the merging credit union and the second part 
relating to the continuing credit union. If we assume the facts as in 
Table D, and assume the premium is assessed sometime in Year One, then 
we calculate the insured shares of Credit Union A, the merging credit 
union, as we did in the example for paragraph (i)(1)(ii), which would 
be $583. Then we calculate the insured shares of Credit Union B, the 
continuing credit union, ``as of the last day of its most recently 
ended reporting period preceding the merger date.'' Since Credit Union 
B is also under $50 million in assets, ``the last day of the most 
recently ended reporting period'' is also December 31 of Year Zero. 
Credit Union B's insured shares on that date were $9,000, and so the 
combined insured shares for purposes of the premium assessment is 
$9,583. Note that if Credit Union B had $50 million or more in assets 
on June 30 of Year One, then Credit Union B's ``most recently ended 
reporting period preceding the merger date'' would have been June 30 of 
Year One, and not December 31 of Year Zero. The Board is aware that the 
NCUA might declare a NCUSIF premium, invoice it, and receive the 
premiums in Year One from the continuing institution before the 
continuing institution consummates its merger. In that case, the Board 
would invoice the continuing credit union again after the merger, but 
only for the difference between the amount previously invoiced and the 
amount calculated under proposed paragraph (i)(2)(ii).
    Proposed paragraph (i)(2)(iii) prescribes the procedures for 
calculating the NCUSIF distribution when a nonfederally-insured credit 
union or entity merges into a federally insured credit union. Proposed 
paragraph (i)(2)(iii) provides that the federally-insured credit union 
will:

[i]f the NCUSIF declares a distribution in the year following the 
merger based on the NCUSIF's equity at the end of the year of 
merger, receive a distribution based on the continuing institution's 
insured shares as of the end of the year of merger. With regard to 
distributions declared in the calendar year of merger but based on 
the NCUSIF's equity from the end of the preceding year, the 
institution will receive a distribution based on its insured shares 
as of the end of the preceding year.

    This formula recognizes that the merging institution did not 
contribute to the NCUSIF equity as of the end of the year preceding the 
merger and so no distribution is allotted against the merging 
institution's shares. As for distributions based on the NCUSIF equity 
at the end of the year of merger, this formula does not include any pro 
rata reduction for the merging institution's contribution. The Board 
determined that a pro rata reduction was unnecessary, given the 
generally small relative size of merging institutions to continuing 
institutions, and the fact that the Federal Credit Union Act does not 
require any sort of pro rata reduction or other pro rata calculation 
with regard to distributions.
    For credit unions converting to NCUSIF coverage, the proposal 
changes the date for calculating the one percent deposit from insured 
shares as of the close of the month before conversion to insured shares 
as of the most recently ended reporting period before conversion. NCUA 
is proposing this change to make the calculation method for credit 
unions entering NCUSIF consistent with the calculation method for 
federally-insured credit unions' one percent deposit adjustment. 
Likewise, for federally-insured credit unions merging with 
nonfederally-insured credit unions, the proposal clarifies that the 
date used for calculation of the merged credit union's increased one 
percent is insured shares of the nonfederally-insured credit union as 
of the most recently ended reporting period before conversion. Again, 
this change makes the calculation method for credit unions increasing 
insured shares by merger consistent with the calculation method for 
federally-insured credit unions' one percent deposit adjustment.

Paragraph (j)--Conversion From, or Termination of, Federal Share 
Insurance

    The proposal amends paragraph (j) to address, in detail, how a 
federally insured credit union that converts to insurance other than 
that provided by the NCUSIF, or that loses or terminates its NCUSIF 
insurance, is affected by a NCUSIF declaration of a premium assessment, 
deposit replenishment assessment, or equity distribution. Proposed 
subparagraph (j)(1) addresses direct insurance conversions and 
conversions by merger. Proposed subparagraph (j)(2) addresses 
liquidations and insurance termination.
    Proposed paragraph (j)(1)(i) provides that:

    A federally-insured credit union whose insurance coverage with 
the NCUSIF terminates, including through a conversion to, or merger 
into, a nonfederally insured credit union or a non-credit union 
entity, will: (i) Receive the full amount of its NCUSIF deposit, 
less any announced depletion, immediately after the final date on 
which any shares of the credit union are NCUSIF-insured. * * *

    The current paragraph (j) does not mention the possibility of 
deposit depletion, and this has been clarified in the proposed 
paragraph (j). To illustrate the application of this paragraph 
(j)(1)(i), consider the following hypothetical. Assume Anytown Credit 
Union, a credit union with $30 million in assets, converts from Federal 
to nonfederal insurance on November 15. Also assume Anytown Credit 
Union had $20 million in insured shares as of the previous December 31, 
the end of its most recent reporting period. 12 CFR 741.4(b)(5), (c). 
The NCUSIF would return one percent of $20 million, or $200,000 to 
Anytown Credit Union immediately following the effective date of its 
conversion. Note that, if Anytown Credit Union had reported $50 million 
or more in assets on June 30, then June 30 would have been the end of 
its most recent reporting period. Now further assume that, on July 15 
of that same year, the NCUSIF had announced an expense that reduced the 
equity ratio from 1.3 to .75, which would have included a write-off 
(depletion) of 25 percent, or 25 basis points, of the one percent 
deposit. The amount of the deposit returned to Anytown would be reduced 
by 25 percent, from $200,000 to $150,000. If the NCUSIF had announced 
expenses reducing the equity ratio to .75 after the November 15 
conversion date, this announcement would have no effect on Anytown and 
it would still receive $200,000 from the NCUSIF.
    Proposed paragraph (j)(1)(ii) provides that:

    A federally-insured credit union whose insurance coverage with 
the NCUSIF terminates, including through a conversion to, or merger 
into, a nonfederally insured credit union or a non-credit union 
entity, will: * * * (ii) If the NCUSIF declares a distribution at 
the end of the calendar year

[[Page 36624]]

of conversion, receive a distribution based on the institution's 
insured shares as of the last day of the most recently ended 
reporting period preceding the date of conversion times the 
institution's modified premium/distribution ratio. * * *

    To illustrate the application of this paragraph (j)(1)(ii), again 
assume Anytown Credit Union converts to nonfederal insurance on 
November 15, and in January of the following year, the NCUSIF declares 
a distribution based on the NCUSIF's equity ratio as of December 31. 
Anytown would receive a pro rata distribution calculated as its $20 
million in insured shares multiplied by the modified premium/
distribution ratio. Anytown's modified premium/distribution ratio, from 
the definition in Sec.  741.4(b)(5), is one minus Anytown's premium/
distribution ratio, which is one minus the ratio of the full number of 
months remaining in the year divided by twelve, which is one minus (one 
divided by twelve), which is eleven divided by twelve. So Anytown would 
receive a pro rata distribution based on $20 million of insured shares 
times eleven twelfths, or about $18.33 million in shares.\4\
---------------------------------------------------------------------------

    \4\ Anytown's actual distribution would be $18.33 million times 
the aggregate amount of the distribution divided by the aggregate 
amount of all insured shares at all federally insured credit unions.
---------------------------------------------------------------------------

    The current rule provides credit unions departing the NCUSIF system 
with the option to leave ``a nominal sum on deposit with NCUSIF until 
the next distribution from NCUSIF equity and will thus qualify for a 
prorated share of the distribution.'' For several reasons, the proposal 
eliminates this option. First, the current rule is ambiguous because it 
does not specify how the requisite nominal sum is calculated or how the 
prorated share of future distributions is calculated. Second, this 
option, if exercised, imposes a lengthy recordkeeping burden on the 
NCUSIF, as it can be many years between NCUSIF equity distributions. 
Third, although several credit unions have departed the NCUSIF system 
in recent years, the Board is not aware that any of these credit unions 
exercised this option. Finally, the proposed amendments will allow 
credit unions departing the NCUSIF to receive a pro rata share of any 
future distribution without leaving any sum on deposit with the NCUSIF, 
but only for a dividend declared on NCUSIF equity as of the close of 
the year of departure. The Board believes this simplification is 
appropriate, particularly since the contribution of a departing credit 
union to future distributions diminishes with the passage of time.
    Proposed paragraph (j)(1)(iii) provides that:

    A federally-insured credit union whose insurance coverage with 
the NCUSIF terminates, including through a conversion to, or merger 
into, a nonfederally insured credit union or a non-credit union 
entity, will: * * * (iii) If the NCUSIF assesses a premium in the 
calendar year of conversion or merger on or before the day in which 
the conversion or merger is completed, pay a premium based on the 
institution's insured shares as of the last day of the most recently 
ended reporting period preceding the conversion or merger date times 
the institution's modified premium/distribution ratio. If the 
institution has previously paid a premium based on this same 
assessment that exceeds this amount, the institution will receive a 
refund of the difference following completion of the conversion or 
merger.

    To illustrate these premium provisions, again assume Anytown Credit 
Union is a credit union with $30 million in assets that converts from 
Federal to nonfederal insurance on November 15 of Year One, and that 
Anytown Credit Union had $20 million in insured shares as of the 
previous December 31 (of Year Zero), the end of its most recent 
reporting period. Further assume that NCUA declares a premium on 
February 12 of Year One and invoices the premium on November 15. Since 
the premium was declared ``on or before the day in which [Anytown's] 
conversion [was] completed,'' Sec.  741.4(i)(1)(iii) applies. Anytown 
would then pay a premium based on $20 million (its ``insured shares as 
of the last day of the most recently ended reporting period preceding 
the conversion or merger date'') times eleven twelfths (its ``modified 
premium/distribution ratio''), or about $18.33 million. Note that NCUA 
might have already have invoiced Anytown for the premium sometime 
between February 12 and Anytown's merger on November 15. If so, Anytown 
will likely receive a refund of some of this earlier premium, as 
provided in the last sentence of Sec.  741.1(i)(1)(iii), since it may 
have overpaid the earlier premium.
    Proposed paragraph (j)(2), dealing with liquidations, states the 
following:

    Notwithstanding the requirements of paragraph (j)(1) of this 
section: (i) Any insolvent credit union that is closed for 
involuntary liquidation will not be entitled to a return of its 
deposit; (ii) Any solvent credit union that is closed due to 
voluntary or involuntary liquidation will be entitled to a return of 
its deposit, less any announced depletion, prior to final 
distribution of member shares; and (iii) The Board reserves the 
right to delay return of the deposit to any credit union converting 
from or terminating its Federal insurance, or voluntarily 
liquidating, for up to one year if the Board determines that 
immediate repayment would jeopardize the NCUSIF.

    These provisions are identical to provisions in the current 
paragraph (j), except that the proposal adds the phrase ``less any 
announced depletion'' in paragraph (j)(2)(ii) for clarity.

Paragraph (k)--Assessment of Administrative Fee and Interest for 
Delinquent Payment

    This paragraph describes procedures for assessing fees for 
delinquent payments of the capitalization deposit and insurance 
premium. The proposal clarifies that paragraph (k) applies to 
delinquent deposit replenishment payments as well as premium payments. 
The proposal also deletes overlapping provisions for imposing both the 
``costs of collection'' and an ``administrative fee'' in the current 
rule and changes the interest rate to a fixed rate of six percent per 
year. The delinquency fee will be calculated based on a 360-day year, 
that is, six percent times the unpaid balance divided by 360 times the 
number of days unpaid. The Office of the Chief Financial Officer has 
determined that switching to a fixed rate and imposing the delinquency 
fee based on the number of days the balance is outstanding will allow 
NCUA to automate the billing process, thus eliminating the need for 
additional administrative fees.
    Finally, the proposal restates provisions from the Act that: (a) 
Give the Board authority to collect a penalty of up to $20,000 per day 
for each day the balance related to a premium or deposit remains 
unpaid; and (b) prohibit insured credit unions from paying dividends or 
distributing assets while in default on insurance deposits or premiums, 
with possible punishment of fines up to $1,000 or imprisonment of one 
year for directors or officers who knowingly violate this prohibition.

D. Temporary Corporate Credit Union Stabilization Fund

    In the Spring of 2009, Congress enacted the ``Helping Families Save 
Their Homes Act of 2009,'' Pub. L. 111-22. Section 204(f) of that Act 
established the Temporary Corporate Credit Union Stabilization Fund 
(CCSUF).
    The CCUSF is separate from the NCUSIF, and the CCUSF will make 
assessments on federally-insured credit unions separate and apart from 
any NCUSIF assessments. The CCUSF, unlike the NCUSIF, is funded by 
Treasury borrowings and not credit union capitalization deposits. 
Accordingly, the CCUSF does not make assessments to replenish capital 
deposits, nor does it make assessments

[[Page 36625]]

to reestablish a particular equity ratio. Instead, the CCUSF only makes 
assessments on insured credit unions as necessary to repay CCUSF 
borrowings from the Treasury. Accordingly, much of Sec.  741.4 of 
NCUA's rules is inapplicable to the CCUSF, and the CCUSF is not 
specifically addressed in the text of this rulemaking.
    While the obligation of a particular credit union to replenish its 
NCUSIF deposit or make a NCUSIF premium payment can be rather 
complicated, the obligation for a particular credit union to pay a 
particular CCUSF assessment is straightforward. CCUSF assessments are 
effective on the date the NCUA Board acts to order an assessment as 
authorized by Public Law 111-22. Any credit union whose shares are 
covered by Federal insurance on that date must pay its share of that 
particular assessment; but any credit union that is not covered by 
Federal insurance on that date is not obligated to pay any part of that 
assessment. The dollar amount of each credit union's portion of a CCUSF 
assessment is calculated based on that credit union's insured shares as 
of the end of its last reporting period preceding the date of the Board 
action.

E. Proposed Amendment to Section 701.6

    Section 701.6(d) of NCUA's regulations addresses delinquent payment 
of the operating fee paid by FCUs. The proposal updates this section to 
parallel the revised provisions for delinquent payment of insurance 
premium and deposit replenishment expenses. As in Sec.  741.4(k), the 
proposed amendments to Sec.  701.6(d) delete potentially duplicative 
provisions allowing both administrative fees and costs of collection, 
and replace the variable interest rate with a fixed interest rate of 
six percent per year. The delinquency fee will be calculated based on a 
360-day year, that is, six percent times the unpaid balance divided by 
360 times the number of days unpaid.

F. 30-Day Comment Period

    NCUA seeks public comment on the proposed amendments discussed 
above.
    As a matter of agency policy, the NCUA Board general provides a 60-
day comment period for proposed regulations. NCUA's Interpretive Ruling 
and Policy Statement (IRPS) 87-2, 52 FR 35231 (Sept. 18, 1987), as 
amended by IRPS 03-02, 68 FR 31949 (May 29, 2003). In this case, the 
NCUA Board believes a 30-day comment period will suffice because the 
proposal clarifies an existing rule.
    NCUA also seeks comment on whether the examples that appear above 
illustrating the various proposed amendments should be placed in a 
formal Appendix and be published in the Code of Federal Regulations 
with the rule text.

Regulatory Procedures

Regulatory Flexibility Act
    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small credit unions, defined as those under ten 
million dollars in assets. This proposed rule clarifies existing 
requirements and will not impose any new regulatory requirements. The 
proposed rule will 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 the proposed rule would not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget. 44 U.S.C. 3501 et 
seq.; 5 CFR part 1320.
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 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 proposed 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 the proposed rule would not affect 
family well-being within the meaning of Sec.  654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Operating fee.

List of Subjects in 12 CFR Part 741

    Credit unions, insurance.

    By the National Credit Union Administration Board on July 16, 
2009.
Mary F. Rupp,
Secretary of the Board.

    For the reasons set forth above, NCUA proposes to amend 12 CFR 
parts 701 and 741 as follows.

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:

    Authority:  12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 
701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also 
authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610. 
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

    2. Revise paragraph (d) of Sec.  701.6 to read as follows:


Sec.  701.6  Fees paid by Federal credit unions.

* * * * *
    (d) Assessment of interest for delinquent payment. Each Federal 
credit union must pay to the Administration interest on any delinquent 
payment of its operating fee. A payment will be considered delinquent 
if it is post-marked later than the date stated in the notice to the 
credit union provided under Sec.  701.6(c). The National Credit Union 
Administration may waive the collection of interest if circumstances 
warrant.
    (1) The interest rate charged on any delinquent payment is six 
percent per annum of the unpaid balance for the number of days the 
balance remains unpaid. The delinquency fee is calculated based on a 
360-day year, that is, six percent times the unpaid balance divided by 
360 times the number of days unpaid.
    (2) If a credit union makes a combined payment of its operating fee 
and its share insurance deposit and/or insurance premium as provided in 
Sec.  741.4 of this chapter and such payment is delinquent, interest 
will be charged on the combined amount.

PART 741--REQUIREMENTS FOR INSURANCE

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

    Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d: 31 
U.S.C. 3717.

    4. Revise Sec.  741.4 to read as follows:

[[Page 36626]]

Sec.  741.4  Insurance premium and one percent deposit.

    (a) Scope. This section implements the requirements of Section 202 
of the Act (12 U.S.C. 1782) providing for capitalization of the NCUSIF 
through the maintenance of a deposit by each insured credit union in an 
amount equaling one percent of its insured shares and payment of an 
insurance premium.
    (b) Definitions. For purposes of this section:
    Available assets ratio means the ratio of:
    (i) The amount determined by subtracting all liabilities of the 
NCUSIF, including contingent liabilities for which no provision for 
losses has been made, from the sum of cash and the market value of 
unencumbered investments authorized under Section 203(c) of the Act (12 
U.S.C. 1783(c)), to:
    (ii) The aggregate amount of the insured shares in all insured 
credit unions.
    (iii) Shown as an abbreviated mathematical formula, the available 
assets ratio is:
[GRAPHIC] [TIFF OMITTED] TP24JY09.001

    Equity ratio means the ratio of:
    (i) The amount of NCUSIF's capitalization, meaning insured credit 
unions' one percent capitalization deposits plus the retained earnings 
balance of the NCUSIF (less contingent liabilities for which no 
provision for losses has been made) to:
    (ii) The aggregate amount of the insured shares in all insured 
credit unions.
    (iii) Shown as an abbreviated mathematical formula, the equity 
ratio is:
[GRAPHIC] [TIFF OMITTED] TP24JY09.002

    Insured shares means the total amount of a federally-insured credit 
union's share, share draft and share certificate accounts, or their 
equivalent under State law (which may include deposit accounts), 
authorized to be issued to members, other credit unions, public units, 
or nonmembers (where permitted under the Act or equivalent State law), 
but does not include amounts in excess of insurance coverage as 
provided in part 745 of this chapter. For a credit union or other 
entity that is not federally insured, ``insured shares'' means, for 
purposes of this section only, the amount of deposits or shares that 
would have been insured by the NCUSIF under part 745 had the 
institution been federally insured on the date of measurement.
    Modified premium/distribution ratio means one minus the premium/
distribution ratio.
    Normal operating level means an equity ratio not less than 1.2 
percent and not more than 1.5 percent, as established by action of the 
NCUA Board.
    Premium/distribution ratio means the number of full remaining 
months in the calendar year following the date of the institution's 
conversion or merger divided by 12.
    Reporting period means calendar year for credit unions with total 
assets of less than $50,000,000 and means semiannual period for credit 
union with total assets of $50,000,000 or more.
    (c) One percent deposit. Each insured credit union must maintain 
with the NCUSIF during each reporting period a deposit in an amount 
equaling one percent of the total of the credit union's insured shares 
at the close of the preceding reporting period. For credit unions with 
total assets of less than $50,000,000, insured shares will be measured 
and adjusted annually based on the insured shares reported in the 
credit union's semiannual 5300 report due in January of each year. For 
credit unions with total assets of $50,000,000 or more, insured shares 
will be measured and adjusted semiannually based on the insured shares 
reported in the credit union's quarterly 5300 reports due in January 
and July of each year.
    (d) Insurance premium charges. (1) In general. Each insured credit 
union will pay to the NCUSIF, on dates the NCUA Board determines, but 
not more than twice in any calendar year, an insurance premium in an 
amount stated as a percentage of insured shares, which will be the same 
percentage for all insured credit unions.
    (2) Relation of premium charge to equity ratio of NCUSIF. (i) The 
NCUA Board may assess a premium charge only if the NCUSIF's equity 
ratio is less than 1.3 percent and the premium charge does not exceed 
the amount necessary to restore the equity ratio to 1.3 percent.
    (ii) If the equity ratio of the NCUSIF falls to between 1.0 and 1.2 
percent, the NCUA Board is required to assess a premium in an amount it 
determines is necessary to restore the equity ratio to, and maintain 
that ratio at, at least 1.2 percent. If the equity ratio of the NCUSIF 
falls below 1.0 percent, the NCUA Board is required to assess a deposit 
replenishment charge in an amount it determines is necessary to restore 
the equity ratio to 1.0 percent and to assess a premium charge in an 
amount it determines is necessary to restore the equity ratio to, and 
maintain the ratio at, at least 1.2 percent.
    (e) Distribution of NCUSIF equity. If, as of the end of a calendar 
year, the NCUSIF exceeds its normal operating level and its available 
assets ratio exceeds 1.0 percent, the NCUA Board will make a 
proportionate distribution of NCUSIF equity to insured credit unions. 
The distribution will be the maximum amount possible that does not 
reduce the NCUSIF's equity ratio below its normal operating level and 
does not reduce its available assets ratio below 1.0 percent. The 
distribution will be after the calendar year and in the form determined 
by the NCUA Board. The form of the distribution may include a waiver of 
insurance premiums, premium rebates, or distributions from NCUSIF 
equity in the

[[Page 36627]]

form of dividends. The NCUA Board will use the aggregate amount of the 
insured shares from all insured credit unions from the final reporting 
period of the calendar year in calculating the NCUSIF's equity ratio 
and available assets ratio for purposes of this paragraph.
    (f) Invoices. The NCUA provides invoices to all federally insured 
credit unions stating any change in the amount of a credit union's one 
percent deposit and the computation and funding of any premium or 
deposit replenishment assessments due. Invoices for Federal credit 
unions also include any annual operating fees that are due. Invoices 
are calculated based on a credit union's insured shares as of the most 
recently ended reporting period. The invoices may also provide for any 
distribution the NCUA Board declares in accordance with paragraph (e) 
of this section, resulting in a single net transfer of funds between a 
credit union and the NCUA.
    (g) New charters. A newly-chartered credit union that obtains share 
insurance coverage from the NCUSIF during the calendar year in which it 
has obtained its charter will not be required to pay an insurance 
premium for that calendar year. The credit union will fund its one 
percent deposit on a date to be determined by the NCUA Board in the 
following calendar year, but will not participate in any distribution 
from NCUSIF equity related to the period prior to the credit union's 
funding of its deposit.
    (h) Depletion of one percent deposit. All or part of the one 
percent deposit may be used by the NCUSIF if necessary to meet its 
expenses, and the fund will expense the amount so used. The NCUSIF may 
invoice credit unions in an amount necessary to replenish the one 
percent deposit at any time following the effective date of the 
depletion, but must invoice credit unions no later than the adjustment 
described in paragraph (c) of this section based on insured shares as 
of December 31 of the year of the depletion.
    (i) Conversion to Federal insurance.
    (1) A credit union or other institution that converts to insurance 
coverage with the NCUSIF will:
    (i) Immediately fund its one percent deposit based on the total of 
its insured shares as of the last day of the most recently ended 
reporting period prior to the date of conversion;
    (ii) If the NCUSIF assesses a premium in the calendar year of 
conversion, pay a premium based on the institution's insured shares as 
of the last day of the most recently ended reporting period preceding 
the invoice date times the institution's premium/distribution ratio;
    (iii) If the NCUSIF declares, in the calendar year of conversion on 
or before the date of conversion, an assessment to replenish the one-
percent deposit, pay nothing related to that assessment;
    (iv) If the NCUSIF declares, at any time after the date of 
conversion through the end of that calendar year, an assessment to 
replenish the one-percent deposit, pay a replenishment amount based on 
the institution's insured shares as of the last day of the most 
recently ended reporting period preceding the invoice date; and
    (v) If the NCUSIF declares a distribution in the year following 
conversion based the NCUSIF's equity at the end of the year of 
conversion, receive a distribution based on the institution's insured 
shares as of the end of the year of conversion times the institution's 
premium/distribution ratio. With regard to distributions declared in 
the calendar year of conversion but based on the NCUSIF's equity from 
the end of the preceding year, the converting institution will receive 
no distribution.
    (2) A federally insured credit union that merges with a 
nonfederally-insured credit union or other non-federally insured 
institution (the ``merging institution''), where the federally-insured 
credit union is the continuing institution, will:
    (i) Immediately on the date of merger increase the amount of its 
NCUSIF deposit by an amount equal to one percent of the merging 
institution's insured shares as of the last day of the merging 
institution's most recently ended reporting period preceding the date 
of merger;
    (ii) With regard to any NCUSIF premiums assessed in the calendar 
year of merger, pay a two-part premium, with one part calculated on the 
merging institution's insured shares as described in subparagraph 
(1)(ii) above, and the other part calculated on the continuing 
institution's insured shares as of the last day of its most recently 
ended reporting period preceding the date of merger; and
    (iii) If the NCUSIF declares a distribution in the year following 
the merger based the NCUSIF's equity at the end of the year of merger, 
receive a distribution based on the continuing institution's insured 
shares as of the end of the year of merger. With regard to 
distributions declared in the calendar year of merger but based on the 
NCUSIF's equity from the end of the preceding year, the institution 
will receive a distribution based on its insured shares as of the end 
of the preceding year.
    (j) Conversion from, or termination of, Federal share insurance.
    (1) A federally insured credit union whose insurance coverage with 
the NCUSIF terminates, including through a conversion to, or merger 
into, a nonfederally insured credit union or a non-credit union entity, 
will:
    (i) Receive the full amount of its NCUSIF deposit, less any 
announced depletion, immediately after the final date on which any 
shares of the credit union are NCUSIF-insured;
    (ii) If the NCUSIF declares a distribution at the end of the 
calendar year of conversion, receive a distribution based on the 
institution's insured shares as of the last day of the most recently 
ended reporting period preceding the date of conversion times the 
institution's modified premium/distribution ratio; and
    (iii) If the NCUSIF assesses a premium in the calendar year of 
conversion or merger on or before the day in which the conversion or 
merger is completed, pay a premium based on the institution's insured 
shares as of the last day of the most recently ended reporting period 
preceding the conversion or merger date times the institution's 
modified premium/distribution ratio. If the institution has previously 
paid a premium based on this same assessment that exceeds this amount, 
the institution will receive a refund of the difference following 
completion of the conversion or merger.
    (2) Notwithstanding the requirements of paragraph (j)(1) of this 
section:
    (i) Any insolvent credit union that is closed for involuntary 
liquidation will not be entitled to a return of its deposit;
    (ii) Any solvent credit union that is closed due to voluntary or 
involuntary liquidation will be entitled to a return of its deposit, 
less any announced depletion, prior to final distribution of member 
shares; and
    (iii) The Board reserves the right to delay return of the deposit 
to any credit union converting from or terminating its Federal 
insurance, or voluntarily liquidating, for up to one year if the Board 
determines that immediate repayment would jeopardize the NCUSIF.
    (k) Assessment of interest and penalties for delinquent payment.
    (1) Each federally insured credit union must pay to the NCUA 
interest on any delinquent payment of its capitalization deposit, 
including any delinquent deposit replenishment, and on any delinquent 
insurance premium. A payment will be considered delinquent if it is 
postmarked later than the date stated in the invoice provided to the 
credit union. The interest rate charged on any delinquent payment is 
six percent per annum of the unpaid

[[Page 36628]]

balance for the number of days after the due date the balance remains 
unpaid. The delinquency fee is calculated based on a 360-day year, that 
is, six percent times the unpaid balance divided by 360 times the 
number of days unpaid. The NCUA may waive or abate collection of 
interest, if circumstances warrant.
    (2) The Act contains specific penalties and other consequences for 
delinquent payments, including, but not limited to:
    (i) Section 202(d)(2)(B) of the Act (12 U.S.C. 1782(d)(2)(B)) 
provides that the Board may assess and collect a penalty from an 
insured credit union of not more than $20,000 for each day the credit 
union fails or refuses to pay any deposit or premium due to the fund; 
and
    (ii) Section 202(d)(3) of the Act (12 U.S.C. 1782(d)(3)) provides, 
generally, that no insured credit union shall pay any dividends on its 
insured shares or distribute any of its assets while it remains in 
default in the payment of its deposit or any premium charge due to the 
fund. Section 202(d)(3) further provides that any director or officer 
of any insured credit union who knowingly participates in the 
declaration or payment of any such dividend or in any such distribution 
shall, upon conviction, be fined not more than $1,000 or imprisoned 
more than one year, or both.

[FR Doc. E9-17310 Filed 7-23-09; 8:45 am]
BILLING CODE 7535-01-P