[Federal Register Volume 77, Number 240 (Thursday, December 13, 2012)]
[Rules and Regulations]
[Pages 74112-74113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30075]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 713

RIN 3133-AD98


Fidelity Bond and Insurance Coverage

AGENCY:  National Credit Union Administration (NCUA).

ACTION:  Final rule.

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SUMMARY: The NCUA Board (Board) is adopting as a final rule, without 
change, the interim final rule that the Board issued in May 2012 that 
amended NCUA's fidelity bond rule. The interim final rule removed 
references in the fidelity bond rule to NCUA's former Regulatory 
Flexibility Program (RegFlex), which granted a RegFlex credit union 
broader authority to choose the deductible amount of its fidelity bond 
policy.

DATES: Effective December 13, 2012, the interim final rule published 
May 31, 2012, at 77 FR 31981, is adopted as final without change.

FOR FURTHER INFORMATION CONTACT: Frank Kressman, Associate General 
Counsel, Office of General Counsel, at the above address or telephone: 
(703) 518-6540.

SUPPLEMENTARY INFORMATION: The NCUA Board (Board) is adopting as a 
final rule, without change, the interim final rule that the Board 
issued in May 2012 that amended NCUA's fidelity bond rule.\1\ The 
interim final rule removed references in the fidelity bond rule to 
NCUA's former Regulatory Flexibility Program (RegFlex), which granted a 
RegFlex credit union broader authority to choose the deductible amount 
of its fidelity bond policy.\2\ Specifically, the interim final rule 
amended the standard used for granting authority to a federal credit 
union (FCU) to choose an increased deductible amount. Before the Board 
issued the interim final rule, the standard was based on an FCU's 
assets and status as a RegFlex FCU. The standard used after the interim 
final rule is based on an FCU's assets, CAMEL ratings, and capital 
level. The new standard is also used by NCUA in other rules affected by 
the elimination of RegFlex.
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    \1\ 77 FR 31981 (May 31, 2012).
    \2\ The Board established RegFlex in 2002. 66 FR 58656 (Nov. 23, 
2001). RegFlex relieved FCUs from certain regulatory restrictions 
and granted them additional powers if they demonstrated sustained 
superior performance as measured by CAMEL rating and net worth 
classification.

I. Background
II. Comments
III. Regulatory Procedures

I. Background

What did the interim final rule change and why is NCUA adopting this 
final rule?

    In issuing a proposed rule in 2011 to remove part 742 from NCUA's 
regulations and eliminate the RegFlex Program,\3\ NCUA inadvertently 
overlooked references to RegFlex in its fidelity bond rule.\4\ At that 
time, the fidelity bond rule established a formula for calculating the 
maximum deductible an FCU could carry on its fidelity bond based partly 
on the FCU's asset size. The rule set a cap of $200,000, but permitted 
RegFlex FCUs with assets in excess of $1 million a higher maximum 
deductible of up to $1 million.\5\ With the issuance of the final rule 
to eliminate RegFlex, the NCUA Board also issued an interim final rule 
to amend the fidelity bond rule.\6\
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    \3\ 76 FR 81421 (Dec. 28, 2011).
    \4\ 12 CFR 713.6.
    \5\ 12 CFR 713.6(a)(1), (c).
    \6\ 77 FR 31981 (May 31, 2012).
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    The interim final rule changed the regulatory standard for 
permitting an FCU to have an increased deductible on its fidelity bond. 
As noted, the standard used before the interim final rule was that a 
RegFlex FCU with assets in excess of $1 million had such authority. The 
standard used after the interim final rule is that such authority is 
granted to an FCU with assets in excess of $1 million that is, among 
other things, well capitalized.\7\
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    \7\ See 70 FR 61713 (Oct. 26, 2005) for a broader perspective of 
the regulatory history of part 713.
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    Specifically, the interim final rule permits an FCU to choose a 
maximum deductible amount for its fidelity bond coverage of $1 million 
if the FCU has: (1) Received a composite CAMEL rating of ``1'' or ``2'' 
during its last two full examinations and (2) maintained a ``well 
capitalized'' net worth classification for the immediately preceding 
six quarters or has remained ``well capitalized'' for the immediately 
preceding six quarters after applying the applicable risk-based net 
worth requirement.
    Once a year, an FCU meeting the interim final rule's well 
capitalized standard must review its continued eligibility for a higher 
deductible under the rule, which is the same approach applied by the 
Board when it adopted the fidelity bond provisions in 2005.\8\ An FCU's 
continued eligibility will be based on its asset size as reflected in 
its most recent year-end 5300 call report and its net worth as 
reflected in that same report. If an FCU that previously qualified for 
the higher deductible limit has a decrease in assets based on its most 
recent year-end 5300 call report or its net worth has decreased so that 
it would no longer qualify under the well capitalized standard in the 
fidelity bond rule, then it must obtain the coverage otherwise required 
by Part 713 with an appropriate deductible. A similar result occurs if 
an FCU meets the assets threshold and its net worth continues to 
qualify it under the well capitalized standard, but it has failed to 
receive a CAMEL rating of ``1'' or ``2'' during its most recent 
examination report.
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    \8\ Id. at 61714.
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II. Comments

    NCUA received no written responses to its request for comment on 
the interim final rule.\9\ Accordingly, the NCUA Board adopts as final, 
without change, the interim final rule published in May 2012.\10\
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    \9\ 77 FR 31981 (May 31, 2012).
    \10\ Id.
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III. Regulatory Procedures

Regulatory Flexibility Act

    NCUA must prepare an analysis to describe any significant economic 
impact a rule may have on a substantial number of small entities 
(primarily those under ten million dollars in assets). The final rule 
reframes a

[[Page 74113]]

standard for FCUs in complying with the fidelity bond deductible 
requirements. NCUA has determined this rule will not have a significant 
economic impact on a substantial number of small credit unions.

Paperwork Reduction Act

    NCUA has determined that this rule will 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. 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the executive order to adhere to fundamental 
federalism principles. This rule would not have a substantial direct 
effect on the states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

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

    NCUA has determined that this final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

Small Business Regulatory Enforcement Fairness Act

    When NCUA issues a final rule, as defined in Section 551 of the 
Administrative Procedure Act, it triggers a reporting requirement for 
congressional review of agency rules under the Small Business 
Regulatory Enforcement Fairness Act of 1996, Public Law 104-121 
(SBREFA). The Office of Management and Budget has determined that this 
rule is not a major rule for purposes of SBREFA.

List of Subjects in 12 CFR Part 713

    Credit unions, Insurance, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on December 6, 
2012.
Mary Rupp,
Secretary of the Board.

0
For the reasons discussed above, the National Credit Union 
Administration adopts as final, without change, the interim final rule 
published at 77 FR 31981 (May 31, 2012).

[FR Doc. 2012-30075 Filed 12-12-12; 8:45 am]
BILLING CODE 7535-01-P