[Federal Register Volume 86, Number 99 (Tuesday, May 25, 2021)]
[Notices]
[Pages 28155-28156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11056]


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NATIONAL CREDIT UNION ADMINISTRATION

[NCUA-2021-0038]


Policy for Setting the Normal Operating Level

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice; request for comment.

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SUMMARY: The NCUA Board (Board) is requesting public comments on the 
policy to set the National Credit Union Share Insurance Fund (Insurance 
Fund) Normal Operating Level.

DATES: Comments must be received on or before July 26, 2021.

ADDRESSES: You may submit comments by any one of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: Follow the instructions for 
submitting comments for NCUA-2021-0038.
     Fax: (703) 518-6319. Include ``[Your name]--Comments on 
Policy for Setting the Normal Operating Level'' in the subject line.
     Mail: Address to Melane Conyers-Ausbrooks, Secretary of 
the Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.
     Hand Delivery/Courier: Same as mailing address.
    Public Inspection: You may view all public comments as submitted on 
the Federal eRulemaking Portal, except for those we cannot post for 
technical reasons. The NCUA will not edit or remove any identifying or 
contact information from the public comments submitted. Due to social 
distancing guidelines, the usual opportunity to inspect paper copies of 
comments in the NCUA's law library is not currently available. After 
social distancing measures are relaxed, visitors may make an 
appointment to review paper copies by calling (703) 518-6540 or 
emailing [email protected].

FOR FURTHER INFORMATION CONTACT: Russell Moore or Amy Ward, Risk 
Analysis Officers, Office of Examination and Insurance, National Credit 
Union Administration, 1775 Duke Street, Alexandria, Virginia 22314 or 
telephone: (703) 518-6383 or (703) 819-1770.

SUPPLEMENTARY INFORMATION

I. Background

    On September 28, 2017, the Board approved the following actions: 
\1\
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    \1\ 82 FR 42298 (Oct. 4, 2017).
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     Closing the Temporary Corporate Credit Union Stabilization 
Fund (Stabilization Fund) and distributing its funds, property, and 
other assets and liabilities to the Insurance Fund, effective October 
1, 2017.
     Setting the Normal Operating Level of the Insurance Fund 
to 1.39 percent, effective September 28, 2017.
     Adopting the policy for setting the Normal Operating 
Level, as outlined below.

Policy for Setting the Normal Operating Level

    The policy for setting the Normal Operating Level adopted in 2017 
established a periodic review of the equity needs of the Insurance 
Fund, the results of which are to be communicated to stakeholders.\2\ 
At least annually, NCUA staff will review the level at which the NOL is 
set and report this information to the Board. Board action is only 
necessary when a change in the NOL is determined to be warranted. The 
policy establishes that any change to the Normal Operating Level of 
more than one basis point \3\ shall be made only after a public 
announcement of the proposed adjustment and opportunity for comment. 
Further, in soliciting comment, the NCUA will issue a public report, 
including data supporting the proposal. The policy establishes the 
following objectives that the Board will seek to satisfy when setting 
the Normal Operating Level:
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    \2\ As noted, the Board adopted this policy for setting the 
Normal Operating Level in 2017. The Board emphasizes that, as a 
general statement of the NCUA's policy regarding setting the Normal 
Operating Level, the Board is not required to follow the notice-and-
comment rulemaking process when revising this policy. See 5 U.S.C. 
553(b)(3)(a). Nevertheless, the Board is voluntarily soliciting 
public input on this policy.
    \3\ One basis point is one hundredth of one percent.
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     Retain public confidence in federal share insurance;
     Prevent impairment of the one percent contributed capital 
deposit; \4\ and
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    \4\ Federally insured credit unions are required to maintain a 
deposit equal to one percent of their insured shares with the 
Insurance Fund. 12 U.S.C. 1782(c)(1)(A)(i).
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     Ensure the Insurance Fund can withstand a moderate 
recession without the equity ratio declining below 1.20 percent over a 
five-year period.
    The current economic landscape and pending resolution of the 
obligations associated with the corporate credit union asset management 
estates and NCUA Guaranteed Notes (NGN) Program discussed later in this 
document warrant that the NCUA re-evaluate the current Normal Operating 
Level policy.

II. Legal Authority

    Per the Federal Credit Union Act (Act), the Normal Operating Level 
is an equity ratio set by the Board and may not be less than 1.20 
percent and not more than 1.50 percent.\5\ The Board has historically 
set the Normal Operating Level as the target equity ratio for the 
Insurance Fund.
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    \5\ 12 U.S.C. 1782(h)(4).
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    The Insurance Fund's calendar year-end equity ratio is part of the 
statutory basis to determine whether the NCUA must make a distribution 
to insured credit unions.\6\ The Act states

    \6\ The equity ratio is also part of the statutory basis for 
determining whether a premium or Insurance Fund restoration plan is 
necessary.
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the Board shall effect a pro rata distribution to insured credit unions 
after each calendar year if, as of the end of that calendar year--

     Any loans to the Fund from the Federal Government, and any 
interest on those loans, have been repaid;
     The Fund's equity ratio exceeds the Normal Operating 
Level; and
     The Fund's available assets ratio exceeds 1.0 percent.\7\

    \7\ 12 U.S.C. 1782(c)(3). This section is also subject to 12 
U.S.C. 1790e(e).
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    The provisions of the Act are implemented at 12 CFR part 741 of the 
NCUA's regulations.

III. Current Normal Operating Level Methodology and Process

    To implement the current approved policy, the NCUA developed a 
calculation based on projections related to the following factors:
     The modeled performance of the Insurance Fund over a five-
year period, assuming a moderate recession. The stress scenario entails 
estimating three primary drivers of outcomes: insurance losses, insured 
share growth, and yield on investments. The NCUA's analysis is based on 
the Federal Reserve's adverse economic scenario; however, the Federal 
Reserve did not publish an adverse scenario in 2020 or 2021. This 
necessitates the NCUA develop an adverse scenario based on the Federal 
Reserve's published baseline and severely adverse scenarios.

[[Page 28156]]

     The modeled potential decline in value of the Insurance 
Fund's claims on the corporate asset management estates in a moderate 
recession; and
     The projected equity ratio decline through the end of the 
following year without an economic downturn.
    As noted, the current economic landscape and pending events related 
to the corporate asset management estates and NGN Program warrant a re-
evaluation of the current Normal Operating Level policy. The current 
policy objectives include ensuring the Insurance Fund can withstand a 
moderate recession without the equity ratio declining below 1.2 percent 
over a five-year period. The economic conditions posed by the pandemic, 
including industry-wide, unprecedented share growth resulted in an 
equity ratio of 1.26 percent as of December 31, 2020. These issues have 
forced the NCUA to consider the ongoing feasibility of using a moderate 
recession and a five-year performance period as the basis for stressing 
the equity needs of the Insurance Fund.
    Additionally, the asset management estates of the five failed 
corporate credit unions support the NGN program created as part of the 
Corporate System Resolution. The last of the NGNs is scheduled to 
mature on June 12, 2021. The amount of time needed after the last NGN 
matures to fully liquidate all the assets and satisfy all the 
liabilities of the corporate asset management estates will depend on 
market factors and ongoing litigation. The risk associated with the 
Insurance Fund's claims on, and obligations related to the corporate 
asset management estates will decline and end as the estates are wound 
down and closed. More information regarding the NGN program and the 
Corporate System Resolution may be found on the NCUA's public 
website.\8\
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    \8\ https://www.ncua.gov/support-services.
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    Finally, the projected equity ratio decline through the end of the 
following year, assuming economic stability and normal growth, was 
originally devised as a backstop to ensure the Insurance Fund could 
stay above 1.20 percent under a moderate recession during the remaining 
life of the NGNs. With the upcoming maturity of the NGNs and pending 
conclusion of the corporate asset management estates, this factor may 
not be necessary going forward.

IV. Request for Comment

    The Board seeks comments on the policy and approach for setting the 
Normal Operating Level of the Insurance Fund. Commenters are also 
encouraged to discuss any other relevant issues they believe the Board 
should consider. In particular, the Board is interested in comments 
addressing the following questions:
     Should a moderate recession be the basis for evaluating 
the Insurance Fund performance during an economic downturn, or should 
the NCUA change the policy to consider a severe recession?
     What data source(s) should the NCUA use for determining 
the characteristics of a potential moderate or severe recession--the 
Federal Reserve scenario, an independent source, or the NCUA's 
judgment?
     Should the NCUA continue modeling the performance of the 
Insurance Fund over a five-year period or a longer or shorter period?
     How should the NCUA utilize the modeled potential decline 
in value of the Insurance Fund's claims on the corporate asset 
management estates going forward until the estates are fully resolved?
     Should the NCUA continue to incorporate in the Normal 
Operating Level analysis the projected equity ratio decline through the 
end of the following year without an economic downturn? Should this 
period be longer or shorter, or not factored into the analysis at all.
     Given forecasting uncertainties and timing challenges, 
would it be reasonable for the NCUA to change the requirement to 
request public comment only if the Normal Operating Level were to 
change by a larger amount than just one basis point?
     Should the Normal Operating Level be re-evaluated in the 
midst of an economic downturn or should it be left unchanged until the 
onset of an economic recovery?
     Should the Normal Operative Level be re-evaluated on 
qualitative factors based on the COVID-19 pandemic?
     Is there any other information that the NCUA Board should 
consider when setting the NOL?
    Commenters are encouraged to provide the specific basis for their 
comments and, to the extent feasible, documentation to support any 
recommendations. The Board will consider the comments, and if 
appropriate, issue a revised policy and publish it in the Federal 
Register. Should the NCUA implement any changes, the earliest they 
would take effect is the end of 2021.

    By the National Credit Union Administration Board.
Melane Conyers-Ausbrooks,
Secretary of the Board.
[FR Doc. 2021-11056 Filed 5-24-21; 8:45 am]
BILLING CODE 7535-01-P