[Federal Register Volume 83, Number 37 (Friday, February 23, 2018)]
[Rules and Regulations]
[Pages 7954-7964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03622]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 741

RIN 3133-AE77


Requirements for Insurance; National Credit Union Share Insurance 
Fund Equity Distributions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is adopting amendments to its share 
insurance requirements rule to provide stakeholders with greater 
transparency regarding the calculation of each eligible financial 
institution's pro rata share of a declared equity distribution from the 
National Credit Union Share Insurance Fund (NCUSIF). The Board is also 
adopting a temporary provision to govern all NCUSIF equity 
distributions related to the Corporate System Resolution Program 
(CSRP), a special purpose program established by the Board to stabilize 
the corporate credit union system following the 2007-2009 financial 
crisis. Furthermore, the Board is making technical and conforming 
amendments to other aspects of the share insurance requirements rule to 
account for these changes.

DATES: This rule is effective March 26, 2018, except for the addition 
of Sec.  741.13, which is effective from March 26, 2018, until December 
31, 2022.

FOR FURTHER INFORMATION CONTACT: Benjamin M. Litchfield, Staff 
Attorney, Office of General Counsel, at (703) 518-6540; or Steve 
Farrar, Supervisory Financial Analyst, Office of Examination and 
Insurance, at (703) 518-6360. You may also contact them at the National 
Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 
22314-3428.

SUPPLEMENTARY INFORMATION:

I. Background
II. Summary of the Proposed Rule
III. Summary of Comments to the Proposed Rule
IV. Section-by-Section Analysis
V. Technical and Conforming Amendments
VI. Regulatory Procedures

I. Background

    The NCUA is the chartering and supervisory authority for federal 
credit unions (FCUs) and the federal supervisory authority for 
federally insured credit unions (FICUs).\1\ In addition to its 
chartering and supervisory responsibilities, the Board also administers 
the NCUSIF, a revolving fund within the U.S. Treasury that provides 
federal share insurance coverage to more than 106 million credit union 
members for member accounts held at FICUs and provides assistance in 
connection with the liquidation or threatened liquidation of FICUs in 
troubled condition.\2\
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    \1\ The NCUA's authority to charter federal credit unions is 
contained in Title I of the FCU Act (12 U.S.C. 1752-1775), and its 
various authorities as federal share insurer are contained in Title 
II of the FCU Act (12 U.S.C. 1781-1790e). Title III of the FCU Act 
(12 U.S.C. 1795-1795k) governs the Board's responsibilities 
overseeing the NCUA Central Liquidity Facility, a federal 
instrumentality that provides liquidity for member credit unions.
    \2\ 12 U.S.C. 1783.
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    The Federal Credit Union Act (FCU Act) requires each FICU to pay 
and maintain a capitalization deposit with the NCUSIF equal to one 
percent of the FICU's insured shares to capitalize the NCUSIF.\3\ The 
amount of the FICU's required capitalization deposit is adjusted 
annually for a FICU with less than $50 million in assets and 
semiannually for a FICU with $50 million in assets or more.\4\ A FICU 
that terminates federal share insurance coverage is entitled to have 
its capitalization deposit returned within a reasonable time.\5\
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    \3\ Id. at 1782(c)(1)(A)(i).
    \4\ Id. at 1782(c)(1)(A)(iii)(I)-(II) (``The amount of each 
insured credit union's deposit shall be adjusted as follows, in 
accordance with procedures determined by the Board, to reflect 
changes in the credit union's insured shares: (I) Annually, in the 
case of an insured credit union with total assets of not more than 
$50,000,000; and (II) semi-annually, in the case of an insured 
credit union with total assets of $50,000,000 or more.''). Because 
the statutory text can be read to require the Board to adjust the 
capitalization deposit of a FICU with exactly $50,000,000 in assets 
both annually and semi-annually, the Board interprets the phrase 
``not more than'' to mean ``less than'' to give full effect to 
Congress' intended meaning of this phrase. See Griffin v. Oceanic 
Contractors, Inc., 458 U.S. 564, 571 (1982) (if the meaning of the 
statutory provision is clear from its text, the sole responsibility 
of a federal agency is to enforce the statute according to its terms 
unless literal application of the statute ``will produce a result 
demonstrably at odds with the intention of its drafters.'').
    \5\ Id. at 1782(c)(1)(B)(i). A FICU may terminate federal share 
insurance coverage by converting to, or merging into, a non-
federally insured credit union or a non-credit union financial 
institution such as a mutual savings bank. If permitted under 
applicable state law, a federally insured, state-chartered credit 
union may also convert to private share insurance. See 12 CFR 708b 
(NCUA's regulation governing mergers and conversions to private 
share insurance). A FICU may also terminate federal share insurance 
coverage through voluntary or involuntary liquidation.
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    The FCU Act also requires each FICU to pay a federal share 
insurance premium equal to a percentage of the FICU's insured shares to 
ensure that the NCUSIF has sufficient reserves to pay potential share 
insurance claims by credit union members and to provide assistance in 
connection with the

[[Page 7955]]

liquidation or threatened liquidation of FICUs in troubled 
condition.\6\ The Board may assess a federal share insurance premium no 
more than twice in a calendar year and not in an amount more than 
necessary to restore the NCUSIF's equity ratio to 1.3 percent.\7\
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    \6\ Id. at 1782(c)(2)(A).
    \7\ Id. at 1782(c)(2)(B). The ``equity ratio'' is the amount of 
NCUSIF capitalization, including FICU NCUSIF capitalization deposits 
and retained earnings of the NCUSIF (net of direct liabilities of 
the NCUSIF and contingent liabilities for which no provision for 
losses has been made) divided by the aggregate amount of insured 
FICU shares. Id. at 1782(h)(2).
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    Furthermore, the FCU Act requires the Board to make a pro rata 
distribution of NCUSIF equity to FICUs ``after each calendar year if, 
as of the end of the calendar year,'' there are no outstanding loans or 
interest owed to the U.S. Treasury and the NCUSIF meets certain 
financial performance benchmarks.\8\ When those financial conditions 
are present, the FCU Act requires the Board to make the maximum 
possible equity distribution that does not reduce the NCUSIF's equity 
ratio below its normal operating level or the available assets ratio 
below one percent.\9\
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    \8\ Id. at 1782(c)(3)(A). The FCU Act requires the Board to make 
a pro rata equity distribution from the NCUSIF to FICUs for each 
year where, at the end of the year, the following circumstances are 
present: (1) The NCUSIF has no outstanding loans from the U.S. 
Treasury and any outstanding interest on those loans has been 
repaid; (2) the NCUSIF's equity ratio exceeds the normal operating 
level set by the Board; and (3) the NCUSIF's available assets ratio 
exceeds 1 percent. The ``normal operating level'' is currently set 
at 1.39. The ``available assets ratio'' is the total of cash plus 
market value of unencumbered investments (less direct liabilities 
and contingent liabilities for which no provision for loss has been 
made) divided by the aggregate amount of insured FICU shares. Id. at 
1782(h)(1).
    \9\ Id. at 1782(c)(3)(B)(i)-(ii).
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    Section 741.4 of the NCUA's share insurance requirements rule 
implements these requirements.\10\ The Board originally adopted it on 
October 17, 1984 following the passage of the Deficit Reduction Act of 
1984,\11\ which amended the FCU Act to require pro rata distributions 
of NCUSIF equity under certain financial conditions.\12\ The Board 
subsequently amended Sec.  741.4 following the passage of the Credit 
Union Membership Access Act of 1998 \13\ and the Helping Families Save 
Their Homes Act of 2009 \14\ to address changes made to the FCU Act by 
each of these laws.\15\ With respect to equity distributions from the 
NCUSIF, Sec.  741.4 governs the form of a declared equity distribution 
(i.e., a waiver of insurance premiums, premium rebates, or a dividend 
directly from the NCUSIF) and the scope of financial institutions 
(referred to collectively herein as ``eligible financial 
institutions'') eligible to receive the declared equity 
distribution.\16\
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    \10\ 12 CFR 741.4.
    \11\ Public Law 98-369, Div. B., Title VIII, sec. 2804, 98 Stat. 
494, 1204 (July 18, 1984).
    \12\ Capitalization of the National Credit Union Share Insurance 
Fund, 49 FR 40561 (Oct. 17, 1984).
    \13\ Public Law 105-219, sec. 302(a), 112 Stat. 913, 933 (Aug. 
7, 1998).
    \14\ Public Law 111-22, sec. 204(e)-(f), 123 Stat. 1632, 1650-51 
(May 20, 2009).
    \15\ National Credit Union Share Insurance Fund Premium and One 
Percent Deposit, 74 FR 63277 (Dec. 3, 2009).
    \16\ Under certain circumstances, a FICU that terminates federal 
share insurance coverage (including through merger with a privately 
insured credit union) and a financial institution that converts to 
federal share insurance coverage (including through merger with a 
FICU) may receive a prorated share of an equity distribution. See 12 
CFR 741.4(i), (j).
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II. Summary of the Proposed Rule

    On July 20, 2017, the Board issued a notice of proposed rulemaking 
soliciting public comment on proposed amendments to Sec.  741.4 to 
provide stakeholders with greater transparency regarding the 
calculation of an eligible financial institution's pro rata share of a 
declared equity distribution.\17\ As part of the proposed rulemaking, 
the Board also sought to adopt a temporary provision for equity 
distributions related to the CSRP.\18\
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    \17\ Requirements for Insurance; National Credit Union Share 
Insurance Fund Equity Distributions, 82 FR 35705 (Aug. 1, 2017).
    \18\ The CSRP was a special purpose initiative to stabilize the 
corporate credit union system funded principally through advances 
from the Temporary Corporate Credit Union Stabilization Fund 
(TCCUSF). The TCCUSF was a temporary revolving fund within the U.S. 
Treasury created to address problems in the corporate credit union 
system that arose as part of the recent financial crisis. On 
September 28, 2017, the Board announced the closure of the TCCUSF 
and the winding down of the CSRP. See Closing the Temporary 
Corporate Credit Union Stabilization Fund and Setting the Share 
Insurance Fund Normal Operating Level, 82 FR 46298 (Oct. 4, 2017).
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    The proposed rule amended Sec.  741.4 in several respects. First, 
the proposed rule amended Sec.  741.4(e) to adopt a calculation 
methodology for determining each FICU's pro rata share of a declared 
equity distribution based on either an eligible financial institution's 
quarterly average amount of insured shares or its year-end insured 
shares balance as then reported in the financial institution's year-end 
Call Report. Second, the proposed rule amended Sec.  741.4(j)(1)(ii) to 
eliminate the ability of a FICU terminating federal share insurance 
coverage during the calendar year from receiving an equity distribution 
for that calendar year.
    To accommodate these changes, the proposed rule also made technical 
and conforming amendments to the definitions in Sec.  741.4(b) and the 
provisions governing conversion to federal share insurance in Sec.  
741.4(i). Appendix A to part 741, which provides examples of partial 
year federal share insurance premium assessments and equity 
distributions under Sec.  741.4, was removed in favor of developing a 
more user-friendly and readily updated set of examples to be posted on 
the NCUA's public website.
    The proposed rule also sought to add a temporary provision, Sec.  
741.13, to govern equity distributions related to the CSRP. Because the 
CSRP involved a series of corporate assessments to capitalize the 
TCCUSF, the temporary provision required any equity distribution 
related to the CSRP to take the form of a rebate of past corporate 
assessments paid on either a First-In, First-Out (FIFO) or Last-In, 
First-Out (LIFO) basis to repay those eligible financial institutions 
that were required to pay a corporate assessment.
    Finally, the proposed rule requested comment on ways to improve the 
NCUA's current process for assessing and collecting federal share 
insurance premiums to provide stakeholders with greater transparency. 
While not part of this rulemaking, the Board noted its intention to 
address the assessment and collection of federal share insurance 
premiums in a separate rulemaking based in part on stakeholder 
comments. One possible improvement that the Board was considering was 
calculating federal share insurance premiums similarly to equity 
distributions.

III. Summary of the Comments to the Proposed Rule

    The Board received 50 comments from various stakeholders including 
FICUs, national credit union trade associations, state credit union 
trade associations, a professional trade association for state credit 
union supervisors, and a natural person. Commenters overwhelmingly 
supported the Board's initiative to provide FICUs with greater 
transparency and offered general support for the proposed rule.
    Commenters almost uniformly supported the Board's four-quarter 
average method for calculating an eligible financial institution's pro 
rata share of a declared equity distribution under Sec.  741.4(e). One 
commenter wrote in support of the year-end insured share balance 
method, but did not offer any substantive arguments in support of that 
approach. Another commenter wrote in support of the current average 
daily balance method, reasoning that the current approach more 
appropriately treats an equity distribution as a dividend on the NCUSIF 
capitalization

[[Page 7956]]

deposit and does not reward FICUs that aggressively grow insured share 
balances which can increase the overall risk to the NCUSIF.
    Commenters were more evenly divided on the Board's proposed changes 
to Sec.  741.4(j)(1)(ii), which prohibited the payment of an equity 
distribution to a FICU that terminates federal share insurance coverage 
during the calendar year for which an equity distribution is declared. 
However, neither commenters in favor of the proposed changes nor 
commenters opposed to the proposed changes offered substantive 
arguments in support of their respective positions. Commenters in favor 
of the proposed changes echoed the Board's reasoning from the proposed 
rule and commenters opposed to the proposed changes generalized about 
fairness to FICUs that terminate federal share insurance coverage.
    Commenters were likewise divided on whether an equity distribution 
related to the CSRP should take the form of a rebate of past corporate 
assessments paid on a LIFO or FIFO basis or using the quarterly average 
or year-end method, whichever was adopted in Sec.  741.4(e). Of the 
commenters that indicated a preference for rebates of past corporate 
assessments on a LIFO or FIFO basis, an overwhelming majority favored 
the LIFO approach. Other commenters indicated a preference for an 
aggregate assessments paid approach, recommended by a national credit 
union trade association, which was neither a logical outgrowth of the 
LIFO or FIFO methods nor the quarterly average or year-end methods. 
Under the aggregate assessments paid approach, each FICU would have 
received an equity distribution based on the percentage of corporate 
assessments paid by that FICU over the life of the CSRP as a percentage 
of the aggregate corporate assessments paid by all FICUs over the life 
of the CSRP. The Board did not receive specific comments on any other 
aspect of the proposed rule, including the technical and conforming 
amendments proposed to Sec.  741.4(b) and (i) or the elimination of 
Appendix A to part 741.
    For the reasons set out in more detail below, the Board is adopting 
the four-quarter average method for calculating an eligible financial 
institution's pro rata share of an equity distribution. Additionally, 
the Board is adopting several new definitions to clarify provisions of 
the share insurance requirements rule. The Board is not adopting the 
change to the share insurance requirements rule that would have 
eliminated the ability of a FICU that terminated federal share 
insurance to receive an equity distribution for that calendar year. 
Instead, the Board is adopting a modified version of that provision 
that is more consistent with the four-quarter average method. 
Furthermore, the Board is also adopting a modified version of the 
temporary rule for equity distributions related to the CSRP that is 
more consistent with the four-quarter average method. All other changes 
are adopted as proposed.

IV. Section-by-Section Analysis

Section 741.4(e) Distribution of NCUSIF Equity Not Related to the CSRP

    The Board has historically used a number of different calculation 
methodologies to determine an eligible financial institution's pro rata 
share of a declared equity distribution made in the normal course of 
business not related to the CSRP.\19\ Rather than leaving the 
calculation methodology to the discretion of the Board, proposed Sec.  
741.4(e) sought to provide stakeholders with greater transparency by 
establishing a set calculation methodology for all such declared equity 
distributions. After considering a number of possible approaches, the 
Board requested public comment on two alternative calculation 
methodologies: (1) The use of an eligible financial institution's 
quarterly average insured share balance as then reported over the 
calendar year in four quarterly Call Reports and (2) the use of an 
eligible financial institution's year-end insured share balance as then 
reported in its December 31 Call Report.
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    \19\ See e.g., 49 FR 40564 (Oct. 17, 1984) (adopting the year-
end insured share balance method).
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    Under the four-quarter average approach, an eligible financial 
institution's pro rata share of a declared equity distribution would be 
based on its quarterly average insured share balance as then reported 
over the calendar year in four quarterly Call Reports. To account for 
mergers between FICUs during the calendar year, the Board proposed to 
treat a continuing FICU's quarterly average insured share balance as 
including insured shares reported by a merging FICU during reporting 
periods before the completion of the merger. The Board proposed to 
apply similar rules to mergers between a FICU and a non-FICU financial 
institution (such as a bank or privately insured credit union), except 
that the non-FICU financial institution would be treated as having no 
insured shares during reporting periods for which it did not carry 
federal share insurance coverage.
    Under the year-end approach, an eligible financial institution's 
pro rata share of a declared equity distribution would be based on its 
year-end insured share balance as then reported in its December 31 Call 
Report. This year-end insured share balance naturally included any FICU 
merger activity that took place during the calendar year. For any 
merger between a FICU and a non-FICU financial institution (such as a 
bank or privately insured credit union), the Board proposed to retain 
the current rule set out in Sec.  741.4(i)(2)(iii), which allows a FICU 
to receive an equity distribution based on its year-end insured share 
balance as then reported in its December 31 Call Report inclusive of 
any shares acquired by merging non-FICU financial institutions 
throughout the calendar year.
    Of the two approaches, the Board noted that it favors the four-
quarter average approach because it adjusts for seasonal fluctuations 
in insured share levels.\20\ Adjusting for seasonable fluctuations 
allows the NCUA to make an equity distribution based on the actual 
average size of the eligible financial institution over the calendar 
year rather than at some arbitrary point in time. This is particularly 
important to provide fairness to smaller or community-based FICUs that 
may maintain relatively high insured share balances during the calendar 
year but may experience a larger than normal decrease in insured share 
balances at the end of the year as consumers liquidate Christmas club 
and other types of special savings accounts during the holiday season. 
Additionally, this approach is based on quarterly Call Report data, 
eliminating the need for additional paperwork burden on FICUs.
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    \20\ See 82 FR at 35707 (Aug. 1, 2017).
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    However, in the proposed rule, the Board also recognized the 
benefits of the year-end approach because it harmonizes the calculation 
methodology for an equity distribution with the methods for calculating 
the NCUSIF's equity and available assets ratios, and the dollar amount 
of a federal share insurance premium or distribution. In addition, the 
use of the year-end approach eliminates the need to create special 
rules for FICU mergers or terminations of federal share insurance 
coverage during the calendar year. Accordingly, the Board sought public 
comment on both approaches with the understanding that the Board would 
consider adopting one of the two approaches, with or without 
appropriate modifications, based, in part, on the persuasiveness of the 
comments. The Board also sought public comment on a

[[Page 7957]]

number of issues related to each calculation methodology, including 
whether the look-back period under the four-quarter average approach 
should be extended to include insured share balances from previous 
years.
    Commenters overwhelmingly favored the four-quarter average approach 
because it adjusted for seasonal fluctuations in insured share growth. 
However, many of these commenters largely echoed the Board's own 
justification for using the four-quarter average approach without any 
additional substantive arguments in favor of that position. One 
commenter wrote in support of the year-end approach, but did not offer 
any substantive arguments in favor of that position. Another commenter 
wrote in support of the Board's current policy of applying a daily 
distribution rate to each FICU's average daily capitalization deposit 
balance. This commenter raised concerns that either approach adopted by 
the Board would encourage eligible financial institutions to 
aggressively grow insured shares to receive larger equity 
distributions. This commenter also argued that the average daily 
balance method is preferable because it correctly treats an equity 
distribution as a dividend on a FICU's capitalization deposit.
    On balance, the Board believes that accounting for seasonal 
fluctuations in insured share growth is a significant benefit to 
eligible financial institutions that outweighs the administrative 
convenience offered by the year-end approach. Furthermore, the Board 
disagrees with the commenter's argument that this calculation 
methodology encourages eligible financial institutions to aggressively 
grow insured shares to receive larger equity distributions. Any growth 
in insured shares would result in corresponding decreases to the 
NCUSIF's equity and available assets ratios which, if the resulting 
changes are large enough, could trigger a smaller equity distribution 
or the imposition of a federal share insurance premium. The Board 
believes that these potential negative outcomes sufficiently mitigate 
any incentive for an eligible financial institution to aggressively 
grow insured shares. Accordingly, the Board is adopting the four-
quarter average approach in the final rule with some minor 
clarifications.
    The four-quarter average approach relies on the use of quarterly 
Call Report data to determine an eligible financial institution's pro 
rata share of an equity distribution. Implicit in this concept is the 
idea that a financial institution that does not file a quarterly Call 
Report as a FICU for at least one reporting period in the calendar year 
for which the Board declares an equity distribution will not be 
entitled to receive a portion of that distribution nor would that 
FICU's insured shares be used to calculate the aggregate average amount 
of insured shares. For example, a FICU that files a December 31 Call 
Report in January 2018, but does not file a March 31 Call Report for 
the first quarter of 2018, would not be eligible to receive an equity 
distribution declared for calendar year 2018. While the Board believes 
that this principle is clear from a careful reading of the preamble and 
regulatory text set out in the proposed rule, it is adopting a 
provision in the final rule to ensure the reader understands the 
Board's intent.
    The Board is also adopting a provision in the final rule to 
explicitly address mergers between FICUs. In the preamble and 
regulatory text set out in the proposed rule, the Board addressed 
mergers between FICUs at some length. To avoid any confusion, the final 
rule clarifies that a FICU that merges with another FICU that has filed 
at least one Call Report for a reporting period in the calendar year 
for which the Board declares an equity distribution shall receive an 
amount equivalent to what the continuing FICU and the merging FICU 
would have received but for the consummation of the merger. For 
purposes of calculating the continuing FICU's average amount of insured 
shares, any insured shares previously reported during that calendar 
year by the merging FICU on its quarterly Call Reports filed prior to 
the consummation of the merger shall be combined with the insured 
shares reported on the continuing FICU's quarterly Call Reports for 
purposes of calculating the continuing FICU's equity distribution.
    Furthermore, the Board is adopting a provision in the final rule to 
explicitly address purchase and assumption transactions. In response to 
the proposed rule, several commenters asked about how the four-quarter 
average approach would apply to purchase and assumption transactions 
where a FICU acquires all of the insured shares of another FICU. While 
the Board also believes that this principle should be clear from a 
careful reading of the preamble and regulatory text set out in the 
proposed rule, it is adopting a provision in the final rule to make it 
as transparent as possible how the Board will address these 
transactions. Under the final rule, a FICU that acquires all of the 
insured shares of another FICU that files at least one Call Report for 
a reporting period in the calendar year for which the Board declares an 
equity distribution, shall receive an amount equivalent to what the 
acquiring FICU and the selling FICU would have received but for the 
consummation of the purchase and assumption transaction.
    In all other respects, the Board is adopting the four-quarter 
average approach as proposed. Because the Board did not receive 
substantive comments on the appropriate look-back period for the four-
quarter average approach, the Board is adopting a four-quarter look-
back period.

Section 741.4(j) Conversion From, or Termination of, Federal Share 
Insurance

    For 25 years, the Board did not allow a FICU that terminated 
federal share insurance coverage to receive an equity distribution as a 
matter of right. Rather, Sec.  741.4 permitted a FICU to leave a 
``nominal sum'' on deposit with the NCUISIF until the next equity 
distribution to be eligible to receive ``a prorated share of the 
distribution.'' \21\ In 2009, however, the Board broadened Sec.  741.4 
to allow a FICU that terminated federal share insurance coverage to 
receive a pro rata equity distribution, but only for the calendar year 
in which the FICU terminated coverage. The Board made this policy 
change as a matter of administrative convenience to avoid potentially 
lengthy recordkeeping requirements imposed under the prior rule.\22\ 
Under this provision, which is codified in the current share insurance 
requirements rule as Sec.  741.4(j)(1)(ii), the Board makes a prorated 
distribution to an insured credit union that terminates federal share 
insurance coverage during the calendar year for which the Board 
declares a pro rata distribution based on the number of full calendar 
months for which the insured credit union is federally insured.\23\
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    \21\ See e.g., 12 CFR 741.5(i) (1985); 12 CFR 741.4(j) (1996).
    \22\ See National Credit Union Share Insurance Fund Premium and 
One Percent Deposit, 74 FR 63277 (Dec. 3, 2009).
    \23\ 12 CFR 741.4(j)(1)(ii).
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    Proposed Sec.  741.4(j)(1)(ii) sought to eliminate the ability of a 
FICU that terminated federal share insurance coverage before the 
declaration date of an equity distribution to receive any portion of 
that distribution. The Board reasoned that this approach would be more 
consistent with general corporate practice regarding the payment of 
shareholder dividends. Furthermore, the Board believed that this 
approach would be more equitable to FICUs that remain federally insured 
throughout the calendar year because they bear the risk of a federal 
share insurance premium

[[Page 7958]]

and are required to maintain the required capitalization deposit, while 
a FICU that terminates federal share insurance coverage does not. A 
FICU that terminates federal share insurance coverage before the 
assessment of a federal share insurance premium is not required to pay 
that premium. Under current Sec.  741.4(j)(1)(ii), however, that former 
FICU may still receive an equity distribution.
    Commenters were evenly split on whether the Board should adopt the 
proposed change to Sec.  741.4(j)(1)(ii) or retain the current rule. 
Having considered the arguments advanced by the commenters, the Board 
believes that it is not appropriate to finalize this proposed change at 
this time. Instead, the Board believes that it would be beneficial to 
study this issue further, and it may revisit amendments to Sec.  
741.4(j)(1)(ii) in a future rulemaking. However, the Board is 
finalizing technical changes to Sec.  741.4(j)(1)(ii) to make this 
provision more consistent with the four-quarter average method adopted 
in Sec.  741.4(e). Section 741.4(j)(1)(ii) will be eliminated and 
codified as new Sec.  741.4(e)(4)(i)(C).
    Additionally, new Sec.  741.4(e)(4)(i)(C) will calculate the 
prorated distribution of a FICU that terminated federal share insurance 
coverage by applying the general four-quarter average approach set out 
in Sec.  741.4(e), including the requirement that the FICU must file a 
Call Report for at least one reporting period in the calendar year for 
which the Board has declared a distribution to receive a prorated 
equity distribution, with one exception. For reporting periods where 
the FICU did not maintain federal share insurance coverage, it will be 
treated as having no insured shares in that period. This has the same 
practical effect as the current process of multiplying the FICU's last 
reported insured share balance by a modified premium/distribution 
ratio, but is computationally simpler.

Section 741.13 NCUSIF Equity Distributions Related to the CSRP

    The Board proposed to adopt a temporary provision governing any 
equity distributions resulting from the CSRP. Under this temporary 
provision, any equity distribution related to the CSRP was to take the 
form of a series of equity distributions repaying any corporate 
assessments against FICUs on either a FIFO or a LIFO basis. The Board 
also solicited public comment on whether it should instead use either 
the four-quarter average or year-end approach with appropriate 
modifications to account for the unique nature of the CSRP.
    Under the proposed FIFO approach, the Board would have made an 
equity distribution to each FICU up to the total dollar amount of 
corporate assessments paid by that FICU during the relevant assessment 
period beginning with the first assessment period in 2009.
    Under the proposed LIFO approach, the Board would have made an 
equity distribution to each FICU up to the total dollar amount of 
premiums paid by that FICU during the relevant assessment period 
beginning with the last assessment period in 2013. Of the two 
approaches, the Board favored the LIFO method because it ensured that 
FICUs received equity distributions for their most recent corporate 
assessments first, which generally were larger assessments, with 
smaller assessments that took place at the start of the CSRP being 
repaid over time as the NCUA-guaranteed securities issued as part of 
the CSRP matured.
    Under either the proposed FIFO or LIFO approach, any payments owed 
to a FICU that had merged into another FICU would have been paid to the 
continuing FICU. Moreover, any payments owed to a liquidated FICU with 
an open liquidation estate or a closed liquidation estate still within 
its applicable look-back period would have been made to the liquidation 
estate and distributed ratably to the FICU's creditors in accordance 
with part 709 of the NCUA's rules.\24\ Given the payment priority set 
out in part 709, the Board anticipated that a majority of these 
creditors would be members with uninsured share balances rather than 
general creditors of the liquidation estate.
---------------------------------------------------------------------------

    \24\ 12 CFR part 709.
---------------------------------------------------------------------------

    Furthermore, because any equity distribution related to the CSRP 
would go first towards repaying FICUs that paid corporate assessments, 
a FICU that had not paid a corporate assessment would not have been 
entitled to receive an equity distribution related to the CSRP unless 
all such corporate assessments are first repaid in full. Additionally, 
a FICU that terminated federal share insurance coverage before the 
payment date for an equity distribution related to the CSRP would not 
have been entitled to a distribution for the reasons stated above in 
the discussion of proposed changes to Sec.  741.4(j)(1)(ii).
    Of the commenters that indicated a preference for either the 
proposed FIFO or LIFO approach, an overwhelming majority favored the 
LIFO approach. Other commenters indicated a preference for an aggregate 
assessments paid approach recommended by a national credit union trade 
association. Under the aggregate assessments paid approach, each FICU 
would have received an equity distribution based on the percentage of 
corporate assessments paid by that FICU over the life of the CSRP as a 
percentage of the aggregate corporate assessments paid by all FICUs 
over the life of the CSRP. That approach is neither a logical outgrowth 
of the FIFO or LIFO methods nor a logical outgrowth of the four-quarter 
average or year-end methods and, thus, is outside the scope of this 
rulemaking.
    While FIFO and LIFO would have been a way to closely link what a 
FICU paid in corporate assessments to what it received in equity 
distributions related to the CSRP, the Board acknowledges that over the 
past 9 years, several hundred FICUs have terminated federal share 
insurance at various times; there have been many FICU mergers and 
liquidations; and the NCUA has approved several new charters. Each of 
these transactions makes the calculation of each eligible financial 
institution's pro rata share of an equity distribution more complex. 
Additionally, the Board has acknowledged that FIFO and LIFO may not be 
completely compatible with the FCU Act requirement to make a 
distribution on a ``pro rata'' basis.
    Instead, the Board believes that adopting a modified version of the 
four-quarter average method is the most appropriate approach. In the 
proposed rule, the Board solicited comment on whether a four-quarter 
look-back period, or some longer look-back period such as six or eight 
quarters, was preferable under the four-quarter average method. Given 
the unique nature of the CSRP, the Board strongly believes that a 
longer look-back period, which tracks the period of time in which 
corporate assessments were being made, is appropriate for CSRP-related 
equity distributions because it captures share insurance activity that 
took place during that time.
    Accordingly, the Board is adopting a modified version of the four-
quarter average approach for CSRP-related equity distributions that 
includes five separate look-back periods tied directly to the beginning 
of the CSRP that correspond to each calendar year for which the Board 
may declare an equity distribution related to the CSRP. For calendar 
year 2017 equity distributions, the Board will apply a 36-quarter look-
back period. For calendar year 2018 equity distributions, the Board 
will apply a 40-quarter look-back period. For calendar year 2019 equity 
distributions, the Board will apply a 44-quarter look-back period. For 
calendar year 2020 equity distributions, the Board will

[[Page 7959]]

apply a 48-quarter look-back period. Finally, for calendar year 2021 
equity distributions, the Board will apply a 52-quarter look-back 
period. Applying five separate look-back periods ensures that the Board 
adequately accounts for share insurance activity that took place during 
the CSRP.
    Consistent with the four-quarter average approach, an eligible 
financial institution must file at least one quarterly Call Report as a 
FICU for a reporting period in the calendar year for which the Board 
declares an equity distribution to receive a pro rata share of that 
distribution. Otherwise, that financial institution will not receive an 
equity distribution for that calendar year nor will its insured shares 
be used to calculate the aggregate average amount of insured shares 
used to determine each eligible financial institution's pro rata share 
of the distribution. Furthermore, a FICU that terminated federal share 
insurance coverage must file at least one quarterly Call Report as a 
FICU for a reporting period in the applicable calendar year to receive 
a prorated equity distribution.

V. Technical and Conforming Amendments

    In addition to the proposed changes to the share insurance 
requirements rule governing the calculation of an eligible financial 
institution's pro rata share of an equity distribution and the 
treatment of a FICU that terminated federal share insurance coverage, 
the Board proposed to make technical and conforming amendments to other 
aspects of Sec.  741.4 and to Appendix A of Part 741. Commenters did 
not address these technical and conforming amendments. Accordingly, the 
Board is adopting these amendments largely as proposed with one 
exception. The Board is making a technical change to the aspect of the 
share insurance requirements rule governing newly chartered FICUs that 
was not previously proposed. This change will relocate regulatory text 
governing equity distributions to newly chartered FICUs from Sec.  
741.4(g) to Sec.  741.4(e). Because the change is technical in nature, 
and does not change the substance of the rule, the Board believes that 
public comment on the change to this aspect of the share insurance 
requirements rule is unnecessary and therefore has good cause to waive 
the notice and comment requirements of the Administrative Procedure Act 
(APA).\25\
---------------------------------------------------------------------------

    \25\ 5 U.S.C. 553(b)(B) (allowing waiver of public comment 
requirement when an agency for good cause finds such procedures 
``unnecessary''). See Administrative Procedure Act: Legislative 
History, S. Doc. No. 248 79-258 (1946), at 200 (`` `Unnecessary' 
means unnecessary as far as the public is concerned, as would be the 
case if a minor or merely technical amendment in which the public is 
not particularly interested were involved.'').
---------------------------------------------------------------------------

Section 741.4(b) Definitions

    To provide stakeholders with greater transparency, the Board is 
amending Sec.  741.4(b) to include definitions of ``aggregate amount of 
insured shares'', ``aggregate average amount of insured shares'', 
``average amount of insured shares'', ``federally insured credit 
union'', ``financial institution'', ``insured depository institution'', 
and ``NCUSIF equity distribution'' in the final rule. Furthermore, the 
Board is revising definitions of ``available assets ratio'', ``equity 
ratio'', ``insured shares'', and ``reporting period''.

Section 741.4(g) New Charters

    For greater readability and to improve ease of use throughout Sec.  
741.4, the Board is removing the language from Sec.  741.4(g) 
addressing equity distributions for newly chartered FICUs and codifying 
it as new Sec.  741.4(e)(4)(i)(A). The Board is also making technical 
amendments to this provision to provide for greater consistency with 
the four-quarter average method adopted above. Under current Sec.  
741.4(g), a newly chartered FICU may not receive a pro rata share of a 
declared equity distribution unless it is has funded its capitalization 
deposit.\26\ Under new Sec.  741.4(e)(4)(i)(A), a newly chartered FICU 
may not receive a pro rata share of a declared equity distribution 
unless it has filed a quarterly Call Report for at least one reporting 
period in the calendar year for which the Board declares the 
distribution. In all other respects, current Sec.  741.4(g) remains 
unchanged.
---------------------------------------------------------------------------

    \26\ 12 CFR 741.4(g).
---------------------------------------------------------------------------

Section 741.4(i) Conversion to Federal Insurance

    The Board is also making conforming amendments to Sec.  
741.4(i)(1)(v) and (i)(2)(iii) to reflect the adoption of the four-
quarter average method for calculating an eligible financial 
institution's pro rata share of an equity distribution not related to 
the CSRP. First, the Board is removing Sec.  741.4(i)(1)(v) and 
(i)(2)(iii) and codifying those provisions as new Sec.  
741.4(e)(4)(i)(B). Section 741.4(i)(1)(v) currently allows a financial 
institution that converts to federal share insurance coverage during 
the calendar year to receive a prorated equity distribution based on 
the number of full calendar months for which the financial institution 
was a FICU.\27\ New Sec.  741.4(e)(4)(i)(B) largely retains this aspect 
of the current rule. However, rather than the current process of 
multiplying the FICU's year-end insured share balance by premium/
distribution ratio, new Sec.  741.4(e)(4)(i)(B) will treat the FICU as 
having no insured shares for the applicable reporting periods for which 
the financial institution did not carry federal share insurance 
coverage. This has the same practical effect as the current process, 
but is computationally simpler. Furthermore, a FICU that does not file 
at least one quarterly Call Report for reporting periods of the 
calendar year for which the Board declares the distribution shall not 
receive an equity distribution.
---------------------------------------------------------------------------

    \27\ 12 CFR 741.4(i)(1)(v).
---------------------------------------------------------------------------

    Section 741.4(i)(2)(iii) addresses an equity distribution to a FICU 
that merges with a financial institution that is not federally insured 
by the NCUA where the FICU is the surviving entity.\28\ If the Board 
declares an equity distribution for the calendar year in which such a 
merger takes place, the continuing FICU is entitled to receive an 
equity distribution based on its year-end insured share balance. New 
Sec.  741.4(e)(4)(i)(B) differs slightly from Sec.  741.4(i)(2)(iii). 
Under the final rule, only the insured shares attributable to the 
continuing FICU as reported on quarterly Call Reports at that time 
shall be used to determine the average amount of insured shares for 
reporting periods preceding the date of the merger. This approach 
harmonizes new Sec.  741.4(e)(4)(i)(B) with new Sec.  741.4(e)(4)(i)(A) 
and (C) respectively.
---------------------------------------------------------------------------

    \28\ 12 CFR 741.4(i)(2)(iii).
---------------------------------------------------------------------------

Appendix A to Part 741--Examples of Partial Year NCUSIF Assessment and 
Distribution Calculations Under Sec.  741.4

    The Board also proposed to remove Appendix A to part 741 from the 
NCUA's regulations and replace it with examples and frequently asked 
questions to be published on NCUA's public website.\29\ Appendix A 
provides examples of partial year NCUSIF assessment and distribution 
calculations under various factual scenarios. While the Board 
recognizes that examples of how the NCUA makes these calculations may 
be useful to stakeholders, including those examples in an appendix to 
part 741 makes it difficult for the NCUA to update, amend, or revise 
the examples to provide stakeholders with additional clarity. 
Accordingly, the Board is removing Appendix A and replacing it with 
information on the NCUA's website which can be updated easily and as 
frequently as necessary to provide stakeholders with more clear,

[[Page 7960]]

relevant, and timely examples regarding the calculation of partial year 
NCUSIF assessments and distributions.
---------------------------------------------------------------------------

    \29\ 12 CFR 741, App. A.
---------------------------------------------------------------------------

VI. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires the NCUA to prepare an 
analysis to describe any significant economic impact a regulation may 
have on a substantial number of small entities (primarily those under 
$100 million in assets).\30\ This rule has no economic impact on small 
credit unions because it only impacts internal NCUA procedures that are 
used infrequently. Accordingly, NCUA certifies the final rule will not 
have a significant economic impact on a substantial number of small 
credit unions.
---------------------------------------------------------------------------

    \30\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) provides generally for congressional review 
of agency rules. A reporting requirement is triggered in instances 
where the NCUA issues a final rule as defined by Section 551 of the 
Administrative Procedure Act. The NCUA does not believe this final rule 
is a ``major rule'' within the meaning of the relevant sections of 
SBREFA. As required by SBREFA, the NCUA has filed the appropriate 
reports so that this final rule may be reviewed.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency creates a new information collection requirement or 
amends an existing information collection requirement.\31\ For the 
purposes of the PRA, an information collection requirement may take the 
form of a reporting, recordkeeping, or third-party disclosure 
requirement. The final rule does not contain a new information 
collection requirement or amend an existing information collection 
requirement that requires approval by OMB under the Paperwork Reduction 
Act (44 U.S.C. Chap. 35).
---------------------------------------------------------------------------

    \31\ 44 U.S.C. 3507(d); 5 CFR 1320.
---------------------------------------------------------------------------

Assessment of Federal Regulations and Policies on Families.

    The 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.\32\
---------------------------------------------------------------------------

    \32\ Public Law 105-277, sec. 654, 112 Stat. 2681, 2681-581 
(1998).
---------------------------------------------------------------------------

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests.\33\ 
The 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. The final rule will not have 
substantial direct effects 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. The NCUA 
has therefore determined that this final rule does not constitute a 
policy that has federalism implications for purposes of the executive 
order.
---------------------------------------------------------------------------

    \33\ 64 FR 43255 (Aug. 4, 1999).
---------------------------------------------------------------------------

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 February 
15, 2018.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the Board amends 12 CFR part 741 
as follows:

PART 741--REQUIREMENTS FOR INSURANCE

0
1. 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.


0
2. Amend Sec.  741.4:
0
a. In paragraph (b), by:
0
i. Adding definitions in alphabetical order for ``aggregate amount of 
insured shares'' and ``aggregate average amount of insured shares'';
0
ii. Revising the definition for ``available assets ratio'';
0
iii. Adding definitions in alphabetical order for ``average amount of 
insured shares'' and ``Board'';
0
iv. Revising the definition of ``equity ratio'';
0
v. Adding definitions in alphabetical order definitions for ``federally 
insured credit union'', ``financial institution'', and ``insured 
depository institution'';
0
vi. Revising the definition of ``insured shares'';
0
vii. Adding definitions in alphabetical order for ``NCUSIF'' and 
``NCUSIF equity distribution''; and
0
viii. Revising the definition of ``reporting period''.
0
b. Revising paragraphs (e) and (g);
0
c. Removing paragraphs (i)(1)(v) and (i)(2)(iii);
0
d. Revising paragraph (j)(1)(ii); and
0
e. Removing paragraph (j)(1)(iii).
    The revisions and additions to read as follows:


Sec.  741.4   Insurance premium and one percent deposit.

* * * * *
    (b) * * *
    Aggregate amount of insured shares means the sum of all insured 
shares reported by federally insured credit unions in calendar year-end 
Call Reports from the calendar year for which the Board declares an 
NCUSIF equity distribution pursuant to paragraph (e) of this section.
    Aggregate average amount of insured shares means the sum of the 
average amount of insured shares as then reported by all financial 
institutions eligible to receive an NCUSIF equity distribution under 
subparagraph (e)(1) of this section in quarterly Call Reports over the 
calendar year for which the Board declares an NCUSIF equity 
distribution divided by the number of reporting periods in that 
calendar year.
    Available assets ratio means the ratio of:
    (i) The amount determined by subtracting--
    (A) Direct liabilities of the NCUSIF and contingent liabilities for 
which no provision for losses has been made from
    (B) The sum of cash and the market value of unencumbered 
investments authorized under Sec.  203 of the Federal Credit Union Act 
(12 U.S.C. 1783), to
    (ii) The aggregate amount of insured shares in all federally 
insured credit unions.
    Average amount of insured shares means the sum of insured shares as 
then reported by a financial institution eligible to receive an NCUSIF 
equity distribution under subparagraph (e)(1) of this section over the 
calendar year for which the Board declares an NCUSIF equity 
distribution divided by the number of reporting periods in that 
calendar year.
    Board means the NCUA Board or any individual or group of 
individuals with the delegated authority to act on behalf of the Board 
to implement the requirements of this section.
    Federally insured credit union means a federal or state-chartered 
credit union that maintains federal share insurance coverage from the 
NCUSIF.
    Financial institution means a federally insured credit union, non-
federally insured credit union, or an insured depository institution, 
including a liquidation or receivership estate of any such credit union 
or depository institution.

[[Page 7961]]

    Insured depository institution means any bank or savings 
association the deposits of which are insured by the Federal Deposit 
Insurance Corporation pursuant to the Federal Deposit Insurance Act (12 
U.S.C. 1811 et seq.).
    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.
* * * * *
    National Credit Union Share Insurance Fund or NCUSIF refers to a 
revolving fund established by Congress within the U.S. Treasury to 
provide federal share insurance coverage to federally insured credit 
union members and to offset the NCUA's administrative expenses 
associated with the conservatorship and liquidation of federally 
insured credit unions.
    NCUSIF equity distribution means a distribution of excess equity 
from the NCUSIF to financial institutions eligible to receive a pro 
rata share of that distribution pursuant to the requirements of Sec.  
202 of the Federal Credit Union Act (12 U.S.C. 1782) and the special 
rules set out in subparagraph (e)(5) of this section.
    NCUSIF equity ratio means the ratio of:
    (i) The amount determined by subtracting--
    (A) Direct liabilities of the NCUSIF and contingent liabilities for 
which no provision for losses has been made from
    (B) The sum of all one percent deposits made by federally insured 
credit unions pursuant to Sec.  741.4 of this chapter and the retained 
earnings balance of the NCUSIF, to
    (ii) The aggregate amount of insured shares in all federally 
insured credit unions.
* * * * *
    Reporting period means span of time covered by a set of financial 
statements. For purposes of paragraph (c) of this section, reporting 
period refers to a calendar year for federally insured credit unions 
with total assets of less than $50,000,000 and refers to a semiannual 
period for federally insured credit unions with total assets of 
$50,000,000 or more. For all other provisions of this section, 
reporting period refers to the span of time covered by a quarterly Call 
Report.
* * * * *
    (e) NCUSIF equity distribution. Except as otherwise provided for by 
federal law or regulation, the following procedures shall apply to any 
NCUSIF equity distribution declared by the Board:
    (1) Eligibility for an NCUSIF equity distribution. The Board shall 
make an NCUSIF equity distribution to any financial institution that 
files at least one quarterly Call Report as a federally insured credit 
union for a reporting period in the calendar year for which the Board 
declares the NCUSIF equity distribution.
    (2) Requirement to make an NCUSIF equity distribution. The Board 
shall make an NCUSIF equity distribution on a pro rata basis to 
financial institutions after each calendar year if, as of the end of 
the calendar year:
    (i) Any loans to the NCUSIF from the Federal Government, and any 
interest on those loans, have been repaid;
    (ii) The NCUSIF's equity ratio exceeds the normal operating level; 
and
    (iii) The NCUSIF's available assets ratio exceeds one percent.
    (3) Amount of NCUSIF equity distribution. The Board shall make the 
maximum possible NCUSIF equity distribution that does not:
    (i) Reduce the NCUSIF's equity ratio below the normal operating 
level; and
    (ii) Reduce the NCUSIF's available assets ratio below one percent.
    (4) Form of NCUSIF equity distribution. The Board shall have the 
discretion to determine the form of an NCUSIF equity distribution 
including a waiver of federal share insurance premiums, a rebate of 
federal share insurance premiums, a dividend, or any combination 
thereof.
    (5) Calculation of pro rata share of NCUSIF equity distribution. 
The Board shall determine a financial institution's pro rata share of 
an NCUSIF equity distribution by dividing the dollar amount of the 
declared NCUSIF equity distribution by the aggregate average amount of 
insured shares for that calendar year and then multiplying by a 
financial institution's average amount of insured shares.
    (i) Special rules. The following special rules shall apply to newly 
chartered federally insured credit unions, financial institutions that 
convert to federal share insurance coverage from the NCUSIF, financial 
institutions that terminate federal share insurance coverage from the 
NCUSIF, mergers between federally insured credit unions, and purchase 
and assumption transactions:
    (A) New charters. A newly chartered federally insured credit union 
that obtains federal share insurance coverage from the NCUSIF during 
the calendar year shall not receive an NCUSIF equity distribution for 
that calendar year unless the federally insured credit union has filed 
at least one quarterly Call Report as a federally insured credit union 
for a reporting period in the calendar year for which the Board has 
declared a distribution. For purposes of calculating the newly 
chartered federally insured credit union's average amount of insured 
shares, the federally insured credit union shall be treated as having 
no insured shares for reporting periods preceding the first reporting 
period in which the federally insured credit union files its first 
quarterly Call Report.
    (B) Conversion to federal share insurance. A financial institution 
that converts to federal share insurance coverage from the NCUSIF 
during the calendar year for which the Board declares an NCUSIF equity 
distribution (including through merger into a federally insured credit 
union) shall receive a prorated NCUSIF equity distribution for that 
calendar year provided that the financial institution has filed at 
least one quarterly Call Report as a federally insured credit union for 
a reporting period in the applicable calendar year. For purposes of 
calculating the financial institution's average amount of insured 
shares, the financial institution shall be treated as having no insured 
shares for reporting periods preceding the date of conversion to 
federal share insurance coverage. In cases of conversion through 
merger, only the insured shares attributable to the continuing 
federally insured credit union shall be used to determine the average 
amount of insured shares for reporting periods preceding the date of 
conversion.
    (C) Conversion from, or termination of, federal share insurance. A 
financial institution that terminates federal share insurance coverage 
from the NCUSIF during the calendar year for which the Board declares 
an NCUSIF equity distribution (including through a conversion to, or 
merger into, a non-federally insured credit union or an insured 
depository institution) shall receive a prorated NCUSIF equity 
distribution for that calendar year provided that the financial 
institution has filed at least one quarterly Call Report as a federally 
insured credit union for a reporting period in the applicable calendar 
year. For purposes of calculating the financial institution's average 
amount of insured shares, the financial institution shall be treated as 
having no insured shares for reporting periods following the date of 
termination of federal share insurance coverage. For purposes of this

[[Page 7962]]

subparagraph, a financial institution that terminates federal share 
insurance coverage from the NCUSIF through liquidation will be treated 
as terminating federal share insurance coverage during the calendar 
year when it enters liquidation.
    (D) Mergers between federally insured credit unions. A federally 
insured credit union that merges with a federally insured credit union 
shall receive an equity distribution equivalent to what the continuing 
federally insured credit union and the merging federally insured credit 
union would have received separately but for the consummation of the 
merger provided that the merging federally insured credit union has 
filed at least one quarterly Call Report as a federally insured credit 
union for a reporting period in the calendar year for which the Board 
declares the distribution. For purposes of calculating the continuing 
federally insured credit union's average amount of insured shares, any 
insured shares previously reported by the merging federally insured 
credit union on its quarterly Call Reports filed prior to the 
consummation of the merger during that calendar year for which the 
Board declares the distribution shall be combined with the insured 
shares reported on the continuing federally insured credit union's 
quarterly Call Reports.
    (E) Purchase and assumption transactions. A federally insured 
credit union that acquires all of the insured shares of another 
federally insured credit union in the calendar year for which the Board 
declares an NCUSIF equity distribution shall receive an amount 
equivalent to what the acquiring federally insured credit union and the 
selling federally insured credit union would have received but for the 
consummation of the purchase and assumption transaction provided that 
the selling federally insured credit union has filed at least one 
quarterly Call Report as a federally insured credit union for a 
reporting period in the calendar year for which the Board declares an 
NCUSIF equity distribution. For purposes of calculating the acquiring 
federally insured credit union's average amount of insured shares, any 
insured shares previously reported during that calendar year for which 
the Board declares an NCUSIF equity distribution by the selling 
federally insured credit union on its quarterly Call Reports filed 
prior to the consummation of the purchase and assumption transaction 
shall be combined with the insured shares reported on the acquiring 
federally insured credit union's quarterly Call Reports.
* * * * *
    (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 for insurance 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.
* * * * *
    (j) * * *
    (1) * * *
    (ii) 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 prorated premium based on the financial 
institution's insured shares as of the last day of the most recently 
ended reporting period preceding the conversion or merger multiplied by 
the ratio of the amount of full calendar months for which the financial 
institution maintained federal share insurance coverage from the NCUSIF 
to the number of full calendar months for the entire calendar year. If 
the financial institution has previously paid a premium based on this 
same assessment that exceeds this amount, the financial institution 
will receive a refund of the difference following the completion of the 
conversion or merger.
* * * * *

0
3. Effective March 26, 2018, until December 31, 2022, add Sec.  741.13 
to subpart A to read as follows:


Sec.  741.13  NCUSIF equity distribution related to the Corporate 
System Resolution Program.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Aggregate amount of insured shares means the sum of all insured 
shares reported by federally insured credit unions in calendar year-end 
Call Reports from the calendar year for which the Board declares an 
NCUSIF equity distribution pursuant to paragraph (b) of this section.
    (2) Aggregate average amount of insured shares means the sum of the 
average amount of insured shares as then reported by all financial 
institutions eligible to receive an NCUSIF equity distribution under 
subparagraph (b)(1) of this section in quarterly Call Reports over a 
given time horizon divided by the number of reporting periods in that 
time horizon.
    (3) Available assets ratio means the ratio of:
    (i) The amount determined by subtracting--
    (A) Direct liabilities of the NCUSIF and contingent liabilities for 
which no provision for losses has been made from
    (B) The sum of cash and the market value of unencumbered 
investments authorized under section 203 of the Federal Credit Union 
Act (12 U.S.C. 1783), to
    (ii) The aggregate amount of insured shares in all federally 
insured credit unions.
    (4) Average amount of insured shares means the sum of insured 
shares as then reported by a financial institution eligible to receive 
an NCUSIF equity distribution under subparagraph (b)(1) of this section 
over a given time horizon divided by the number of reporting periods in 
that time horizon.
    (5) Board means the NCUA Board or any individual or group of 
individuals with the delegated authority to act on behalf of the Board 
to implement the requirements of this section.
    (6) Corporate System Resolution Program refers to a special program 
established by the Board to stabilize the corporate credit union 
system.
    (7) Federally insured credit union means a federal or state-
chartered credit union that maintains federal share insurance coverage 
from the NCUSIF.
    (8) Financial institution means a federally insured credit union, 
non-federally insured credit union, or an insured depository 
institution, including a liquidation or receivership estate of any such 
credit union or depository institution.
    (9) Insured depository institution means any bank or savings 
association the deposits of which are insured by the Federal Deposit 
Insurance Corporation pursuant to the Federal Deposit Insurance Act (12 
U.S.C. 1811 et seq.).
    (10) 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.
    (11) National Credit Union Share Insurance Fund or NCUSIF refers to 
a revolving fund established by Congress within the U.S. Treasury to 
provide federal share insurance coverage to federally insured credit 
union members and to offset the NCUA's administrative expenses 
associated with the conservatorship and liquidation of federally 
insured credit unions.
    (12) NCUSIF equity distribution means a distribution of excess 
equity

[[Page 7963]]

from the NCUSIF to financial institutions eligible to receive a pro 
rata share of that distribution pursuant to the requirements of section 
202 of the Federal Credit Union Act (12 U.S.C. 1782) and the special 
rules set out in paragraph (b)(5) of this section.
    (13) NCUSIF equity ratio means the ratio of:
    (i) The amount determined by subtracting--
    (A) Direct liabilities of the NCUSIF and contingent liabilities for 
which no provision for losses has been made from
    (B) The sum of all one percent deposits made by federally insured 
credit unions pursuant to Sec.  741.4 of this chapter and the retained 
earnings balance of the NCUSIF, to
    (ii) The aggregate amount of insured shares in all federally 
insured credit unions.
    (14) Normal operating level means an NCUSIF equity ratio not less 
than 1.2 percent and not more than 1.5 percent, as established by 
action of the Board.
    (b) NCUSIF equity distributions related to the Corporate System 
Resolution Program. Notwithstanding Sec.  741.4 of this chapter, the 
following procedures shall apply to any NCUSIF equity distribution 
declared for calendar years 2017 through 2021:
    (1) Eligibility for an NCUSIF equity distribution. The Board shall 
make an NCUSIF equity distribution to any financial institution that 
files at least one quarterly Call Report as a federally insured credit 
union for a reporting period in the calendar year for which the Board 
declares the NCUSIF equity distribution.
    (2) Requirement to make an NCUSIF equity distribution. The Board 
shall make an NCUSIF equity distribution on a pro rata basis to 
financial institutions after each calendar year if, as of the end of 
the calendar year:
    (i) Any loans to the NCUSIF from the federal government, and any 
interest on those loans, have been repaid;
    (ii) The NCUSIF's equity ratio exceeds the normal operating level; 
and
    (iii) The NCUSIF's available assets ratio exceeds one percent.
    (3) Amount of NCUSIF equity distribution. The Board shall make the 
maximum possible NCUSIF equity distribution that does not:
    (i) Reduce the NCUSIF's equity ratio below the normal operating 
level; and
    (ii) Reduce the NCUSIF's available assets ratio below one percent.
    (4) Form of NCUSIF equity distribution. The Board shall have the 
discretion to determine the form of an NCUSIF equity distribution 
including a waiver of federal share insurance premiums, a rebate of 
federal share insurance premiums, a dividend, or any combination 
thereof.
    (5) Calculation of pro rata share of NCUSIF equity distribution. 
The Board shall determine a financial institution's pro rata share of 
an NCUSIF equity distribution by dividing the dollar amount of the 
declared NCUSIF equity distribution by the aggregate average amount of 
insured shares for that given time horizon and then multiplying by a 
financial institution's average amount of insured shares.
    (i) Time horizons. When calculating the average amount of insured 
shares and the aggregate average amount of insured shares for an NCUSIF 
equity distribution, the following time horizons shall apply:
    (A) NCUSIF equity distribution for 2017. The average amount of 
insured shares and aggregate average amount of insured shares for an 
NCUSIF equity distribution declared for calendar year 2017 shall be 
based on information from quarterly Call Reports from the preceding 36 
quarters, including the calendar year-end Call Report for 2017.
    (B) NCUSIF equity distribution for 2018. The average amount of 
insured shares and aggregate average amount of insured shares for an 
NCUSIF equity distribution declared for calendar year 2018 shall be 
based on information from quarterly Call Reports from the preceding 40 
quarters, including the calendar year-end Call Report for 2018.
    (C) NCUSIF equity distribution for 2019. The average amount of 
insured shares and aggregate average amount of insured shares for an 
NCUSIF equity distribution declared for calendar year 2019 shall be 
based on information from quarterly Call Reports from the preceding 44 
quarters, including the calendar year-end Call Report for 2019.
    (D) NCUSIF equity distribution for 2020. The average amount of 
insured shares and aggregate average amount of insured shares for an 
NCUSIF equity distribution declared for calendar year 2020 shall be 
based on information from quarterly Call Reports from the preceding 48 
quarters, including the calendar year-end Call Report for 2020.
    (E) NCUSIF equity distribution for 2021. The average amount of 
insured shares and aggregate average amount of insured shares for an 
NCUSIF equity distribution declared for calendar year 2021 shall be 
based on information from quarterly Call Reports from the preceding 52 
quarters, including the calendar year-end Call Report for 2021.
    (ii) Special rules. The following special rules shall apply to 
newly-chartered federally insured credit unions, financial institutions 
that convert to federal share insurance coverage from the NCUSIF, 
financial institutions that terminate federal share insurance coverage 
from the NCUSIF, mergers between federally insured credit unions, and 
purchase and assumption transactions:
    (A) New charters. A newly chartered federally insured credit union 
that obtains federal share insurance coverage from the NCUSIF during 
the calendar year shall not receive an NCUSIF equity distribution for 
that calendar year unless the federally insured credit union has filed 
at least one quarterly Call Report as a federally insured credit union 
for a reporting period in the calendar year. For purposes of 
calculating the newly chartered federally insured credit union's 
average amount of insured shares, the federally insured credit union 
shall be treated as having no insured shares for reporting periods 
preceding the first reporting period in which the federally insured 
credit union files its first quarterly Call Report.
    (B) Conversion to federal share insurance. A financial institution 
that converts to federal share insurance coverage from the NCUSIF 
during the calendar year for which the Board declares an NCUSIF equity 
distribution (including through merger into a federally insured credit 
union) shall receive a prorated NCUSIF equity distribution for that 
calendar year provided that the financial institution has filed at 
least one quarterly Call Report as a federally insured credit union for 
a reporting period in the calendar year. For purposes of calculating 
the financial institution's average amount of insured shares, the 
financial institution shall be treated as having no insured shares for 
reporting periods preceding the date of conversion to federal share 
insurance coverage. In cases of conversion through merger, only the 
insured shares attributable to the continuing federally insured credit 
union shall be used to determine the average amount of insured shares 
for reporting periods preceding the date of conversion.
    (C) Conversion from, or termination of, federal share insurance. A 
financial institution that terminates federal share insurance coverage 
from the NCUSIF during the calendar year for which the Board declares 
an NCUSIF equity distribution (including through a conversion to, or 
merger into, a non-federally insured credit union or an insured 
depository institution) shall receive a prorated NCUSIF equity 
distribution for that calendar year provided that the financial 
institution has filed at least one quarterly Call Report as a federally 
insured credit

[[Page 7964]]

union for a reporting period in the calendar year. For purposes of 
calculating the financial institution's average amount of insured 
shares, the financial institution shall be treated as having no insured 
shares for reporting periods following the date of termination of 
federal share insurance coverage. For purposes of this subparagraph, a 
financial institution that terminates federal share insurance coverage 
from the NCUSIF through liquidation will be treated as terminating 
federal share insurance coverage during the calendar year when it 
enters liquidation.
    (D) Mergers between federally insured credit unions. A continuing 
federally insured credit union that merges with a federally insured 
credit union shall receive an equity distribution equivalent to what 
the continuing federally insured credit union and the merging federally 
insured credit union would have received separately but for the 
consummation of the merger provided that the merging federally insured 
credit union has filed at least one quarterly Call Report as a 
federally insured credit union for a reporting period in the calendar 
year for which the Board declares the distribution. For purposes of 
calculating the continuing federally insured credit union's average 
amount of insured shares, any insured shares previously reported by the 
merging federally insured credit union on its quarterly Call Reports 
filed prior to the consummation of the merger during that calendar year 
for which the Board declares the distribution shall be combined with 
the insured shares reported on the continuing federally insured credit 
union's quarterly Call Reports.
    (E) Purchase and assumption transactions. A federally insured 
credit union that acquires all of the insured shares of another 
federally insured credit union in the calendar year for which the Board 
declares an NCUSIF equity distribution shall receive an amount 
equivalent to what the acquiring federally insured credit union and the 
selling federally insured credit union would have received but for the 
consummation of the purchase and assumption transaction provided that 
the selling federally insured credit union has filed at least one 
quarterly Call Report as a federally insured credit union for a 
reporting period in the calendar year for which the Board declares an 
NCUSIF equity distribution. For purposes of calculating the acquiring 
federally insured credit union's average amount of insured shares, any 
insured shares previously reported during that calendar year for which 
the Board declares an NCUSIF equity distribution by the selling 
federally insured credit union on its quarterly Call Reports filed 
prior to the consummation of the purchase and assumption transaction 
shall be combined with the insured shares reported on the acquiring 
federally insured credit union's quarterly Call Reports.
    (c) Expiration. This section shall expire and no longer be 
applicable after December 31, 2022.

Appendix A to Part 71 [Removed]

0
4. Remove Appendix A to part 741.

Appendices B and C to Part 71 [Redesignated as as Appendices A and B to 
Part 71]

0
5. Redesignate appendix B and appendix C as appendix A and appendix B, 
respectively.

[FR Doc. 2018-03622 Filed 2-22-18; 8:45 am]
 BILLING CODE 7535-01-P