Corporate Credit Unions, 79531-79534 [2011-32721]
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Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Rules and Regulations
Federal Reserve System
12 CFR Chapter II
For the reasons set forth in the
SUPPLEMENTARY INFORMATION section, the
Board of Governors of the Federal
Reserve System amends part 228 of
chapter II of title 12 of the Code of
Federal Regulations as follows:
PART 228—COMMUNITY
REINVESTMENT (REGULATION BB)
1. The authority citation for part 228
continues to read as follows:
■
Authority: 12 U.S.C. 321, 325, 1828(c),
1842, 1843, 1844, and 2901 et seq.
2. Revise § 228.12(u)(1) to read as
follows:
■
§ 228.12
$1.160 billion as of December 31 of
either of the prior two calendar years.
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Dated: December 13, 2011.
Julie L. Williams,
First Senior Deputy Comptroller and Chief
Counsel.
By order of the Board of Governors of the
Federal Reserve System, acting through the
Secretary of the Board under delegated
authority, December 16, 2011.
Robert deV. Frierson,
Deputy Secretary of the Board.
By order of the Board of Directors.
Dated at Washington, DC, this 13th day of
December, 2011.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 2011–32727 Filed 12–21–11; 8:45 am]
Definitions.
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(u) Small bank—(1) Definition. Small
bank means a bank that, as of December
31 of either of the prior two calendar
years, had assets of less than $1.160
billion. Intermediate small bank means
a small bank with assets of at least $290
million as of December 31 of both of the
prior two calendar years and less than
$1.160 billion as of December 31 of
either of the prior two calendar years.
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Federal Deposit Insurance Corporation
BILLING CODE 4810–33–6210–01–6714–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 704
RIN 3133–AD95
Corporate Credit Unions
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
NCUA is issuing final
amendments to its rule governing
corporate credit unions (corporates).
The final amendments make technical
corrections to and clarify certain
provisions of the rule. The amendments:
delete the definition of ‘‘daily average
net risk-weighted assets’’; revise the
definition of ‘‘net assets’’ to exclude
Central Liquidity Facility (CLF) stock
subscriptions; clarify certain
requirements regarding investment
action plans; clarify the weighted
average life (WAL) tests; revise the
consequences of WAL violations;
substitute the term ‘‘core capital’’ for the
phrase ‘‘the sum of retained earnings
and paid-in capital’’; correct a section
heading; and correct a model form
instruction.
SUMMARY:
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the
section, the
Board of Directors of the Federal
Deposit Insurance Corporation amends
part 345 of chapter III of title 12 of the
Code of Federal Regulations to read as
follows:
SUPPLEMENTARY INFORMATION
PART 345—COMMUNITY
REINVESTMENT
1. The authority citation for part 345
continues to read as follows:
■
Authority: 12 U.S.C. 1814–1817, 1819–
1820, 1828, 1831u and 2901–2907, 3103–
3104, and 3108(a).
2. Revise § 345.12(u)(1) to read as
follows:
DATES:
§ 345.12
FOR FURTHER INFORMATION CONTACT:
Definitions.
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(u) Small bank—(1) Definition. Small
bank means a bank that, as of December
31 of either of the prior two calendar
years, had assets of less than $1.160
billion. Intermediate small bank means
a small bank with assets of at least $290
million as of December 31 of both of the
prior two calendar years and less than
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This rule is effective January 23,
2012.
Lisa
Henderson, Staff Attorney, Office of
General Counsel, at (703) 518–6540; or
David Shetler, Deputy Director, Office of
Corporate Credit Unions, at (703) 518–
6640. You may also contact them at the
National Credit Union Administration,
1775 Duke Street, Alexandria, VA
22314.
SUPPLEMENTARY INFORMATION:
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79531
A. Background and Specific Amendments
B. Regulatory Procedures
A. Background and Specific
Amendments
Why is NCUA adopting this rule?
On August 29, 2011, the NCUA Board
(Board) issued a Notice of Proposed
Rulemaking (NPRM) containing several
amendments to its corporate rule at 12
CFR part 704. 76 FR 54991 (Sept. 6,
2011). NCUA received seven comments
on the NPRM, most of which favored
the proposed changes. For the reasons
discussed below, the NCUA Board is
adopting the amendments almost
exactly as proposed.
Section 704.2 Definition of ‘‘daily
average net risk-weighted assets’’
The term ‘‘daily average net riskweighted assets’’ was used in a 2009
proposal to revise part 704, 74 FR
65210, 65261 (Dec. 9, 2009), but not in
the 2010 final rule, 75 FR 64786, 64831
(Oct. 20, 2010). The term was
mistakenly left in the part 704
definitions section, and the Board
proposed deleting it in the NPRM. All
of the commenters who addressed the
proposed change supported it.
Accordingly, the Board is deleting the
definition of ‘‘daily average net riskweighted assets’’ from § 704.2.
Section 704.2 Definition of ‘‘net
assets’’
Section 704.2 defines ‘‘net assets,’’ in
relevant part, as ‘‘total assets less loans
guaranteed by the NCUSIF and member
reverse repurchase transactions.’’ The
NPRM amended the definition to also
exclude CLF stock subscriptions, based
on the asset’s negligible credit risk and
to facilitate corporate support of the
CLF. Corporate support is essential to
the CLF remaining a back-up liquidity
provider for natural person credit
unions.
One commenter objected to the
proposed change, arguing that it would
artificially inflate the leverage ratio for
corporates. The Board disagrees. CLF
stock is in the nature of a pass-through
account, and including it in net assets
incorrectly overstates a corporate’s
balance sheet. The commenter also
argued that credit unions do not need to
obtain liquidity through the CLF, as
they can become members of the
Federal Home Loan Bank (FHLB) system
or access the Federal Reserve System’s
Discount Window (Discount Window).
The Board believes that the CLF
provides a critical dimension of
additional liquidity coverage for credit
unions. Presently, only 4.5 percent of
federally insured credit unions report
having filed an application to borrow
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from the Discount Window, and of
those, only 3.3 percent have pre-pledged
collateral. Also, many smaller credit
unions do not have mortgage assets and
would be unlikely to rely on the FHLB
system to meet wholesale funding or
contingent liquidity needs. The Board
therefore adopts in the final rule the
revised definition of net assets as
proposed.
Section 704.6 Requirements for
Investment Action Plans
Sections 704.6(c)(3) and (f)(4) trigger
consequences, set forth in § 704.10, for
violations of certain concentration
limits and credit rating requirements. To
clarify the applicability of these
triggering provisions, the Board
proposed moving them to a new
§ 704.6(h). Under proposed § 704.6(h),
an investment would be subject to the
requirements of § 704.10 if it violated
any of the concentration limits or credit
rating requirements of § 704.6.
The NPRM noted that § 704.6(f)(4)(i)
provides that an investment is subject to
the requirements of § 704.10 if its credit
rating is downgraded, after purchase,
‘‘below the minimum rating
requirements of this part.’’ It further
noted that, pursuant to section 939A of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act,1 the NCUA
Board issued a proposed rule
recodifying § 704.6(f)(4)(i) at
§ 704.6(f)(3)(i) and revising it to state
than an investment is subject to § 704.10
if ‘‘[t]here is reason to believe that the
obligor no longer has a very strong
capacity to meet its financial obligations
for the remaining projected life of the
security.’’ 76 FR 11164, 11171 (Mar. 1,
2011). The NPRM included this
proposed language at new § 704.6(h)(1)
even though the language was not yet
final.
Three commenters objected to
including language from the proposed
credit ratings rule in this rulemaking.
They urged NCUA to wait until the
credit ratings rule was final before
amending § 704.6(f)(4)(i) as discussed
above. The Board agrees. The Board had
anticipated that the credit ratings rule
would be final by now, but that rule has
been delayed. Accordingly, the final
rule retains the reference to ‘‘minimum
ratings requirement.’’ Since no
commenters objected to moving the
triggering provisions, the Board moves
§ 704.6(c)(3) and (f)(4) to new § 704.6(h)
in the final rule as proposed.
1 15
U.S.C. 78o–7 (requiring federal agencies,
including NCUA, to review their regulations for any
references to using credit ratings to assess the
creditworthiness of an investment, remove those
references, and substitute other standards of
creditworthiness).
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Section 704.8
Clarifying the WAL Tests
Sections 704.8(f) and 704.8(g)
establish certain WAL limits for
corporate loan and investment
portfolios. They also require each
corporate to test those assets
periodically for compliance. NCUA
intended to allow corporates to include
cash in the WAL calculation and
clarified that intent in the NPRM by
replacing the phrase ‘‘loan and
investment portfolio’’ in paragraphs (f)
and (g) with the phrase ‘‘financial
assets, consisting of cash, investments,
and loans.’’ All of the commenters who
addressed this proposed change
supported it, and therefore the Board
adopts it in the final rule.
Section 704.8
Violations
Consequences of WAL
Section 704.8(j) provides
consequences for a corporate’s violation
of the interest rate sensitivity and WAL
conditions of § 704.8(d), (f), and (g).
These consequences can include
reporting requirements, preparation of a
written action plan, and capital category
reclassification under § 704.4. To reduce
regulatory burden, the Board
determined that violations of WAL
conditions should not be subject to
capital category reclassification and, in
the NPRM, proposed exempting such
violations from the requirements of
§ 704.8(j)(2)(ii) and (iii). All of the
commenters who addressed this
proposed change supported it, and
therefore the Board adopts it in the final
rule. The Board notes that persistent
WAL violations may still trigger the
reporting and action plan requirements
of § 704.8(j)(1) and (2)(i).
Section 704.18 Fidelity Bond
Maximum Deductible
Section 704.18(e)(1) provides a table
for corporates to calculate the maximum
deductible allowed for fidelity bonds
purchased for employees and officials.
The maximum deductible is based on a
corporate’s core capital ratio and a
percentage of the sum of its retained
earnings and paid-in capital. The 2010
revision to part 704 changed the term
‘‘paid-in capital’’ to ‘‘perpetual
contributed capital’’ but neglected to
change the reference in § 704.18. See 75
FR 64786 (Oct. 20, 2010).
In the NPRM, the Board proposed
changing the phrase ‘‘the sum of its
retained earnings and paid-in capital’’ to
the term ‘‘core capital.’’ Section 704.2
defines ‘‘core capital’’ primarily as ‘‘the
sum of: (1) Retained earnings; (2)
Perpetual contributed capital; (3) The
retained earnings of any acquired credit
union, or of an integrated set of
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activities and assets, calculated at the
point of acquisition, if the acquisition
was a mutual combination; and (4)
Minority interests in the equity accounts
of CUSOs that are fully consolidated.’’
The Board proposed this substitution,
rather than simply replacing ‘‘paid-in
capital’’ with ‘‘perpetual contributed
capital,’’ because the table already
requires the calculation of core capital
in deriving the core capital ratio. Two
commenters stated that ‘‘perpetual
contributed capital’’ should be the
replacement term and that NCUA had
not provided enough justification for
adding the two additional components
of ‘‘core capital.’’ The Board notes that
adding additional components to the
number from which the maximum
deductible is derived ultimately raises
the maximum deductible, which
relieves regulatory burden. Accordingly,
the Board adopts the proposed change
in the final rule.
Section 704.19
Heading
Correction to Section
The 2009 proposed revisions to part
704 added new § 704.19, ‘‘Disclosure of
executive and director compensation.’’
74 FR 65210, 65252 (Dec. 9, 2009). The
proposal would have required
corporates to disclose the compensation
of each senior executive officer and
director annually. Id. at 65275. The
2010 final rule removed the reference to
directors in the text of § 704.19, but
failed to do so in the heading. See 75 FR
64786 (Oct. 20, 2010). In the NPRM, the
Board proposed harmonizing the two by
removing the words ‘‘and director’’ from
the heading. All of the commenters who
addressed this proposed change
supported it, and therefore the Board
adopts it in the final rule.
Appendix A, Model Form D
The 2010 final rule included an
incorrect date instruction on Model
Form D in Appendix A. Id. at 64851.
Model Form D included introductory
text indicating that the form was for use
before October 20, 2011, when it should
have stated that the form is for use after
that date. The Board replaced the word
‘‘before’’ with the phrase ‘‘on and after’’
in the NPRM. All of the commenters
who addressed this proposed change
supported it, and therefore the Board
adopts it in the final rule.
B. Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act
requires NCUA to prepare an analysis to
describe any significant economic
impact any proposed regulation may
have on a substantial number of small
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entities (those under $10 million in
assets). This final rule applies only to
corporate credit unions, all of which
have assets well in excess of $10
million. Accordingly, the final rule will
not have a significant economic impact
on a substantial number of small credit
unions, and a regulatory flexibility
analysis is not required.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) applies to rulemakings in which
an agency by rule creates a new
paperwork burden on regulated entities
or modifies an existing burden. 44
U.S.C. 3507(d); 5 CFR part 1320. For
purposes of the PRA, a paperwork
burden may take the form of either a
reporting or a recordkeeping
requirement, both referred to as
information collections. This final rule
does not impose any new paperwork
burden.
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 would not have
substantial direct effects on the states,
on the connection between the national
government and the states, or on the
distribution of power and
responsibilities among the various
levels of government. NCUA has
determined that this rule does not
constitute a policy that has federalism
implications for purposes of the
executive order.
The Treasury and General Government
Appropriations Act, 1999—Assessment
of Federal Regulations and Policies on
Families
NCUA has determined that this final
rule will not affect family well-being
within the meaning of section 654 of the
Treasury and General Government
Appropriations Act, 1999, Pub. L. 105–
277, 112 Stat. 2681 (1998).
List of Subjects in 12 CFR Part 704
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Credit unions, Corporate credit
unions, Reporting and recordkeeping
requirements.
By the National Credit Union
Administration Board on December 15, 2011.
Mary F. Rupp,
Secretary of the Board.
For the reasons stated above, the
National Credit Union Administration
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amends 12 CFR part 704 as set forth
below:
PART 704—CORPORATE CREDIT
UNIONS
1. The authority citation for part 704
continues to read as follows:
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Authority: 12 U.S.C. 1762, 1766(a), 1772a,
1781, 1789, and 1795e.
2. Amend § 704.2 by removing the
definition of ‘‘daily average net riskweighted assets’’ and revising the
definition of ‘‘net assets’’ to read as
follows:
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§ 704.2
Definitions.
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Net assets means total assets less
Central Liquidity Facility (CLF) stock
subscriptions, loans guaranteed by the
NCUSIF, and member reverse
repurchase transactions. For its own
account, a corporate credit union’s
payables under reverse repurchase
agreements and receivables under
repurchase agreements may be netted
out if the GAAP conditions for offsetting
are met. Also, any amounts deducted
from core capital in calculating adjusted
core capital are also deducted from net
assets.
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■ 3. Amend § 704.6 by removing
paragraphs (c)(3) and (f)(4) and adding
paragraph (h) to read as follows:
§ 704.6
Credit risk management.
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(h) Requirements for investment
action plans. An investment is subject
to the requirements of § 704.10 of this
part if:
(1) An NRSRO that rates the
investment downgrades that rating, after
purchase, below the minimum rating
requirements of this part; or
(2) The investment is part of an asset
class or group of investments that
exceeds the issuer, sector, or subsector
concentration limits of this section. For
purposes of measurement, each new
credit transaction must be evaluated in
terms of the corporate credit union’s
capital at the time of the transaction. An
investment that fails a requirement of
this section because of a subsequent
reduction in capital will be deemed
nonconforming. A corporate credit
union is required to exercise reasonable
efforts to bring nonconforming
investments into conformity within 90
calendar days. Investments that remain
nonconforming for more than 90
calendar days will be deemed to fail a
requirement of this section and the
corporate credit union will have to
comply with § 704.10 of this part.
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4. Amend § 704.8 by:
a. Revising the first two sentences in
paragraphs (f) and (g); and
■ b. Revising (j)(2)(ii) and (iii).
The revisions read as follows:
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§ 704.8
Asset and liability management.
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(f) * * * The weighted average life
(WAL) of a corporate credit union’s
financial assets, consisting of cash,
investments, and loans, but excluding
derivative contracts and equity
investments, may not exceed 2 years. A
corporate credit union must test its
financial assets at least quarterly,
including once on the last day of the
calendar quarter, for compliance with
this WAL limitation. * * *
(g) * * * The weighted average life
(WAL) of a corporate credit union’s
financial assets, consisting of cash,
investments, and loans, but excluding
derivative contracts and equity
investments, may not exceed 2.25 years
when prepayment speeds are reduced
by 50 percent. A corporate credit union
must test its financial assets at least
quarterly, including once on the last day
of the calendar quarter, for compliance
with this WAL limitation. * * *
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(j) * * *
(2) * * *
(ii) If presently categorized as
adequately capitalized or well
capitalized for prompt corrective action
purposes, and the violation was of
paragraph (d) of this section,
immediately be recategorized as
undercapitalized until the violation is
corrected, and
(iii) If presently categorized as less
than adequately capitalized, and the
violation was of paragraph (d) of this
section, immediately be downgraded
one additional capital category.
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■ 5. Amend § 704.18 by revising the
table in paragraph (e)(1) to read as
follows:
§ 704.18
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Fidelity bond coverage.
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(e) * * *
(1) * * *
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Core capital ratio
Less than 1.0 percent
1.0–1.74 percent .......
1.75–2.24 percent .....
Greater than 2.25
percent.
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Maximum deductible
7.5 percent of core
capital.
10.0 percent of core
capital.
12.0 percent of core
capital.
15.0 percent of core
capital.
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6. Amend § 704.19 by revising the
section heading to read as follows:
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§ 704.19 Disclosure of executive
compensation.
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7. Revise the introductory note in
Model Form D, Appendix A to Part 704,
to read as follows:
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Appendix A to Part 704—Capital
Prioritization and Model Forms
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Model Form D
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Note: This form is for use on and after
October 20, 2011, in the circumstances where
the corporate credit union has determined
that it will give newly issued capital priority
over older capital as described in Part I of
this Appendix.
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[FR Doc. 2011–32721 Filed 12–21–11; 8:45 am]
BILLING CODE 7535–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 117
[Docket No. USCG–2011–0698]
RIN 1625–AA09
Drawbridge Operation Regulation; New
Jersey Intracoastal Waterway (NJICW),
Atlantic City, NJ
Coast Guard, DHS.
Final rule.
AGENCY:
ACTION:
The Coast Guard is changing
the regulations that govern the
operations of two New Jersey
Department of Transportation (NJDOT)
bridges: The Route 30/Absecon
Boulevard Bridge across Beach
Thorofare, NJICW mile 67.2 and the US
40–322 (Albany Avenue) Bridge across
Inside Thorofare, NJICW mile 70.0, both
at Atlantic City, NJ. The change will
alter the dates that these bridges are
allowed to have delayed openings or
remain in the closed position to
accommodate heavy volumes of
vehicular traffic due to the annual July
4th fireworks shows and the annual Air
Show at Bader Field.
DATES: This rule is effective January 23,
2012.
ADDRESSES: Comments and related
materials received from the public, as
well as documents mentioned in this
preamble as being available in the
docket, are part of docket USCG–2011–
0698 and are available online by going
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SUMMARY:
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to https://www.regulations.gov, inserting
USCG–2011–0698 in the ‘‘Keyword’’
box, and then clicking ‘‘Search.’’ This
material is also available for inspection
or copying at the Docket Management
Facility (M–30), U.S. Department of
Transportation, West Building Ground
Floor, Room W12–140, 1200 New Jersey
Avenue SE., Washington, DC 20590,
between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
Regulatory Information
On August 12, 2011, we published a
notice of proposed rulemaking (NPRM)
entitled Drawbridge Operation
Regulation; New Jersey Intracoastal
Waterway (NJICW), Atlantic City, NJ in
the Federal Register (76 FR 50161). We
received no comments on the proposed
rule. No public meeting was requested,
and none was held.
Basis and Purpose
NJDOT has requested a change in the
operating regulations of the Route 30/
Absecon Boulevard Bridge across Beach
Thorofare, NJICW mile 67.2 and the US
40–322 (Albany Avenue) Bridge across
Inside Thorofare, NJICW mile 70.0, both
at Atlantic City, NJ. The two Atlantic
City July 4th fireworks shows and the
Air Show at Bader Field are annual
events held at Atlantic City and heavy
volumes of vehicular traffic transit
across both bridges to attend them. This
rule allows the above mentioned bridges
to remain in the closed position from
9:40 p.m. through 11:15 p.m. on July 4th
or on July 5th should inclement weather
prevent the fireworks event from taking
place as planned. This rule also allows
the above mentioned bridges to open
every two hours on the hour from 10
a.m. through 4 p.m. and to remain in the
closed position from 4 p.m. through 8
p.m. on the third or fourth Wednesday
of every August during the annual Air
Show at Bader Field. The exact dates of
the closures will be published locally in
the Local Notice to Mariners and
Broadcast Notice to Mariners.
The Route 30/Absecon Boulevard
Bridge is a bascule drawbridge with a
vertical clearance of 20 feet above mean
high water in the closed position and
unlimited in the open position. The
current operating schedule for the
bridge is set out in 33 CFR 117.733(e)
and was last amended in April 2009.
The operating regulation states that the
bridge shall open on signal if at least
four hours of notice has been given,
except that from April 1 through
October 31 the bridge need only open
on the hour from 7 a.m. to 11 p.m. The
US 40–322 (Albany Avenue Bridge) is a
bascule drawbridge with a vertical
clearance of 10 feet above mean high
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water in the closed position and
unlimited in the open position. The
current operating schedule for the
bridge is set out in 33 CFR 117.733(f)
and was last amended in April 2009.
The current operating regulation states
that year-round from 11 p.m. to 7 a.m.;
and from November 1 through March 31
from 3 p.m. to 11 p.m. the draw need
only open if at least four hours notice
is given. In addition from June 1
through September 30 the draw of the
bridge need only open on the hour and
half hour from 9 a.m. to 4 p.m. and from
6 p.m. to 9 p.m.; and from 4 p.m. to
6 p.m. the draw need not open.
Discussion of Comments and Changes
No comments were received on the
proposed rule and no changes were
made to the proposed rule.
Regulatory Analyses
We developed this rule after
considering numerous statutes and
executive orders related to rulemaking.
Below we summarize our analyses
based on 13 of these statutes or
executive orders.
Regulatory Planning and Review
This rule is not a significant
regulatory action under section 3(f) of
Executive Order 12866, Regulatory
Planning and Review, as supplemented
by Executive Order 13563, Improving
Regulation and Regulatory Review, and
does not require an assessment of
potential costs and benefits under
section 6(a)(3) of Executive Order
12866. The Office of Management and
Budget has not reviewed it under that
Order.
The changes are expected to have
minimal impacts on mariners due to the
short duration that the drawbridges will
be maintained in the closed position
and have delayed openings. Both events
have been observed in past years with
little to no impact on marine traffic.
Maintaining the bridges in the closed
position for these short time periods is
also a necessary measure to facilitate
public safety that allows for the orderly
movement of vehicular traffic before,
during, and after the events.
Small Entities
Under the Regulatory Flexibility Act
(5 U.S.C. 601–612), we have considered
whether this rule would have a
significant economic impact on a
substantial number of small entities.
The term ‘‘small entities’’ comprises
small businesses, not-for-profit
organizations that are independently
owned and operated and are not
dominant in their fields, and
E:\FR\FM\22DER1.SGM
22DER1
]]>Agencies
[Federal Register Volume 76, Number 246 (Thursday, December 22, 2011)]
[Rules and Regulations]
[Pages 79531-79534]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32721]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 704
RIN 3133-AD95
Corporate Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: NCUA is issuing final amendments to its rule governing
corporate credit unions (corporates). The final amendments make
technical corrections to and clarify certain provisions of the rule.
The amendments: delete the definition of ``daily average net risk-
weighted assets''; revise the definition of ``net assets'' to exclude
Central Liquidity Facility (CLF) stock subscriptions; clarify certain
requirements regarding investment action plans; clarify the weighted
average life (WAL) tests; revise the consequences of WAL violations;
substitute the term ``core capital'' for the phrase ``the sum of
retained earnings and paid-in capital''; correct a section heading; and
correct a model form instruction.
DATES: This rule is effective January 23, 2012.
FOR FURTHER INFORMATION CONTACT: Lisa Henderson, Staff Attorney, Office
of General Counsel, at (703) 518-6540; or David Shetler, Deputy
Director, Office of Corporate Credit Unions, at (703) 518-6640. You may
also contact them at the National Credit Union Administration, 1775
Duke Street, Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
A. Background and Specific Amendments
B. Regulatory Procedures
A. Background and Specific Amendments
Why is NCUA adopting this rule?
On August 29, 2011, the NCUA Board (Board) issued a Notice of
Proposed Rulemaking (NPRM) containing several amendments to its
corporate rule at 12 CFR part 704. 76 FR 54991 (Sept. 6, 2011). NCUA
received seven comments on the NPRM, most of which favored the proposed
changes. For the reasons discussed below, the NCUA Board is adopting
the amendments almost exactly as proposed.
Section 704.2 Definition of ``daily average net risk-weighted assets''
The term ``daily average net risk-weighted assets'' was used in a
2009 proposal to revise part 704, 74 FR 65210, 65261 (Dec. 9, 2009),
but not in the 2010 final rule, 75 FR 64786, 64831 (Oct. 20, 2010). The
term was mistakenly left in the part 704 definitions section, and the
Board proposed deleting it in the NPRM. All of the commenters who
addressed the proposed change supported it. Accordingly, the Board is
deleting the definition of ``daily average net risk-weighted assets''
from Sec. 704.2.
Section 704.2 Definition of ``net assets''
Section 704.2 defines ``net assets,'' in relevant part, as ``total
assets less loans guaranteed by the NCUSIF and member reverse
repurchase transactions.'' The NPRM amended the definition to also
exclude CLF stock subscriptions, based on the asset's negligible credit
risk and to facilitate corporate support of the CLF. Corporate support
is essential to the CLF remaining a back-up liquidity provider for
natural person credit unions.
One commenter objected to the proposed change, arguing that it
would artificially inflate the leverage ratio for corporates. The Board
disagrees. CLF stock is in the nature of a pass-through account, and
including it in net assets incorrectly overstates a corporate's balance
sheet. The commenter also argued that credit unions do not need to
obtain liquidity through the CLF, as they can become members of the
Federal Home Loan Bank (FHLB) system or access the Federal Reserve
System's Discount Window (Discount Window). The Board believes that the
CLF provides a critical dimension of additional liquidity coverage for
credit unions. Presently, only 4.5 percent of federally insured credit
unions report having filed an application to borrow
[[Page 79532]]
from the Discount Window, and of those, only 3.3 percent have pre-
pledged collateral. Also, many smaller credit unions do not have
mortgage assets and would be unlikely to rely on the FHLB system to
meet wholesale funding or contingent liquidity needs. The Board
therefore adopts in the final rule the revised definition of net assets
as proposed.
Section 704.6 Requirements for Investment Action Plans
Sections 704.6(c)(3) and (f)(4) trigger consequences, set forth in
Sec. 704.10, for violations of certain concentration limits and credit
rating requirements. To clarify the applicability of these triggering
provisions, the Board proposed moving them to a new Sec. 704.6(h).
Under proposed Sec. 704.6(h), an investment would be subject to the
requirements of Sec. 704.10 if it violated any of the concentration
limits or credit rating requirements of Sec. 704.6.
The NPRM noted that Sec. 704.6(f)(4)(i) provides that an
investment is subject to the requirements of Sec. 704.10 if its credit
rating is downgraded, after purchase, ``below the minimum rating
requirements of this part.'' It further noted that, pursuant to section
939A of the Dodd-Frank Wall Street Reform and Consumer Protection
Act,\1\ the NCUA Board issued a proposed rule recodifying Sec.
704.6(f)(4)(i) at Sec. 704.6(f)(3)(i) and revising it to state than an
investment is subject to Sec. 704.10 if ``[t]here is reason to believe
that the obligor no longer has a very strong capacity to meet its
financial obligations for the remaining projected life of the
security.'' 76 FR 11164, 11171 (Mar. 1, 2011). The NPRM included this
proposed language at new Sec. 704.6(h)(1) even though the language was
not yet final.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78o-7 (requiring federal agencies, including NCUA,
to review their regulations for any references to using credit
ratings to assess the creditworthiness of an investment, remove
those references, and substitute other standards of
creditworthiness).
---------------------------------------------------------------------------
Three commenters objected to including language from the proposed
credit ratings rule in this rulemaking. They urged NCUA to wait until
the credit ratings rule was final before amending Sec. 704.6(f)(4)(i)
as discussed above. The Board agrees. The Board had anticipated that
the credit ratings rule would be final by now, but that rule has been
delayed. Accordingly, the final rule retains the reference to ``minimum
ratings requirement.'' Since no commenters objected to moving the
triggering provisions, the Board moves Sec. 704.6(c)(3) and (f)(4) to
new Sec. 704.6(h) in the final rule as proposed.
Section 704.8 Clarifying the WAL Tests
Sections 704.8(f) and 704.8(g) establish certain WAL limits for
corporate loan and investment portfolios. They also require each
corporate to test those assets periodically for compliance. NCUA
intended to allow corporates to include cash in the WAL calculation and
clarified that intent in the NPRM by replacing the phrase ``loan and
investment portfolio'' in paragraphs (f) and (g) with the phrase
``financial assets, consisting of cash, investments, and loans.'' All
of the commenters who addressed this proposed change supported it, and
therefore the Board adopts it in the final rule.
Section 704.8 Consequences of WAL Violations
Section 704.8(j) provides consequences for a corporate's violation
of the interest rate sensitivity and WAL conditions of Sec. 704.8(d),
(f), and (g). These consequences can include reporting requirements,
preparation of a written action plan, and capital category
reclassification under Sec. 704.4. To reduce regulatory burden, the
Board determined that violations of WAL conditions should not be
subject to capital category reclassification and, in the NPRM, proposed
exempting such violations from the requirements of Sec.
704.8(j)(2)(ii) and (iii). All of the commenters who addressed this
proposed change supported it, and therefore the Board adopts it in the
final rule. The Board notes that persistent WAL violations may still
trigger the reporting and action plan requirements of Sec. 704.8(j)(1)
and (2)(i).
Section 704.18 Fidelity Bond Maximum Deductible
Section 704.18(e)(1) provides a table for corporates to calculate
the maximum deductible allowed for fidelity bonds purchased for
employees and officials. The maximum deductible is based on a
corporate's core capital ratio and a percentage of the sum of its
retained earnings and paid-in capital. The 2010 revision to part 704
changed the term ``paid-in capital'' to ``perpetual contributed
capital'' but neglected to change the reference in Sec. 704.18. See 75
FR 64786 (Oct. 20, 2010).
In the NPRM, the Board proposed changing the phrase ``the sum of
its retained earnings and paid-in capital'' to the term ``core
capital.'' Section 704.2 defines ``core capital'' primarily as ``the
sum of: (1) Retained earnings; (2) Perpetual contributed capital; (3)
The retained earnings of any acquired credit union, or of an integrated
set of activities and assets, calculated at the point of acquisition,
if the acquisition was a mutual combination; and (4) Minority interests
in the equity accounts of CUSOs that are fully consolidated.'' The
Board proposed this substitution, rather than simply replacing ``paid-
in capital'' with ``perpetual contributed capital,'' because the table
already requires the calculation of core capital in deriving the core
capital ratio. Two commenters stated that ``perpetual contributed
capital'' should be the replacement term and that NCUA had not provided
enough justification for adding the two additional components of ``core
capital.'' The Board notes that adding additional components to the
number from which the maximum deductible is derived ultimately raises
the maximum deductible, which relieves regulatory burden. Accordingly,
the Board adopts the proposed change in the final rule.
Section 704.19 Correction to Section Heading
The 2009 proposed revisions to part 704 added new Sec. 704.19,
``Disclosure of executive and director compensation.'' 74 FR 65210,
65252 (Dec. 9, 2009). The proposal would have required corporates to
disclose the compensation of each senior executive officer and director
annually. Id. at 65275. The 2010 final rule removed the reference to
directors in the text of Sec. 704.19, but failed to do so in the
heading. See 75 FR 64786 (Oct. 20, 2010). In the NPRM, the Board
proposed harmonizing the two by removing the words ``and director''
from the heading. All of the commenters who addressed this proposed
change supported it, and therefore the Board adopts it in the final
rule.
Appendix A, Model Form D
The 2010 final rule included an incorrect date instruction on Model
Form D in Appendix A. Id. at 64851. Model Form D included introductory
text indicating that the form was for use before October 20, 2011, when
it should have stated that the form is for use after that date. The
Board replaced the word ``before'' with the phrase ``on and after'' in
the NPRM. All of the commenters who addressed this proposed change
supported it, and therefore the Board adopts it in the final rule.
B. Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any proposed regulation may
have on a substantial number of small
[[Page 79533]]
entities (those under $10 million in assets). This final rule applies
only to corporate credit unions, all of which have assets well in
excess of $10 million. Accordingly, the final rule will not have a
significant economic impact on a substantial number of small credit
unions, and a regulatory flexibility analysis is not required.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in
which an agency by rule creates a new paperwork burden on regulated
entities or modifies an existing burden. 44 U.S.C. 3507(d); 5 CFR part
1320. For purposes of the PRA, a paperwork burden may take the form of
either a reporting or a recordkeeping requirement, both referred to as
information collections. This final rule does not impose any new
paperwork burden.
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 would not have substantial direct effects on the
states, on the connection between the national government and the
states, or on the distribution of power and responsibilities among the
various levels of government. NCUA has determined that this rule does
not constitute a policy that has federalism implications for purposes
of the executive order.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
NCUA has determined that this final rule will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat.
2681 (1998).
List of Subjects in 12 CFR Part 704
Credit unions, Corporate credit unions, Reporting and recordkeeping
requirements.
By the National Credit Union Administration Board on December
15, 2011.
Mary F. Rupp,
Secretary of the Board.
For the reasons stated above, the National Credit Union
Administration amends 12 CFR part 704 as set forth below:
PART 704--CORPORATE CREDIT UNIONS
0
1. The authority citation for part 704 continues to read as follows:
Authority: 12 U.S.C. 1762, 1766(a), 1772a, 1781, 1789, and
1795e.
0
2. Amend Sec. 704.2 by removing the definition of ``daily average net
risk-weighted assets'' and revising the definition of ``net assets'' to
read as follows:
Sec. 704.2 Definitions.
* * * * *
Net assets means total assets less Central Liquidity Facility (CLF)
stock subscriptions, loans guaranteed by the NCUSIF, and member reverse
repurchase transactions. For its own account, a corporate credit
union's payables under reverse repurchase agreements and receivables
under repurchase agreements may be netted out if the GAAP conditions
for offsetting are met. Also, any amounts deducted from core capital in
calculating adjusted core capital are also deducted from net assets.
* * * * *
0
3. Amend Sec. 704.6 by removing paragraphs (c)(3) and (f)(4) and
adding paragraph (h) to read as follows:
Sec. 704.6 Credit risk management.
* * * * *
(h) Requirements for investment action plans. An investment is
subject to the requirements of Sec. 704.10 of this part if:
(1) An NRSRO that rates the investment downgrades that rating,
after purchase, below the minimum rating requirements of this part; or
(2) The investment is part of an asset class or group of
investments that exceeds the issuer, sector, or subsector concentration
limits of this section. For purposes of measurement, each new credit
transaction must be evaluated in terms of the corporate credit union's
capital at the time of the transaction. An investment that fails a
requirement of this section because of a subsequent reduction in
capital will be deemed nonconforming. A corporate credit union is
required to exercise reasonable efforts to bring nonconforming
investments into conformity within 90 calendar days. Investments that
remain nonconforming for more than 90 calendar days will be deemed to
fail a requirement of this section and the corporate credit union will
have to comply with Sec. 704.10 of this part.
0
4. Amend Sec. 704.8 by:
0
a. Revising the first two sentences in paragraphs (f) and (g); and
0
b. Revising (j)(2)(ii) and (iii).
The revisions read as follows:
Sec. 704.8 Asset and liability management.
* * * * *
(f) * * * The weighted average life (WAL) of a corporate credit
union's financial assets, consisting of cash, investments, and loans,
but excluding derivative contracts and equity investments, may not
exceed 2 years. A corporate credit union must test its financial assets
at least quarterly, including once on the last day of the calendar
quarter, for compliance with this WAL limitation. * * *
(g) * * * The weighted average life (WAL) of a corporate credit
union's financial assets, consisting of cash, investments, and loans,
but excluding derivative contracts and equity investments, may not
exceed 2.25 years when prepayment speeds are reduced by 50 percent. A
corporate credit union must test its financial assets at least
quarterly, including once on the last day of the calendar quarter, for
compliance with this WAL limitation. * * *
* * * * *
(j) * * *
(2) * * *
(ii) If presently categorized as adequately capitalized or well
capitalized for prompt corrective action purposes, and the violation
was of paragraph (d) of this section, immediately be recategorized as
undercapitalized until the violation is corrected, and
(iii) If presently categorized as less than adequately capitalized,
and the violation was of paragraph (d) of this section, immediately be
downgraded one additional capital category.
* * * * *
0
5. Amend Sec. 704.18 by revising the table in paragraph (e)(1) to read
as follows:
Sec. 704.18 Fidelity bond coverage.
* * * * *
(e) * * *
(1) * * *
------------------------------------------------------------------------
Core capital ratio Maximum deductible
------------------------------------------------------------------------
Less than 1.0 percent............... 7.5 percent of core capital.
1.0-1.74 percent.................... 10.0 percent of core capital.
1.75-2.24 percent................... 12.0 percent of core capital.
Greater than 2.25 percent........... 15.0 percent of core capital.
------------------------------------------------------------------------
* * * * *
[[Page 79534]]
0
6. Amend Sec. 704.19 by revising the section heading to read as
follows:
Sec. 704.19 Disclosure of executive compensation.
* * * * *
0
7. Revise the introductory note in Model Form D, Appendix A to Part
704, to read as follows:
Appendix A to Part 704--Capital Prioritization and Model Forms
* * * * *
Model Form D
* * * * *
Note: This form is for use on and after October 20, 2011, in the
circumstances where the corporate credit union has determined that
it will give newly issued capital priority over older capital as
described in Part I of this Appendix.
* * * * *
[FR Doc. 2011-32721 Filed 12-21-11; 8:45 am]
BILLING CODE 7535-01-P
