Fidelity Bond and Insurance Coverage for Federal Credit Unions, 61713-61716 [05-21326]
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61713
Rules and Regulations
Federal Register
Vol. 70, No. 206
Wednesday, October 26, 2005
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents. Prices of
new books are listed in the first FEDERAL
REGISTER issue of each week.
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
5 CFR Part 5502
RIN 3209–AA15
Supplemental Financial Disclosure
Requirements for Employees of the
Department of Health and Human
Services; Corrections
Department of Health and
Human Services (HHS).
ACTION: Correcting amendments.
AGENCY:
The Department of Health and
Human Services published a final rule
in the Federal Register on Wednesday,
August 31, 2005 (70 FR 51559),
establishing supplemental financial
disclosure reporting requirements for
certain employees of the Food and Drug
Administration (FDA) and the National
Institutes of Health (NIH). That
document contained language that
incorrectly rendered the supplemental
reporting requirements inapplicable to
new entrant employees who file either
a public or confidential financial
disclosure report. This document
corrects the final regulation by revising
the appropriate sections.
DATES: This correction is effective
October 26, 2005.
FOR FURTHER INFORMATION CONTACT:
Edgar M. Swindell, Associate General
Counsel, Office of the General Counsel,
Ethics Division, Department of Health
and Human Services, telephone (202)
690–7258, fax (202) 205–9752.
SUPPLEMENTARY INFORMATION: This
document corrects two errors in the
final rule which HHS published, with
the concurrence of the Office of
Government Ethics (OGE), on August
31, 2005, at 70 FR 51559. The
corrections involve the supplemental
financial disclosure reporting
requirements for employees of the Food
and Drug Administration and the
SUMMARY:
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14:58 Oct 25, 2005
Jkt 208001
National Institutes of Health contained
respectively in 5 CFR 5502.106 and
5502.107. These sections require certain
FDA and NIH employees to report
financial interests in organizations
affected by the programs and operations
of their respective agencies. In the final
rule, the text of each section erroneously
carried forward an exception that had
appeared in the interim final rule
published on February 3, 2005, at 70 FR
5543. In the interim final rule, new
entrant employees to positions
classified as public or confidential filers
were excepted from the supplemental
reporting requirement because the
disclosure of financial interests in
significantly regulated organizations
(SROs) for FDA or substantially affected
organizations (SAOs) for NIH would
duplicate the data submitted on an SF
278 or OGE 450 report. However, the
final rule provided that the value of the
reported interests must be disclosed.
Because the SF 278 requires a reporting
of value only within certain categories
of amount and an OGE 450 requires no
report of value whatsoever, these forms
do not provide the information required
by the final rule. As a result, the
exception for new entrant employees
was retained inadvertently.
Accordingly, § 5502.106(c)(1) is
corrected to delete the phrase ‘‘other
than a public filer or a confidential
filer;’’ and § 5502.107(c)(1) is corrected
to state affirmatively that new entrant
public or confidential filers are subject
to the reporting requirement.
List of Subjects
5 CFR Part 5502
Conflict of interests, Ethics,
Government employees, Outside
activities, Reporting and record keeping
requirements.
Dated: October 17, 2005.
Edgar M. Swindell,
Designated Agency Ethics Official,
Department of Health and Human Services.
Dated: October 18, 2005.
Michael O. Leavitt,
Secretary, Department of Health and Human
Services.
Approved: October 18, 2005.
Marilyn L. Glynn,
General Counsel, Office of Government
Ethics.
For the reasons discussed in the
preamble, the Department of Health and
Human Services, with the concurrence
I
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of the Office of Government Ethics,
corrects the HHS Supplemental
Financial Disclosure Regulation at 5
CFR part 5502, by making the following
correcting amendments:
PART 5502—SUPPLEMENTAL
FINANCIAL DISCLOSURE
REQUIREMENTS FOR EMPLOYEES OF
THE DEPARTMENT OF HEALTH AND
HUMAN SERVICES
1. The authority citation for part 5502
continues to read as follows:
I
Authority: 5 U.S.C. 301, 7301; 5 U.S.C.
App. (Ethics in Government Act of 1978);
E.O. 12674, 54 FR 15159, 3 CFR, 1989 Comp.,
p. 215, as modified by E.O. 12731, 55 FR
42547, 3 CFR, 1990 Comp., p. 306; 5 CFR
2634.103.
§ 5502.106
[Amended]
2. Amend § 5502.106 by removing
from paragraph (c)(1) the commas and
words ‘‘, other than a public filer or a
confidential filer,’’.
I
§ 5502.107
[Amended]
3. Amend § 5502.107 by removing
from paragraph (c)(1) the commas and
words ‘‘, other than a public filer or a
confidential filer,’’ and adding in their
place the words ‘‘who is a public filer
or a confidential filer or’’.
I
[FR Doc. 05–21343 Filed 10–25–05; 8:45 am]
BILLING CODE 4150–03–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 713 and 741
Fidelity Bond and Insurance Coverage
for Federal Credit Unions
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
SUMMARY: NCUA is amending its fidelity
bond rule to increase the maximum
allowable deductible, presently
$200,000, and to change the minimum
required coverage. NCUA is also
removing its listing of approved bonds
in the rule but will continue to list and
update them on its Web site, and has
concluded it will be useful to include in
the rule some additional factors credit
unions should consider in determining
whether to raise their bond coverage
above the regulatory requirements.
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Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Rules and Regulations
NCUA believes these changes
modernize the rule and provide
flexibility while addressing safety and
soundness concerns. In response to
public comment, NCUA has elected not
to rescind its approval of Blanket Bond
Standard Form 23. Finally, NCUA is
making a technical correction in the
regulation that requires fidelity bond
coverage for federally insured, state
chartered credit unions.
DATES: This rule is effective on
November 25, 2005.
FOR FURTHER INFORMATION CONTACT: Ross
P. Kendall, Staff Attorney, Office of
General Counsel, at the above address or
telephone (703) 518–6540.
SUPPLEMENTARY INFORMATION:
Background
On May 19, 2005, the NCUA Board
requested comment on a proposal to
change part 713 of its regulations to
provide for higher required fidelity
bond coverages for credit unions and
allow for higher deductibles. 70 FR
30017 (May 25, 2005). The amendments
update the dollar amount thresholds in
the rule, which were last amended over
20 years ago, and conform bond
coverage to reflect risks in the current
financial environment more accurately.
The proposal also called for removing
the listing in the rule of approved bond
forms and carriers, as this information is
available and updated on the NCUA
Web site. The proposal invited comment
on whether to rescind NCUA approval
of Blanket Bond Standard Form 23 and
on whether additional criteria ought to
be included in the rule for consideration
by credit unions in determining
appropriate bond coverage amounts.
Summary of Comments
NCUA received twelve comments to
the proposal. All the commenters
supported increasing the maximum
allowable deductible and the required
coverage limits for both larger and small
credit unions. Several noted these
changes would provide needed
flexibility for credit unions and would
enable them to better manage risk.
Six commenters recommended that
NCUA consider other additional risk
factors besides eligibility under NCUA’s
Regulatory Flexibility (RegFlex)
Program, 12 CFR part 742, in
determining permissible deductible
limits, and suggested factors such as
capital ratios, earnings, net worth, risk
profile, and loss history as appropriate
limits. A few of these commenters
suggested using the categories in
NCUA’s prompt corrective action rule as
a basis for determining eligibility for
higher deductibles, for example,
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permitting credit unions that are
deemed ‘‘well capitalized’’ as eligible
for higher deductibles. 12 CFR part 702.
One commenter noted that asset size
alone is not an indicator of risk and
suggested that more focus on risk
assessment, including the items
described above, is appropriate for the
coverage limit changes as well as for
determining eligibility for the maximum
deductible.
NCUA invited comment in the
preamble to the proposed rule on
whether to include additional risk
factors in the rule for credit unions to
consider in determining appropriate
coverage limits. One commenter
responded in the negative, while three
others acknowledged additional risks.
Of these, two expressed concern that
listing additional risk factors in the rule
should not result in a requirement that
credit union management must
necessarily consider those specific
items. Rather, the commenters said, the
rule should continue to allow for
individual boards of directors to retain
discretion to make determinations
applicable to their unique
circumstances.
Most commenters offered no view on
whether NCUA should declare the
standard bond form number 23 obsolete.
Three commenters supported its
removal from the approved listing of
bond forms, but two opposed its
removal. Of these, a trade association
strongly urged NCUA to retain the
standard form 23, indicating that its
removal would restrict competition in
the marketplace and adversely affect
credit unions. This commenter noted
that the form is likely to be updated in
the near future.
One commenter noted support for
removing the listing of approved bond
forms and bond carriers from the
regulation and including this
information exclusively on the agency’s
Web site.
Final Rule
In view of the comments, NCUA is
making the following changes to the
version published as the proposed rule.
Eligibility for Increased Maximum
Deductible
The proposal provided for raising the
maximum deductible for credit unions
with over a $1 million in assets from its
current ceiling of $200,000, but
restricting the eligibility for the higher
deductible to credit unions that qualify
under NCUA’s RegFlex Program. 12 CFR
part 742. The proposal invited comment
about whether different criteria might
present a more appropriate measure of
eligibility for a higher deductible.
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The Board has fully considered the
comments it received and particularly
those that suggested qualifying as ‘‘well
capitalized’’ under the prompt
corrective action rule presents a better
measure on which to base eligibility for
the higher deductible. 12 CFR part 702.
While being ‘‘well capitalized’’ might
indicate a credit union has an increased
ability to absorb losses, the Board has
determined that a purely quantitative
factor such as a credit union’s capital
level ignores the fundamental premise
that, in assessing risk, a more qualitative
approach measuring the overall
financial and operational health of a
credit union is advisable. Call report
data for June 2005 indicate there are
almost 2,000 credit unions that,
although ‘‘well capitalized,’’ were
assigned a CAMEL 3 or 4 rating. For
these reasons, the Board has determined
to retain in the final rule that credit
unions over $1 million in assets that
qualify under the RegFlex Program may
have higher deductibles based on the
regulatory formula, up to a maximum
permissible deductible of $1 million.
The Board, however, recognizes that
eligibility for the RegFlex Program can
fluctuate quarterly but does not believe
that credit unions should have to review
and, if necessary, adjust their bond
coverage that frequently. For that
reason, the Board has clarified in the
final rule that a credit union must
review its continued eligibility under
the regulation for a higher deductible
only once a year. A credit union’s
continued eligibility will be based on its
asset size as reflected in its most recent,
year-end 5300 call report and, for
purposes of qualifying under the
RegFlex program, its net worth as
reflected in that same year-end 5300 call
report. If a credit union previously
qualified for the higher deductible has
a decrease in assets based on its most
recent year-end 5300 call report or its
net worth has decreased so that it would
no longer qualify for the RegFlex
Program, then it must obtain the
coverage otherwise required by the
regulation. Nevertheless, even if a credit
union has maintained assets in excess of
$1 million and its net worth would
otherwise continue to qualify it for the
RegFlex Program, the credit union must
obtain the required coverage if its most
recent examination report disqualifies it
from the RegFlex Program.
Coverage Limits
The Board outlined its reasons for
increasing coverage limits for both
larger and smaller credit unions in the
preamble to the proposed rule,
including inflation, changes in asset
size, and the rate of growth in assets for
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larger credit unions, which has
approached 80% since 1999. With
respect to smaller credit unions, the
preamble discussed the increased risks
faced in today’s technological
environment and their vulnerability to
catastrophic loss engineered by one or a
few dishonest insiders. No commenters
questioned or disagreed with the
Board’s views on these matters.
Accordingly, NCUA is adopting these
aspects of the proposed amendments as
a final rule without change.
Identification of Additional Risk Factors
The preamble to the proposed rule
solicited comment from the public as to
whether it would be useful to include
additional risk factors in the rule that
credit unions should consider in
determining whether to obtain
additional or enhanced coverage.
Comment on this aspect of the proposal
generally recognized that risks vary
depending on a credit union’s activities
and various factors. The Board is aware
that additional risk factors may exist,
based on a credit union’s fraud trends
and loss experience, and the types of
programs and activities in which it is
engaged, such as wire transfer and
remittance services. The Board believes
it will be useful to amplify the
considerations noted in the rule that
credit unions should, but are not
required, to consider. The Board notes
that credit unions are not required by
the rule to consider specific risk factors
but credit unions should undertake their
own internal risk assessment. The Board
recognizes that each credit union board
of directors should evaluate the unique
aspects of its business model and
associated risks and determine what
additional coverages may be warranted.
Other Changes and Clarifications
The final rule eliminates the listing of
approved bond carriers and forms, since
this information is contained on the
agency’s Web site. One commenter
noted that the proposed rule was
potentially confusing in that it could be
read to indicate all RegFlex credit
unions, regardless of assets size, could
have higher deductibles. The final rule
has been revised to clarify that only
credit unions that have $1 million or
more in assets and are RegFlex eligible
qualify for the higher deductibles. In
addition, any changes to the deductible
amount based on changes in asset size
or RegFlex Program eligibility need only
be made annually, within 30 days of the
filing of the year-end call report.
Finally, the Board has determined not to
rescind its approval for standard bond
form number 23 at this time, based on
a comment submitted by the leading
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Jkt 208001
trade association for the surety industry
indicating that the form is still viable.
The Board believes the changes in the
rule are consistent with its ongoing
efforts to reduce regulatory burden
while preserving necessary
requirements to assure credit union
safety and soundness. As noted in the
preamble to the proposed rule, the
Board does not believe the increased
coverage requirements will add
significantly to premium costs and
expects changes in the deductible
ceiling will result in many credit unions
being able to get fidelity bond coverage
at lower cost.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
requires NCUA to prepare an analysis to
describe any significant economic
impact any proposed regulation may
have on a substantial number of small
entities. NCUA considers credit unions
having less than ten million dollars in
assets to be small for purposes of RFA.
Interpretive Ruling and Policy
Statement (IRPS) 87–2 as amended by
IRPS 03–2. The rule will require credit
unions with assets under $4 million to
obtain higher fidelity bond coverage
than is currently required. The NCUA
believes, based on discussions with
members of the industry, that the
increase in premium to obtain the
higher coverage will be, relative to the
premium already required, insignificant.
The NCUA has determined and certifies
that this rule will not have a significant
economic impact on a substantial
number of small credit unions.
Accordingly, the NCUA has determined
that an RFA analysis is not required.
Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act of 1995,
NCUA submitted a copy of its proposed
rule to the Office of Management and
Budget (OMB) at the time of its
publication in the Federal Register and
has applied for a control number. NCUA
included in its proposed rule an
analysis of the time and expense
estimated to be required to comply with
the notice provisions in the rule and
solicited public comment on all aspects
of the paperwork burden. NCUA
received no comments on its estimate of
the paperwork burden. OMB approved
NCUA’s submission and has assigned
control number 3133–170 to this
information collection.
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61715
Small Business Regulatory Enforcement
Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996 (Pub.
L. 104–121) provides generally for
congressional review of agency rules. A
reporting requirement is triggered in
instances where NCUA issues a final
rule as defined by Section 551 of the
Administrative Procedure Act. 5 U.S.C.
551. The Office of Management and
Budget has determined that this rule is
not a major rule for purposes of the
Small Business Regulatory Enforcement
Fairness Act of 1996.
Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. In adherence to
fundamental federalism principles,
NCUA, an independent regulatory
agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive
order. The 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. NCUA has
determined that the rule does not
constitute a policy that has federalism
implications for purposes of the
executive order.
The Treasury and General Government
Appropriations Act, 1999—Assessment
of Federal Regulations and Policies on
Families
The NCUA has determined that the
final rule will not affect family wellbeing within the meaning of section 654
of the Treasury and General
Government Appropriations Act, 1999,
Pub. L. 105–277, 112 Stat. 2681 (1998).
List of Subjects in 12 CFR Parts 713 and
741
Credit unions, Insurance, Reporting
and recordkeeping requirements.
By the National Credit Union
Administration Board on October 20, 2005.
Mary F. Rupp,
Secretary of the Board.
Accordingly, NCUA amends 12 CFR
parts 713 and 741 as follows:
I
PART 713—FIDELITY BONDS AND
INSURANCE COVERAGE FOR
FEDERAL CREDIT UNIONS
1. The authority citation for part 713
continues to read as follows:
I
Authority: 12 U.S.C. 1756, 1757(5)(D), and
(7)(I), 1766, 1782, 1784, 1785 and 1786.
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Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Rules and Regulations
are unable to access the NCUA Web site,
you can get a current listing of approved
bond forms by contacting NCUA’s
Public and Congressional Affairs Office,
at (703) 518–6330.
*
*
*
*
*
I 3. Amend § 713.5 by revising
paragraphs (a) and (b) to read as follows:
2. Amend § 713.4 by revising
paragraph (a) to read as follows:
I
§ 713.4
What bond forms may be used?
(a) A current listing of basic bond
forms that may be used without prior
NCUA Board approval is on NCUA’s
Web site, https://www.ncua.gov. If you
§ 713.5 What is the required minimum
dollar amount of coverage?
(a) The minimum required amount of
fidelity bond coverage for any single
loss is computed based on a federal
credit union’s total assets.
Assets
Minimum bond
$0 to $4,000,000 ......................................................................................
$4,000,001 to $50,000,000 ......................................................................
Lesser of total assets or $250,000.
$100,000 plus $50,000 for each million or fraction thereof over
$1,000,000.
$2,550,000 plus $10,000 for each million or fraction thereof over
$50,000,000, to a maximum of $5,000,000.
One percent of assets, rounded to the nearest hundred million, to a
maximum of $9,000,000.
$50,000,000 to $500,000,000 ..................................................................
Over $500,000,000 ...................................................................................
(b) This is the minimum coverage
required, but a federal credit union’s
board of directors should purchase
additional or enhanced coverage when
its circumstances warrant. In making
this determination, a board of directors
should consider its own internal risk
assessment, its fraud trends and loss
experience, and factors such as its cash
on hand, cash in transit, and the nature
and risks inherent in any expanded
services it offers such as wire transfer
and remittance services.
*
*
*
*
*
4. Amend § 713.6 by revising
paragraph (a)(1) and adding paragraph
(c) to read as follows:
I
§ 713.6 What is the permissible
deductible?
(a)(1)The maximum amount of
allowable deductible is computed based
on a federal credit union’s asset size and
capital level, as follows:
Assets
Maximum deductible
$0 to $100,000 .........................................................................................
$100,001 to $250,000 ..............................................................................
$250,000 to $1,000,000 ...........................................................................
Over $1,000,000 .......................................................................................
No deductible allowed.
$1,000.
$2,000.
$2,000 plus 1/1000 of total assets up to a maximum of $200,000; for
credit unions over $1 million in assets that qualify for NCUA’s Regulatory Flexibility Program in Part 742, the maximum deductible is
$1,000,000.
*
*
*
*
*
(c) A credit union’s eligibility to
qualify for a deductible in excess of
$200,000 is determined based on it
having assets in excess of $1 million as
reflected in its most recent year-end
5300 call report and, as of that same
year-end, qualifying for NCUA’s
Regulatory Flexibility Program under
part 742 of this title as determined by
its most recent examination report. A
credit union that previously qualified
for a deductible in excess of $200,000,
but that subsequently fails to qualify
based on its most recent year-end 5300
call report because either its assets have
decreased or it no longer meets the net
worth requirements of part 742 of this
title or fails to meet the CAMEL rating
requirements of part 742 of this title as
determined by its most recent
examination report, must obtain the
coverage otherwise required by
paragraph (b) of this section within 30
days of filing its year-end call report and
must notify the appropriate NCUA
regional office in writing of its changed
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Jkt 208001
status and confirm that it has obtained
the required coverage.
DEPARTMENT OF TRANSPORTATION
PART 741—REQUIREMENTS FOR
INSURANCE
14 CFR Part 39
I
1. The authority citation for part 741
continues to read as follows:
[Docket No. FAA–2005–20473; Directorate
Identifier 2004–NM–156–AD; Amendment
39–14351; AD 2005–22–07]
Authority: 12 U.S.C. 1757, 1766, 1781–
1790, and 1790d.
RIN 2120–AA64
2. Amend § 741.201 by revising
paragraph (b) to read as follows:
Airworthiness Directives; Boeing
Model 757–200, –200PF, and –300
Series Airplanes
§ 741.201 Minimum fidelity bond
requirements.
AGENCY:
I
*
*
*
*
*
(b) Corporate credit unions must
comply with § 704.18 of this chapter in
lieu of part 713 of this chapter.
[FR Doc. 05–21326 Filed 10–25–05; 8:45 am]
BILLING CODE 7535–01–P
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Federal Aviation Administration
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Final rule.
SUMMARY: The FAA is adopting a new
airworthiness directive (AD) for certain
Boeing Model 757–200, –200PF, and
–300 series airplanes. This AD requires
inspecting for damage of the ground
brackets, ground wires, and terminal
lugs of the auxiliary power unit (APU)
battery and the APU start transformer
rectifier unit (TRU) as applicable; and
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]]>Agencies
[Federal Register Volume 70, Number 206 (Wednesday, October 26, 2005)]
[Rules and Regulations]
[Pages 61713-61716]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-21326]
=======================================================================
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 713 and 741
Fidelity Bond and Insurance Coverage for Federal Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: NCUA is amending its fidelity bond rule to increase the
maximum allowable deductible, presently $200,000, and to change the
minimum required coverage. NCUA is also removing its listing of
approved bonds in the rule but will continue to list and update them on
its Web site, and has concluded it will be useful to include in the
rule some additional factors credit unions should consider in
determining whether to raise their bond coverage above the regulatory
requirements.
[[Page 61714]]
NCUA believes these changes modernize the rule and provide flexibility
while addressing safety and soundness concerns. In response to public
comment, NCUA has elected not to rescind its approval of Blanket Bond
Standard Form 23. Finally, NCUA is making a technical correction in the
regulation that requires fidelity bond coverage for federally insured,
state chartered credit unions.
DATES: This rule is effective on November 25, 2005.
FOR FURTHER INFORMATION CONTACT: Ross P. Kendall, Staff Attorney,
Office of General Counsel, at the above address or telephone (703) 518-
6540.
SUPPLEMENTARY INFORMATION:
Background
On May 19, 2005, the NCUA Board requested comment on a proposal to
change part 713 of its regulations to provide for higher required
fidelity bond coverages for credit unions and allow for higher
deductibles. 70 FR 30017 (May 25, 2005). The amendments update the
dollar amount thresholds in the rule, which were last amended over 20
years ago, and conform bond coverage to reflect risks in the current
financial environment more accurately. The proposal also called for
removing the listing in the rule of approved bond forms and carriers,
as this information is available and updated on the NCUA Web site. The
proposal invited comment on whether to rescind NCUA approval of Blanket
Bond Standard Form 23 and on whether additional criteria ought to be
included in the rule for consideration by credit unions in determining
appropriate bond coverage amounts.
Summary of Comments
NCUA received twelve comments to the proposal. All the commenters
supported increasing the maximum allowable deductible and the required
coverage limits for both larger and small credit unions. Several noted
these changes would provide needed flexibility for credit unions and
would enable them to better manage risk.
Six commenters recommended that NCUA consider other additional risk
factors besides eligibility under NCUA's Regulatory Flexibility
(RegFlex) Program, 12 CFR part 742, in determining permissible
deductible limits, and suggested factors such as capital ratios,
earnings, net worth, risk profile, and loss history as appropriate
limits. A few of these commenters suggested using the categories in
NCUA's prompt corrective action rule as a basis for determining
eligibility for higher deductibles, for example, permitting credit
unions that are deemed ``well capitalized'' as eligible for higher
deductibles. 12 CFR part 702. One commenter noted that asset size alone
is not an indicator of risk and suggested that more focus on risk
assessment, including the items described above, is appropriate for the
coverage limit changes as well as for determining eligibility for the
maximum deductible.
NCUA invited comment in the preamble to the proposed rule on
whether to include additional risk factors in the rule for credit
unions to consider in determining appropriate coverage limits. One
commenter responded in the negative, while three others acknowledged
additional risks. Of these, two expressed concern that listing
additional risk factors in the rule should not result in a requirement
that credit union management must necessarily consider those specific
items. Rather, the commenters said, the rule should continue to allow
for individual boards of directors to retain discretion to make
determinations applicable to their unique circumstances.
Most commenters offered no view on whether NCUA should declare the
standard bond form number 23 obsolete. Three commenters supported its
removal from the approved listing of bond forms, but two opposed its
removal. Of these, a trade association strongly urged NCUA to retain
the standard form 23, indicating that its removal would restrict
competition in the marketplace and adversely affect credit unions. This
commenter noted that the form is likely to be updated in the near
future.
One commenter noted support for removing the listing of approved
bond forms and bond carriers from the regulation and including this
information exclusively on the agency's Web site.
Final Rule
In view of the comments, NCUA is making the following changes to
the version published as the proposed rule.
Eligibility for Increased Maximum Deductible
The proposal provided for raising the maximum deductible for credit
unions with over a $1 million in assets from its current ceiling of
$200,000, but restricting the eligibility for the higher deductible to
credit unions that qualify under NCUA's RegFlex Program. 12 CFR part
742. The proposal invited comment about whether different criteria
might present a more appropriate measure of eligibility for a higher
deductible.
The Board has fully considered the comments it received and
particularly those that suggested qualifying as ``well capitalized''
under the prompt corrective action rule presents a better measure on
which to base eligibility for the higher deductible. 12 CFR part 702.
While being ``well capitalized'' might indicate a credit union has an
increased ability to absorb losses, the Board has determined that a
purely quantitative factor such as a credit union's capital level
ignores the fundamental premise that, in assessing risk, a more
qualitative approach measuring the overall financial and operational
health of a credit union is advisable. Call report data for June 2005
indicate there are almost 2,000 credit unions that, although ``well
capitalized,'' were assigned a CAMEL 3 or 4 rating. For these reasons,
the Board has determined to retain in the final rule that credit unions
over $1 million in assets that qualify under the RegFlex Program may
have higher deductibles based on the regulatory formula, up to a
maximum permissible deductible of $1 million.
The Board, however, recognizes that eligibility for the RegFlex
Program can fluctuate quarterly but does not believe that credit unions
should have to review and, if necessary, adjust their bond coverage
that frequently. For that reason, the Board has clarified in the final
rule that a credit union must review its continued eligibility under
the regulation for a higher deductible only once a year. A credit
union's continued eligibility will be based on its asset size as
reflected in its most recent, year-end 5300 call report and, for
purposes of qualifying under the RegFlex program, its net worth as
reflected in that same year-end 5300 call report. If a credit union
previously qualified for the higher deductible has a decrease in assets
based on its most recent year-end 5300 call report or its net worth has
decreased so that it would no longer qualify for the RegFlex Program,
then it must obtain the coverage otherwise required by the regulation.
Nevertheless, even if a credit union has maintained assets in excess of
$1 million and its net worth would otherwise continue to qualify it for
the RegFlex Program, the credit union must obtain the required coverage
if its most recent examination report disqualifies it from the RegFlex
Program.
Coverage Limits
The Board outlined its reasons for increasing coverage limits for
both larger and smaller credit unions in the preamble to the proposed
rule, including inflation, changes in asset size, and the rate of
growth in assets for
[[Page 61715]]
larger credit unions, which has approached 80% since 1999. With respect
to smaller credit unions, the preamble discussed the increased risks
faced in today's technological environment and their vulnerability to
catastrophic loss engineered by one or a few dishonest insiders. No
commenters questioned or disagreed with the Board's views on these
matters. Accordingly, NCUA is adopting these aspects of the proposed
amendments as a final rule without change.
Identification of Additional Risk Factors
The preamble to the proposed rule solicited comment from the public
as to whether it would be useful to include additional risk factors in
the rule that credit unions should consider in determining whether to
obtain additional or enhanced coverage. Comment on this aspect of the
proposal generally recognized that risks vary depending on a credit
union's activities and various factors. The Board is aware that
additional risk factors may exist, based on a credit union's fraud
trends and loss experience, and the types of programs and activities in
which it is engaged, such as wire transfer and remittance services. The
Board believes it will be useful to amplify the considerations noted in
the rule that credit unions should, but are not required, to consider.
The Board notes that credit unions are not required by the rule to
consider specific risk factors but credit unions should undertake their
own internal risk assessment. The Board recognizes that each credit
union board of directors should evaluate the unique aspects of its
business model and associated risks and determine what additional
coverages may be warranted.
Other Changes and Clarifications
The final rule eliminates the listing of approved bond carriers and
forms, since this information is contained on the agency's Web site.
One commenter noted that the proposed rule was potentially confusing in
that it could be read to indicate all RegFlex credit unions, regardless
of assets size, could have higher deductibles. The final rule has been
revised to clarify that only credit unions that have $1 million or more
in assets and are RegFlex eligible qualify for the higher deductibles.
In addition, any changes to the deductible amount based on changes in
asset size or RegFlex Program eligibility need only be made annually,
within 30 days of the filing of the year-end call report. Finally, the
Board has determined not to rescind its approval for standard bond form
number 23 at this time, based on a comment submitted by the leading
trade association for the surety industry indicating that the form is
still viable.
The Board believes the changes in the rule are consistent with its
ongoing efforts to reduce regulatory burden while preserving necessary
requirements to assure credit union safety and soundness. As noted in
the preamble to the proposed rule, the Board does not believe the
increased coverage requirements will add significantly to premium costs
and expects changes in the deductible ceiling will result in many
credit unions being able to get fidelity bond coverage at lower cost.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires NCUA to prepare an
analysis to describe any significant economic impact any proposed
regulation may have on a substantial number of small entities. NCUA
considers credit unions having less than ten million dollars in assets
to be small for purposes of RFA. Interpretive Ruling and Policy
Statement (IRPS) 87-2 as amended by IRPS 03-2. The rule will require
credit unions with assets under $4 million to obtain higher fidelity
bond coverage than is currently required. The NCUA believes, based on
discussions with members of the industry, that the increase in premium
to obtain the higher coverage will be, relative to the premium already
required, insignificant. The NCUA has determined and certifies that
this rule will not have a significant economic impact on a substantial
number of small credit unions. Accordingly, the NCUA has determined
that an RFA analysis is not required.
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995, NCUA submitted a copy of its proposed rule to the Office of
Management and Budget (OMB) at the time of its publication in the
Federal Register and has applied for a control number. NCUA included in
its proposed rule an analysis of the time and expense estimated to be
required to comply with the notice provisions in the rule and solicited
public comment on all aspects of the paperwork burden. NCUA received no
comments on its estimate of the paperwork burden. OMB approved NCUA's
submission and has assigned control number 3133-170 to this information
collection.
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final rule as defined by Section 551 of the Administrative
Procedure Act. 5 U.S.C. 551. The Office of Management and Budget has
determined that this rule is not a major rule for purposes of the Small
Business Regulatory Enforcement Fairness Act of 1996.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, NCUA, an independent
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies
with the executive order. The 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. NCUA has
determined that the rule does not constitute a policy that has
federalism implications for purposes of the executive order.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The NCUA has determined that the final rule will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat.
2681 (1998).
List of Subjects in 12 CFR Parts 713 and 741
Credit unions, Insurance, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on October 20,
2005.
Mary F. Rupp,
Secretary of the Board.
0
Accordingly, NCUA amends 12 CFR parts 713 and 741 as follows:
PART 713--FIDELITY BONDS AND INSURANCE COVERAGE FOR FEDERAL CREDIT
UNIONS
0
1. The authority citation for part 713 continues to read as follows:
Authority: 12 U.S.C. 1756, 1757(5)(D), and (7)(I), 1766, 1782,
1784, 1785 and 1786.
[[Page 61716]]
0
2. Amend Sec. 713.4 by revising paragraph (a) to read as follows:
Sec. 713.4 What bond forms may be used?
(a) A current listing of basic bond forms that may be used without
prior NCUA Board approval is on NCUA's Web site, https://www.ncua.gov.
If you are unable to access the NCUA Web site, you can get a current
listing of approved bond forms by contacting NCUA's Public and
Congressional Affairs Office, at (703) 518-6330.
* * * * *
0
3. Amend Sec. 713.5 by revising paragraphs (a) and (b) to read as
follows:
Sec. 713.5 What is the required minimum dollar amount of coverage?
(a) The minimum required amount of fidelity bond coverage for any
single loss is computed based on a federal credit union's total assets.
------------------------------------------------------------------------
Assets Minimum bond
------------------------------------------------------------------------
$0 to $4,000,000....................... Lesser of total assets or
$250,000.
$4,000,001 to $50,000,000.............. $100,000 plus $50,000 for each
million or fraction thereof
over $1,000,000.
$50,000,000 to $500,000,000............ $2,550,000 plus $10,000 for
each million or fraction
thereof over $50,000,000, to a
maximum of $5,000,000.
Over $500,000,000...................... One percent of assets, rounded
to the nearest hundred
million, to a maximum of
$9,000,000.
------------------------------------------------------------------------
(b) This is the minimum coverage required, but a federal credit
union's board of directors should purchase additional or enhanced
coverage when its circumstances warrant. In making this determination,
a board of directors should consider its own internal risk assessment,
its fraud trends and loss experience, and factors such as its cash on
hand, cash in transit, and the nature and risks inherent in any
expanded services it offers such as wire transfer and remittance
services.
* * * * *
0
4. Amend Sec. 713.6 by revising paragraph (a)(1) and adding paragraph
(c) to read as follows:
Sec. 713.6 What is the permissible deductible?
(a)(1)The maximum amount of allowable deductible is computed based
on a federal credit union's asset size and capital level, as follows:
------------------------------------------------------------------------
Assets Maximum deductible
------------------------------------------------------------------------
$0 to $100,000......................... No deductible allowed.
$100,001 to $250,000................... $1,000.
$250,000 to $1,000,000................. $2,000.
Over $1,000,000........................ $2,000 plus 1/1000 of total
assets up to a maximum of
$200,000; for credit unions
over $1 million in assets that
qualify for NCUA's Regulatory
Flexibility Program in Part
742, the maximum deductible is
$1,000,000.
------------------------------------------------------------------------
* * * * *
(c) A credit union's eligibility to qualify for a deductible in
excess of $200,000 is determined based on it having assets in excess of
$1 million as reflected in its most recent year-end 5300 call report
and, as of that same year-end, qualifying for NCUA's Regulatory
Flexibility Program under part 742 of this title as determined by its
most recent examination report. A credit union that previously
qualified for a deductible in excess of $200,000, but that subsequently
fails to qualify based on its most recent year-end 5300 call report
because either its assets have decreased or it no longer meets the net
worth requirements of part 742 of this title or fails to meet the CAMEL
rating requirements of part 742 of this title as determined by its most
recent examination report, must obtain the coverage otherwise required
by paragraph (b) of this section within 30 days of filing its year-end
call report and must notify the appropriate NCUA regional office in
writing of its changed status and confirm that it has obtained the
required coverage.
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, 1781-1790, and 1790d.
0
2. Amend Sec. 741.201 by revising paragraph (b) to read as follows:
Sec. 741.201 Minimum fidelity bond requirements.
* * * * *
(b) Corporate credit unions must comply with Sec. 704.18 of this
chapter in lieu of part 713 of this chapter.
[FR Doc. 05-21326 Filed 10-25-05; 8:45 am]
BILLING CODE 7535-01-P
