Prompt Corrective Action, Requirements for Insurance, and Promulgation of NCUA Rules and Regulations, 4032-4038 [2013-00864]
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Federal Register / Vol. 78, No. 13 / Friday, January 18, 2013 / Rules and Regulations
C. Does the final rule create any new
burdens for credit unions?
No, neither the October 2012 proposal
nor this final rule creates any new
regulatory burdens for FCUs. To the
contrary, as mentioned above, the Board
is providing regulatory relief to FCUs
that qualify for the LICU designation.
III. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act
requires NCUA to prepare an analysis to
describe any significant economic
impact a rule may have on a substantial
number of small entities (primarily
those under ten million dollars in
assets). This final rule makes
nonsubstantive, technical amendments
and extends regulatory relief to FCUs.
NCUA has determined and certifies that
this final rule will not have a significant
economic impact on a substantial
number of small credit unions.
B. 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.8 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. As noted above,
the amendments make minor, technical
corrections and extend regulatory relief.
The final rule does not impose or
modify paperwork burdens.
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C. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. NCUA, an
independent regulatory agency as
defined in 44 U.S.C. 3502(5), voluntarily
complies with the executive order to
adhere to fundamental federalism
principles. This final rule will not have
a substantial direct effect on the states,
on the relationship between the national
government and the states, or on the
distribution of power and
responsibilities among the various
levels of government. NCUA has
determined that this final rule does not
constitute a policy that has federalism
implications for purposes of the
executive order.
D. 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, 1999.9
NCUA in writing within 90 days of
receipt of any NCUA notifications.
*
*
*
*
*
E. Small Business Regulatory
Enforcement Fairness Act
PART 741—REQUIREMENTS FOR
INSURANCE
The Small Business Regulatory
Enforcement Fairness Act of 1996 10
(SBREFA) 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.11 NCUA
does not believe this final rule is a
‘‘major rule’’ within the meaning of the
relevant sections of SBREFA. NCUA has
submitted the rule to the Office of
Management and Budget for its
determination in that regard.
U.S.C. 3507(d); 5 CFR part 1320.
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Authority: 12 U.S.C. 1757, 1766(a), 1781–
1790, and 1790d; 31 U.S.C. 3717.
§ 741.204
[Amended]
Credit, Credit unions, Reporting and
recordkeeping requirements.
4. Amend § 741.204 by:
a. Removing the words ‘‘the
appropriate regional director’’ in
paragraph (b) and adding in their place
the word ‘‘NCUA’’.
■ b. Removing the words ‘‘the NCUA
Regional Director’’ wherever they
appear and adding in their place the
word ‘‘NCUA’’.
■ c. Removing the words ‘‘the
appropriate NCUA Regional Director’’
wherever they appear and adding in
their place the word ‘‘NCUA’’.
12 CFR Part 741
[FR Doc. 2013–00859 Filed 1–17–13; 8:45 am]
Credit, Credit unions, Reporting and
recordkeeping requirements, Share
insurance.
BILLING CODE 7535–01–P
List of Subjects
12 CFR Part 701
By the National Credit Union
Administration Board on January 10, 2013.
Mary F. Rupp,
Secretary of the Board.
For the reasons stated in the
preamble, the National Credit Union
Administration amends 12 CFR parts
701 and 741 as set forth below:
■
■
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 702, 741 and 791
RIN 3133–AE07
Prompt Corrective Action,
Requirements for Insurance, and
Promulgation of NCUA Rules and
Regulations
PART 701—ORGANIZATION AND
OPERATIONS OF FEDERAL CREDIT
UNIONS
AGENCY:
1. The authority citation for part 701
continues to read as follows:
SUMMARY:
■
Authority: 12 U.S.C. 1752(5), 1757, 1765,
1766, 1781, 1782, 1787, 1789; Title V, Pub.
L. 109–351, 120 Stat. 1966.
2. Revise § 701.34(a)(1) to read as
follows:
■
§ 701.34 Designation of low-income
status; Acceptance of secondary capital
accounts by low-income designated credit
unions.
(a) Designation of low-income status.
(1) Based on data obtained through
examinations, NCUA will notify a
federal credit union that it qualifies for
designation as a low-income credit
union if a majority of its membership
qualifies as low-income members. A
federal credit union that wishes to
receive the designation must notify
9 Public
Law 105–277, 112 Stat. 2681 (1998).
Law 104–121, 110 Stat. 857 (1996).
11 5 U.S.C. 551.
10 Public
8 44
3. The authority citation for part 741
continues to read as follows:
■
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National Credit Union
Administration (NCUA).
ACTION: Final rule.
The NCUA Board (Board) is
issuing a final rule to amend
Interpretive Ruling and Policy
Statement (IRPS) 87–2, as amended by
IRPS 03–2, and two NCUA regulations
that apply asset thresholds to grant
relief from risk-based net worth and
interest rate risk requirements. The
amended IRPS increases the asset
threshold that identifies credit unions to
which NCUA will give more robust
consideration of regulatory relief in
future rulemakings. The amended
regulations similarly include increased
asset thresholds, granting immediate
and prospective relief from existing
regulatory burden to a larger group of
small credit unions.
DATES: This rule is effective February
19, 2013.
FOR FURTHER INFORMATION CONTACT:
Kevin Tuininga, Trial Attorney, Office
of General Counsel, National Credit
Union Administration, 1775 Duke
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Street, Alexandria, Virginia 22314–3428
or telephone: (703) 518–6543.
SUPPLEMENTARY INFORMATION:
I. Background
II. Summary of Public Comments
III. Final Rule
IV. Regulatory Procedures
I. Background
What changes does this final rule make?
The Regulatory Flexibility Act, Public
Law 96–354, as amended (RFA),
generally requires federal agencies to
determine and specially consider the
impact of proposed and final rules on
small entities. Since 2003, NCUA has
defined ‘‘small entity’’ in this context as
a credit union with less than $10
million in assets.1 This final rule and
IRPS 13–1 redefines ‘‘small entity’’ as a
credit union with less than $50 million
in assets. The final rule also amends 12
CFR 702.103, increasing to $50 million
the asset threshold used to define a
‘‘complex’’ credit union for determining
whether risk-based net worth
requirements apply, and 12 CFR
741.3(b)(5), exempting all federally
insured credit unions (referred to as
FICUs or credit unions) with assets of
$50 million or less from interest rate
risk rule requirements. To crossreference IRPS 13–1, the final rule
makes a technical amendment to 12 CFR
791.8.
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What changes were proposed?
On September 20, 2012, the Board
issued a proposed rule and IRPS with a
30-day comment period, which the
Board later extended to 60 days. The
proposal increased from $10 million to
$30 million the asset thresholds used to
define small entity under the RFA and
to determine the applicability of interest
rate risk and risk-based net worth
requirements, subject to review every
three years.2 This increase addressed
the Board’s concern that various asset
thresholds affecting regulatory relief for
small FICUs were outdated. By
proposing an increase to the applicable
thresholds to $30 million, the Board
intended to account for industry asset
growth, consolidation, and inflation,
while avoiding undue risk to the
National Credit Union Share Insurance
Fund (NCUSIF).
What is the history and purpose of the
RFA?
Congress enacted the RFA in 1980
and amended it with the Small Business
Regulatory Enforcement Fairness Act of
1 IRPS
03–2, 68 FR 31949 (May 29, 2003).
proposal also included a technical
amendment to 12 CFR 791.8.
2 The
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1996, Public Law 104–121. The RFA
requires federal agencies to determine
whether a proposed or final rule will
have a significant economic impact on
a substantial number of small entities.3
If so, agencies must prepare an analysis
that describes the rule’s impact on small
entities.4 The analysis must include
descriptions of any significant
alternatives that minimize the impact.5
This requirement encourages federal
agencies to give special consideration to
the ability of smaller entities to absorb
compliance burden imposed by new
rules.
In IRPS 81–4, the Board initially
defined ‘‘small entity’’ for purposes of
the RFA as any credit union with less
than $1 million in assets.6 IRPS 87–2
superseded IRPS 81–4 but retained the
definition of ‘‘small entity’’ as a credit
union with less than $1 million in
assets.7 The Board updated the
definition in 2003 to include credit
unions with less than $10 million in
assets.8 IRPS 87–2 and IRPS 03–2 were
incorporated by reference into NCUA’s
rule governing the promulgation of
regulations.9
When the Board updated its RFA
threshold to $10 million, it noted that
amendments to the Federal Credit
Union Act (FCU Act) in 1998 employed
a $10 million threshold for multiple
new provisions.10 These new provisions
addressed the use of generally accepted
accounting principles and voluntary
audits; prompt corrective action (PCA)
for new credit unions; and assistance for
small credit unions in filing net worth
restoration plans.11 IRPS 03–2 set the
threshold in NCUA’s RFA definition
consistent with the $10 million
threshold in the new FCU Act
provisions. The Board has not increased
the RFA threshold since 2003.
II. Summary of Public Comments
The public comment period for the
proposed rule and IRPS ended on
November 26, 2012. NCUA received 51
comments from 52 commenters. The
commenters included 19 federal credit
unions, 13 state-chartered credit unions,
3 5 U.S.C. 603, 604, 605(b). The term ‘‘small
entity’’ as used in the RFA includes small
businesses, small organizations, and small
government jurisdictions. 5 U.S.C. 601(6). Credit
unions fall within the definition of organization. 5
U.S.C. 601(4). The RFA gives agencies authority,
under certain conditions, to establish their own
definition of ‘‘small entity.’’ Id.
4 Id.
5 Id.
6 46 FR 29248 (June 1, 1981).
7 52 FR 35231 (Sept. 8, 1987).
8 68 FR at 31949.
9 12 CFR 791.8(a).
10 68 FR at 31950.
11 12 U.S.C. 1782(a)(6); 1790d.
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four trade associations (representing
credit unions and state credit union
regulators), 15 state credit union
leagues, and one individual.
Almost all commenters expressly
supported the Board’s efforts to relieve
regulatory burden, with just over half
advocating for changes to the proposed
asset threshold, the criteria NCUA uses
to define small entity, and/or the
proposed three-year review period. In
addition to resource concerns, multiple
commenters drew comparisons between
FICUs and non-credit union institutions
with which they compete to advocate
for a higher RFA threshold. The general
comments on the proposal are described
in detail below.
What were the general comments
supporting the proposed rule or
advocating for a higher asset threshold?
Commenters generally fell into groups
that supported or advocated three
different asset thresholds or ranges,
including (a) $30 million; (b) $40
million to approximately $50 million;
and (c) approximately $100 million to
$500 million. The first group, comprised
of 22 commenters, supported the rule
without advocating changes. These
commenters noted that raising the
threshold would give them more time
and resources to serve members.
Seventeen of these commenters
submitted similar form letters.
A second group of six commenters
advocated for a threshold between $40
million and $51.5 million. Two of these
commenters suggested NCUA reference
the Home Mortgage Disclosure Act
reporting threshold (currently $42
million) to support increasing the RFA
threshold to $40 million or $50 million.
One commenter suggested an increase to
$45 million, noting minimal operational
differences between credit unions of $30
million and $45 million. Finally, one of
these six commenters suggested NCUA
adopt a threshold of $51.5 million based
on an industry risk assessment.
A third group, comprised of 16
commenters, suggested NCUA reference
the $175 million asset threshold the
Small Business Administration (SBA)
uses in its small business size
standards.12 Most of these commenters
suggested that NCUA simply adopt the
SBA’s threshold for the RFA, stating
that the Consumer Financial Protection
Bureau and Federal Reserve Board have
done so.13 These commenters also
12 13
CFR 121.201.
commenter that advised referencing the
SBA’s threshold suggested $150 million as a
threshold for NCUA. Another advised a comparison
to the Consumer Financial Protection Bureau in
suggesting a $150 million threshold.
13 One
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generally supported the SBA’s proposal
to increase its size standard to $500
million and suggested that NCUA follow
such an increase, if finalized.14 One of
these commenters suggested NCUA
weigh three different metrics, including
industry percentages, loss history, and
the SBA’s size standard to support a
threshold of $99 million. Two of these
commenters acknowledged $40 million
and $50 million, respectively, as
minimum alternatives to the SBA
threshold.
What were the general comments on the
three-year review period and criteria for
defining small entities?
Eleven commenters thought NCUA’s
RFA threshold should be reviewed or
automatically adjusted every 18 months,
or at least more frequently than every
three years, asserting that the SBA
reviewed its threshold on such a
schedule. The other supportive
commenters (over two-thirds of all
commenters) either expressed support
for the three-year review period or did
not mention the review period in their
comments supporting the proposal. A
few commenters suggested using one or
more additional or alternative criteria to
define small entity, including number of
branches, number of employees, relative
risk, and gross revenues.
What were the comments opposing or
not expressly supporting the proposed
rule?
One commenter stated that the RFA is
bad policy for financial institutions and
that smaller institutions have more risk
and should be subject to equally or more
stringent standards and oversight. This
commenter thought the proposed rule
would create a tiered regulatory system
and impede consolidation and
efficiency that benefits members. One
commenter noted the challenge and
expense of regulatory compliance but
did not expressly support or oppose any
aspect of the proposed rule. Finally, one
commenter advocated for three groups
of small credit unions: A micro small
group (less than $10 million), a small
14 77
FR 55737, 55747 (Sept. 11, 2012).
Board understands that some FICUs
exempt from interest rate risk rule requirements
because of this final rule nevertheless adopted an
interest rate risk policy and program as of
September 30, 2012 to comply with the interest rate
risk rule’s deadline. The Board determined an
extension of the September deadline was imprudent
due to uncertainty about when the proposed rule
would become final and what threshold amount the
final rule would incorporate after consideration of
public comments. With respect to FASB
requirements, the FCU Act contains provisions
governing compliance with generally accepted
accounting principles. See, e.g., 12 U.S.C.
1782(a)(6). Only Congress can amend these FCU Act
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15 The
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group ($10 million to $30 million), and
a mid-small group ($30 million to $50
million).
What other comments did NCUA
receive?
The Board has carefully considered
all the public comments it received in
response to the proposed rule and IRPS.
Recognizing the concerns and
suggestions the above commenters
raised, the Board has made a substantial
adjustment in the final rule. The final
rule and the Board’s response to the
public comments are discussed below.
A few commenters made suggestions
that no other commenters proposed or
made suggestions on matters the Board
did not address in the proposed rule.
One commenter, who otherwise
supported reference to the SBA’s
threshold, suggested NCUA use an
alternative threshold of $50 million for
the interest rate risk and risk-based net
worth rules. Several commenters that
supported reference to the SBA
threshold stated that NCUA should use
a separate threshold of $50 million for
assistance eligibility from the Office of
Small Credit Union Initiatives to avoid
strain on NCUA’s budget. One
commenter suggested a longer period
between examinations for well-run
FICUs.
One commenter criticized NCUA for
requiring compliance with the interest
rate risk rule on the rule’s September 30,
2012 effective date and stated that
failing to relieve small credit unions
from proposed Financial Accounting
Standards Board requirements further
negated the benefit of increasing the
asset threshold in that rule.15 Another
requested that NCUA include more
discussion in the final rule’s preamble
of the proposed emergency liquidity
rule and discuss which rules would
remain unchanged by the new
threshold.16 One commenter suggested
removal of the term ‘‘complex’’ from
NCUA regulations and an immediate
effective date for the final rule.17
Multiple commenters stated that
NCUA’s complexity index from the
proposed rule’s preamble was not a
reliable indicator of risk and would
unnecessarily reduce the scope of
regulatory relief and become a
disincentive to diversify products and
services.18 A couple commenters also
requested more rigorous RFA analysis
for NCUA regulations.19
This final rule and IRPS 13–1 amends
IRPS 87–2 and partially supersedes
IRPS 03–2 by changing the definition of
‘‘small entity’’ to include credit unions
with less than $50 million in assets.
Several commenters advocated for a
threshold near $50 million based on
industry characteristics, risk data, and
the Home Mortgage Disclosure Act
reporting threshold set by the Consumer
Financial Protection Bureau. The Board
believes increasing the RFA threshold to
$50 million is reasonable and
supportable. As the starting point for its
analysis in the proposed rule, the Board
used industry percentages for credit
unions of less than $10 million in assets
from 1998, when Congress established a
$10 million threshold in multiple
provisions of the FCU Act. Based on
Call Report data from September 30,
2012, a threshold of $50 million would
still approximate several of the industry
percentages from 1998 that the Board
referenced in the proposed rule.
As shown in the table below, FICUs
with less than $50 million in assets
currently represent 569.6 percent of the
NCUSIF, which is very close to the
percentage represented by credit unions
with less than $10 million in assets in
1998 (562.0 percent).20 Further, using a
$50 million threshold, the percentage of
system assets and system net worth
would remain within one percentage
point of 1998 ratios. A $50 million
threshold also makes a reasonable
allowance for asset growth before the
Board’s next review of the threshold.
provisions; the Board cannot alter them by
regulation.
16 The Board will consider regulatory burden in
the emergency liquidity rule in a manner consistent
with the principles expressed here and seeks to
avoid blending parallel, ongoing rulemakings.
Further, the Board believes a discussion of
unaffected thresholds would make this rulemaking
confusing and more cumbersome without
contributing to its clarity. This final rule and IRPS
will affect only the thresholds it expressly
addresses.
17 The term ‘‘complex’’ appears in the FCU Act
in connection with risk-based net worth
requirements. See 12 U.S.C. 1790d(d). Only
Congress can amend the FCU Act.
18 The complexity index is only one reference
point that helped the Board develop a proposed
threshold. While the index is a good indicator of a
FICU’s relative risk, it does not necessarily measure
whether a particular risk presented by an
exemption from a specific rule is acceptable.
19 The Board welcomes general comments in this
respect and also particular comments on ensuring
an effective RFA analysis in future regulations.
20 The table also shows percentages for various
other asset thresholds, based on the most recent
Call Report, for comparison to the 1998 percentages.
The percentages for FICUs with less than $10
million in assets from 1998 and for FICUs with less
than $50 million in assets today are shaded for ease
of comparison.
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III. Final Rule
What changes does this final rule make?
a. The RFA Asset Threshold
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Threshold ($M)
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<
<
<
<
<
<
<
<
<
<
$10 (1998) ........................................................................
$10 ....................................................................................
$25 ....................................................................................
$30 ....................................................................................
$35 ....................................................................................
$40 ....................................................................................
$45 ....................................................................................
$50 ....................................................................................
$175 ..................................................................................
$500 ..................................................................................
Commenters advocating that the
Board set the threshold higher than $50
million, including up to $175 million or
$500 million, generally suggested that
the Board reference indicators outside of
the credit union industry. The Board
believes it should establish NCUA’s
RFA threshold by focusing primarily on
credit union characteristics, rather than
external indicators and thresholds that
apply across multiple and distinct
institution charters. A $50 million
threshold will represent a substantial
majority of FICUs, close to 68 percent,
and almost 6.5 percent of system assets.
It will also align with the RFA’s
language permitting agencies to
establish a definition that is appropriate
to their own activities, as opposed to the
activities of other agencies.21
In the context of the SBA’s broad
mandate covering a host of industries, a
$175 million threshold encompasses
only 54 percent of all financial
institutions and only three percent of
total financial institution assets. Under
the narrower scope of NCUA’s
regulatory authority, the SBA’s $175
million threshold envelops 86 percent
of FICUs and over 18 percent of FICU
assets. When compared in this context,
the percentages of FICUs (68 percent)
and assets (6.4 percent) under this rule’s
$50 million threshold are significantly
higher than the percentages of all
financial institutions (54 percent) and
their assets (three percent) under the
SBA’s $175 million threshold.22
With respect to commenters
advocating alternative criteria for the
RFA definition, the Board continues to
believe that an asset threshold is the
best and most transparent measurement
for NCUA’s RFA definition. Using an
asset threshold is consistent with size
standards that appear elsewhere in the
FCU Act and NCUA regulations.
Further, regardless of a FICU’s business
model, the Board believes the total
assets measurement remains the
21 See 12 U.S.C. 601(4) (permitting agencies to
establish one or more definitions that ‘‘are
appropriate to the activities of the agency’’).
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% System
assets
% Units
60.4
34.9
54.2
58.0
61.2
63.5
65.8
67.8
86.0
94.2
5.5
1.0
3.1
3.8
4.5
5.1
5.8
6.4
18.1
34.5
principal comparative tool that the
industry uses to determine a FICU’s
relative size.
b. The Review Period
The final rule sets an initial review
period of two years, but it retains the
three-year period from the proposed
rule for subsequent reviews. The
majority of commenters either expressly
supported the proposed review period
or did not advocate for an alternative
period. As stated in the proposal, a
three-year review period provides a
reasonable time within which to discern
new trends in percentage, loss, and risk
data. In addition, a three-year period is
consistent with the longstanding review
period NCUA uses for all its regulations.
It provides sufficient time to avoid the
uncertainty of a continuous cycle of
rulemakings and policy adjustments
that a shorter period could create.
Finally, a three-year period will
provide more frequent review than that
required of the SBA, which several
commenters referenced. Under the
Small Business Jobs Act of 2010 (Jobs
Act), the SBA must review at least onethird of its size standards in 18-month
intervals, starting from date the Jobs Act
was enacted, with no longer than fiveyear review periods thereafter.23
Reviewing one-third of size standards at
18-month intervals would bring each
standard up for SBA review every 4.5
years. The Board will initially review
the size standards in this rule, however,
within two years of its effective date.
After that, the Board will review the
standards every three years. The Board
believes a shorter initial review period
is appropriate given the time passed
since the threshold was last reviewed
and updated.
c. The Interest Rate Risk and Risk-Based
Net Worth Rules
This final rule adopts a $50 million
asset threshold for defining a ‘‘complex’’
22 77
23 77
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% System net
worth
6.9
1.3
4.0
4.8
5.6
6.2
7.0
7.7
19.7
36.3
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Sfmt 4700
561.2
80.4
264.3
325.5
384.2
434.7
490.9
569.6
1534.5
2931.4
# Units
6,637
2,402
3,731
3,997
4,213
4,374
4,532
4,672
5,925
6,485
credit union in 12 CFR 702.103(a). This
update will increase by approximately
2,270, to around 4,670, the number of
FICUs removed from the definition of
‘‘complex’’ based on asset size alone.
The increase eliminates the possibility
that these FICUs could become subject
to additional PCA provisions due solely
to a risk-based net worth requirement.
In addition, the final rule exempts
FICUs of $50 million or less in assets
from the requirements of 12 CFR
741.3(b)(5), NCUA’s interest rate risk
rule. The final rule will streamline the
tiered system in the interest rate risk
rule by simply requiring all FICUs with
more than $50 million in assets to adopt
an interest rate risk policy and program.
FICUs with $50 million or less in assets
will not be subject to interest rate risk
requirements by regulation, regardless
of their first mortgage loans and
investment maturities. This change will
increase by approximately 2,270, to a
total of around 4,670, the number of
FICUs that are exempt, based on asset
size alone, from adopting an interest
rate risk policy and program.
In general, incremental risk elevation
will accompany the exclusion of more
FICUs from regulations aimed
principally at reducing risk. The Board
believes the incremental risk presented
by raising the regulatory thresholds to
$50 million is acceptable, especially
when weighed against the advantages of
implementing a uniform threshold
across multiple regulations and the
benefits of regulatory relief.
The proposed rule’s preamble
acknowledged that FICU loss history
since 1998 shows that even FICUs with
somewhat more than $30 million in
assets have caused a relatively small
amount of losses to the NCUSIF. Loss
history data for FICUs of various asset
sizes from 1998 through September 30,
2012 appears below.
FR 55747.
FR 55737.
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Number of failures
Assets ($M)
Failures for
asset range
< $10 ........................................................
$10 to < $20 ............................................
$20 to < $30 ............................................
$30 to < $40 ............................................
$40 to < $50 ............................................
$50 to < $60 ............................................
$60 to < $70 ............................................
$70 to < $80 ............................................
$80 to < $90 ............................................
$90 to < $100 ..........................................
$100 to < $200 ........................................
$200 to < $500 ........................................
≥ $500 ......................................................
Cumulative
205
12
8
9
4
1
0
2
4
3
10
7
1
As reflected in the table below, almost
half of total losses over the last ten years
for FICUs under $50 million in assets
205
217
225
234
238
239
239
241
245
248
258
265
266
< $10M
emcdonald on DSK67QTVN1PROD with
# Failures Last 10 years ............................................
Losses ($M) Last 10 years ........................................
Avg. # Failures Per Year ...........................................
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Jkt 229001
Loss for asset
range
< $20M
132
$104.4
12.3
143
$150.3
13.3
How does the final rule and IRPS affect
FICUs?
The change to the RFA threshold will
ensure that regulatory burden will be
more consistently and robustly
considered for approximately 2,270
additional FICUs. Around 4,670 FICUs
with less than $50 million in assets
would come within the RFA’s
mandates. Future regulations, including
the proposed emergency liquidity rule,
77 FR 44503 (July 30, 2012), will be
more thoroughly evaluated to determine
whether FICUs below $50 million in
assets should be exempt from some
provisions or separately considered.
The $50 million threshold for
defining ‘‘complex’’ credit unions
would categorically exclude around
2,270 more FICUs from the definition of
‘‘complex’’ based on asset size alone,
bringing the total number of excluded
FICUs to approximately 4,670. NCUA
previously defined a ‘‘complex’’ credit
union in 12 CFR 702.103 as one with
more than $10 million in assets and
with a risk-based net worth requirement
of more than six percent. If a ‘‘complex’’
credit union fails its risk-based net
worth requirement, the credit union is
subject to mandatory PCA requirements
that it otherwise would not be subject to
when measured solely by its net
worth.24 These PCA requirements
govern earnings retention, net worth
24 12
PO 00000
CFR 702.202(a).
Frm 00022
Fmt 4700
Sfmt 4700
Percentage of total NCUSIF
losses
Cumulative
$138.5
31.0
22.8
36.2
11.3
3.3
0.0
11.3
22.4
66.1
76.3
512.7
36.1
occurred in credit unions with under
$10 million in assets, which were
already exempt from interest rate risk
Asset size
More specifically, NCUA determined
that, as of the last Call Report, only one
credit union between the proposed $30
million threshold and a $50 million
threshold would have been subject to
additional PCA because it failed to meet
risk-based net worth requirements.
Further, only 4.5 percent of FICUs with
assets between $10 million and $50
million have a net worth ratio below
seven percent.
For the interest rate risk rule, 56.3
percent of the approximately 2,270
FICUs between $10 million and $50
million were not covered by the rule as
of the last Call Report, because their
level of first mortgage loans and
investment maturities, relative to net
worth, exempted them. The 992 FICUs
with assets between $10 million and
$50 million that were subject to the
interest rate risk rule as of September
30, 2012 (because of their level of first
mortgage loans and investment
maturities, relative to net worth) held
only 2.7 percent of industry assets. As
with IRPS 13–1, the Board will review
and consider adjusting the thresholds in
12 CFR 702.103(a) and 741.3(b)(5)
within two years of the effective date of
this final rule and, subsequently, at least
once every three years. This review
period will permit the Board to adjust
the thresholds accordingly if the risk
and losses attributable to increased
thresholds are greater than expected.
NCUSIF Loss ($M)
Percent for
asset range
(%)
$138.5
169.5
192.2
228.4
239.7
243.1
243.1
254.4
276.8
342.9
419.2
931.9
968.0
Cumulative
(%)
14.3
3.2
2.4
3.7
1.2
0.3
0.0
1.2
2.3
6.8
7.9
53.0
3.7
14.3
17.5
19.9
23.6
24.8
25.1
25.1
26.3
28.6
35.4
43.3
96.3
100.0
and risk-based net worth regulatory
requirements.
< $30M
< $40M
151
$171.7
14
160
$207.9
14.9
< $50M
162
$212.8
15.1
restoration plans, asset increases, and
member business loans. Of the 2,270
additional credit unions that the final
rule excludes, approximately 358 FICUs
with at least six percent net worth are
no longer subject to a risk-based net
worth requirement. These FICUs are
removed one step further from the
possibility of PCA requirements.
The new $50 million threshold in
NCUA’s interest rate risk rule
categorically excludes around 2,270
more FICUs from complying with the
interest rate risk rule based on asset size
alone. Once again, this change brings
the total FICUs excluded to around
4,670. The prior version of the
regulation required FICUs between $10
million and $50 million in assets
holding combined first mortgages and
investments with maturities greater than
five years that equal or exceed net worth
to adopt and implement an interest rate
risk policy. Of the approximately 2,270
additional FICUs that this final rule and
IRPS excludes, 992 are no longer
required by regulation to adopt and
implement an interest rate risk policy.
IV. Regulatory Procedures
A. Regulatory Flexibility Act
The RFA requires NCUA to prepare
an analysis to describe any significant
economic impact a final rule may have
on a substantial number of small entities
(defined in this final rule and IRPS as
credit unions with under $50 million in
E:\FR\FM\18JAR1.SGM
18JAR1
Federal Register / Vol. 78, No. 13 / Friday, January 18, 2013 / Rules and Regulations
assets). In this case, the final rule and
IRPS expands the number of FICUs
defined as small entities under the RFA
from those with less than $10 million in
assets to those with less than $50
million. It similarly expands the group
of FICUs eligible for relief from riskbased net worth and interest rate risk
requirements. The final rule will reduce
compliance burden for approximately
2,270 more FICUs and, therefore, will
not raise costs in a manner that requires
a regulatory flexibility analysis or a
discussion of alternatives for
minimizing the final rule’s compliance
burden.
With respect to additional FICUs
covered by the RFA for future
regulations, the final rule and IRPS
provides prospective relief in the form
of special and more robust
consideration of their ability to handle
compliance burden. This prospective
relief is not quantifiable. Accordingly,
NCUA has determined and certifies that
the final rule and IRPS will not have a
significant economic impact on a
substantial number of small entities. No
regulatory flexibility analysis is
required.
emcdonald on DSK67QTVN1PROD with
B. Paperwork Reduction Act
The Paperwork Reduction Act of
1995, Public Law 104–13 (PRA), applies
to rulemakings in which an agency
creates a new paperwork burden on
regulated entities or modifies an
existing burden. 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’s changes to 12 CFR
702.103 and 741.3(b)(5) will cause an
immediate and prospective reduction in
paperwork burden related to PCA
requirements and interest rate risk
policies for FICUs between $10 million
and $50 million in assets. The changes
to IRPS 87–2, as amended by IRPS 03–
2, will not create any new paperwork
burden for FICUs. Thus, NCUA has
determined that the requirements of this
final rule and IRPS do not increase the
paperwork requirements under the PRA
and regulations of the Office of
Management and Budget.
C. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. NCUA, an
independent regulatory agency as
defined in 44 U.S.C. 3502(5), voluntarily
complies with the Executive Order to
adhere to fundamental federalism
principles. This final rule and IRPS does
not have a substantial direct effect on
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14:08 Jan 17, 2013
Jkt 229001
the states, on the relationship between
the national government and the states,
or on the distribution of power and
responsibilities among the various
levels of government. NCUA has
determined that this final rule does not
constitute a policy that has federalism
implications for purposes of the
Executive Order.
D. Assessment of Federal Regulations
and Policies on Families
NCUA has determined that this final
rule and IRPS will not affect family
well-being within the meaning of
Section 654 of the Treasury and General
Government Appropriations Act of
1999, Public Law 105–277.
E. Small Business Regulatory
Enforcement Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996,
Public Law 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 in the Administrative
Procedure Act.25 NCUA believes this
final rule is not a major rule for
purposes of the Small Business
Regulatory Enforcement Fairness Act,
but a determination from the Office of
Management and Budget is pending.
List of Subjects
12 CFR Part 702
Credit unions, Reporting and
recordkeeping requirements.
12 CFR Part 741
Credit unions, Requirements for
insurance.
12 CFR Part 791
Administrative practice and
procedure, Sunshine Act.
II. Procedures for the Development of
Regulations
25 5
PO 00000
*
*
*
U.S.C. 551.
Frm 00023
Fmt 4700
Sfmt 4700
Conforming Amendments to NCUA
Regulations
For the reasons discussed above, the
Board amends 12 CFR parts 702, 741
and 791 as follows:
PART 702—PROMPT CORRECTIVE
ACTION
1. The authority citation for part 702
continues to read as follows:
■
Authority: 12 U.S.C. 1766(a), 1790d.
2. In § 702.103, amend paragraph (a)
by:
■ a. Removing ‘‘ten’’ and adding in its
place ‘‘fifty’’, and
■ b. Removing ‘‘($10,000,000)’’ and
adding in its place ‘‘($50,000,000)’’.
■
PART 741—REQUIREMENTS FOR
INSURANCE
3. The authority citation for part 741
continues to read as follows:
■
Authority: 12 U.S.C. 1757, 1766(a), 1781–
1790 and 1790d; 31 U.S.C. 3717.
4. In § 741.3, revise paragraph (b)(5) to
read as follows:
Interpretive Ruling and Policy
Statement 87–2
For the reasons stated above, IRPS 13–
1 amends IRPS 87–2 (52 FR 35231,
September 18, 1987) and partially
supersedes IRPS 03–2 (68 FR 31951,
May 29, 2003) by revising the second
sentence in Section II, paragraph 2 of
IRPS 87–2 and adding two sentences to
the end of Section II, paragraph 2 of
IRPS 87–2 to read as follows:
*
2. * * * NCUA will designate credit
unions with less than $50 million in
assets as small entities. * * * Within
two years of the effective date of the
increase to $50 million, the NCUA
Board will review and consider
adjusting the asset threshold it uses to
define small entities for purposes of
analyzing whether a regulation will
have a significant economic impact on
a substantial number of small entities.
Thereafter, the NCUA Board will
conduct reviews of the asset threshold
every three years.
*
*
*
*
*
■
By the National Credit Union
Administration Board on January 10, 2013.
Mary Rupp,
Secretary of the Board.
*
4037
§ 741.3
Criteria.
*
*
*
*
*
(b) * * *
(5) The existence of a written interest
rate risk policy (‘‘IRR policy’’) and an
effective interest rate risk management
program (‘‘effective IRR program’’) as
part of asset liability management.
Federally insured credit unions
(‘‘FICUs’’) with assets of more than $50
million, as measured by the most recent
Call Report filing, must adopt a written
IRR policy and implement an effective
IRR program. Appendix B to this Part
741 provides guidance on how to
develop an IRR policy and an effective
IRR program. The guidance describes
widely accepted best practices in the
management of interest rate risk for the
benefit of all FICUs.
*
*
*
*
*
E:\FR\FM\18JAR1.SGM
18JAR1
4038
Federal Register / Vol. 78, No. 13 / Friday, January 18, 2013 / Rules and Regulations
PART 791—RULES OF NCUA BOARD
PROCEDURES; PROMULGATION OF
NCUA RULES AND REGULATIONS;
PUBLIC OBSERVATION OF NCUA
BOARD MEETINGS
5. The authority citation for part 791
continues to read as follows:
■
Authority: 12 U.S.C. 1766, 1789 and 5
U.S.C. 552b.
6. In § 791.8, revise paragraph (a) to
read as follows:
■
§ 791.8 Promulgation of NCUA rules and
regulations.
*
*
*
*
*
(a) NCUA’s procedures for developing
regulations are governed by the
Administrative Procedure Act (5 U.S.C.
551 et seq.), the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.), and NCUA’s
policies for the promulgation of rules
and regulations as set forth in its
Interpretive Ruling and Policy
Statement 87–2 as amended by
Interpretive Ruling and Policy
Statements 03–2 and 13–1.
*
*
*
*
*
[FR Doc. 2013–00864 Filed 1–17–13; 8:45 am]
BILLING CODE 7535–01–P
DEPARTMENT OF TRANSPORTATION
Effective March 19, 2013.
Affected parties, however, are not
required to comply with the information
collection requirement[s] in § 35.16
until the Office of Management and
Budget (OMB) approves the collection
and assigns a control number under the
Paperwork Reduction Act of 1995. The
FAA will publish in the Federal
Register a notice of the control
number[s] assigned by the Office of
Management and Budget (OMB) for this
[these] information collection
requirement[s].
DATES:
For
technical questions concerning this
action, contact Jay Turnberg, Engine and
Propeller Directorate Standards Staff,
ANE–111, Federal Aviation
Administration, 12 New England
Executive Park, Burlington,
Massachusetts, 01803–5299; telephone
(781) 238–7116; facsimile (781) 238–
7199, email: jay.turnberg@faa.gov. For
legal questions concerning this action,
contact Vincent Bennett, FAA Office of
the Regional Counsel, ANE–7, Federal
Aviation Administration, 12 New
England Executive Park, Burlington,
Massachusetts, 01803–5299; telephone
(781) 238–7044; facsimile (781) 238–
7055, email: vincent.bennett@faa.gov.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
Part 35 does not specifically define
the term propeller critical part.
Consequently, there are no requirements
for design, manufacture, maintenance,
or management of propeller critical
parts. This rule defines and requires the
identification of propeller critical parts,
Safety Analysis (§ 35.15)
We proposed to revise § 35.15(c) to
require the identification of propeller
critical parts, and that applicants
establish the integrity of these parts
using the standards in proposed § 35.16.
Section 35.15(c) refers to the failure of
14 CFR Part 35
The FAA’s authority to issue rules on
aviation safety is found in Title 49 of the
United States Code. Subtitle I, Section
106 describes the authority of the FAA
Administrator. Subtitle VII, Aviation
Programs, describes in more detail the
scope of the agency’s authority.
This rulemaking is promulgated
under the authority described in
Subtitle VII, Part A, Subpart III, section
44701, ‘‘General requirements.’’ Under
that section, the FAA is charged with
prescribing regulations promoting safe
flight of civil aircraft in air commerce by
prescribing regulations for practices,
methods, and procedures the
Administrator finds necessary for safety
in air commerce, including minimum
safety standards for airplane propellers.
This regulation is within the scope of
that authority because it updates the
existing regulations for airplane
propellers.
Critical Parts for Airplane Propellers
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
The Federal Aviation
Administration (FAA) is amending the
airworthiness standards for airplane
propellers. This action would require a
safety analysis to identify a propeller
critical part. Manufacturers would
identify propeller critical parts, and
establish engineering, manufacturing,
and maintenance processes for propeller
critical parts. These new requirements
provide an added margin of safety for
the continued airworthiness of propeller
critical parts by requiring a system of
processes to identify and manage these
parts throughout their service life. This
rule would eliminate regulatory
differences between part 35 and
European Aviation Safety Agency
(EASA) propeller critical parts
requirements, thereby simplifying
airworthiness approvals for exports.
emcdonald on DSK67QTVN1PROD with
SUMMARY:
VerDate Mar<15>2010
14:08 Jan 17, 2013
Jkt 229001
A. Statement of the Problem
Propeller critical parts are not
adequately addressed by current
regulations. Presently, the FAA does
not—
➢ Have a specific definition for a
propeller critical part, or
➢ Require type certificate holders to
identify propeller critical parts.
Consequently, propeller
manufacturers are not required to
provide information concerning
propeller critical part design,
manufacture, or maintenance.
I. Overview of Final Rule
Authority for This Rulemaking
RIN 2120–AJ88
II. Background
On December 20, 2006, the FAA
tasked the Aviation Rulemaking
Advisory Committee (ARAC) to develop
recommendations that would address
the integrity of propeller critical parts,
as well as be in harmony with similar
European Aviation Safety Agency
(EASA) regulations. This rule addresses
those recommendations, a copy of
which can be found in the docket of this
rulemaking.
B. Summary of the NPRM
Primary failure of certain single
propeller elements (for example, blades)
can result in a hazardous propeller
effect. Part 35 does not specifically
identify these elements as propeller
critical parts. Consequently, there are no
requirements for design, manufacture,
maintenance, or management of
propeller critical parts. EASA, however,
has regulations that identify a specific
definition for propeller critical part, and
regulations to reduce the likelihood of
propeller critical part failures. These
regulations, EASA Certification
Specifications for Propellers (CS–P), are
CS–P 150, Propeller Safety Analysis and
CS–P 160 Propeller Critical Parts
Integrity. The EASA regulations
specifically require propeller
manufacturers to identify propeller
critical parts and provide adequate
information for the design, manufacture,
and maintenance of those parts to
ensure their integrity throughout their
service life. This FAA action establishes
standards equivalent to the EASA
regulations, thereby simplifying
airworthiness approvals for export of
these parts.
Federal Aviation Administration
[Docket No.: FAA–2010–0940–0001; Amdt.
No. 35–9]
and establishes requirements to ensure
the integrity of those parts.
PO 00000
Frm 00024
Fmt 4700
Sfmt 4700
E:\FR\FM\18JAR1.SGM
18JAR1
]]>Agencies
[Federal Register Volume 78, Number 13 (Friday, January 18, 2013)]
[Rules and Regulations]
[Pages 4032-4038]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00864]
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 702, 741 and 791
RIN 3133-AE07
Prompt Corrective Action, Requirements for Insurance, and
Promulgation of NCUA Rules and Regulations
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board (Board) is issuing a final rule to amend
Interpretive Ruling and Policy Statement (IRPS) 87-2, as amended by
IRPS 03-2, and two NCUA regulations that apply asset thresholds to
grant relief from risk-based net worth and interest rate risk
requirements. The amended IRPS increases the asset threshold that
identifies credit unions to which NCUA will give more robust
consideration of regulatory relief in future rulemakings. The amended
regulations similarly include increased asset thresholds, granting
immediate and prospective relief from existing regulatory burden to a
larger group of small credit unions.
DATES: This rule is effective February 19, 2013.
FOR FURTHER INFORMATION CONTACT: Kevin Tuininga, Trial Attorney, Office
of General Counsel, National Credit Union Administration, 1775 Duke
[[Page 4033]]
Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-6543.
SUPPLEMENTARY INFORMATION:
I. Background
II. Summary of Public Comments
III. Final Rule
IV. Regulatory Procedures
I. Background
What changes does this final rule make?
The Regulatory Flexibility Act, Public Law 96-354, as amended
(RFA), generally requires federal agencies to determine and specially
consider the impact of proposed and final rules on small entities.
Since 2003, NCUA has defined ``small entity'' in this context as a
credit union with less than $10 million in assets.\1\ This final rule
and IRPS 13-1 redefines ``small entity'' as a credit union with less
than $50 million in assets. The final rule also amends 12 CFR 702.103,
increasing to $50 million the asset threshold used to define a
``complex'' credit union for determining whether risk-based net worth
requirements apply, and 12 CFR 741.3(b)(5), exempting all federally
insured credit unions (referred to as FICUs or credit unions) with
assets of $50 million or less from interest rate risk rule
requirements. To cross-reference IRPS 13-1, the final rule makes a
technical amendment to 12 CFR 791.8.
---------------------------------------------------------------------------
\1\ IRPS 03-2, 68 FR 31949 (May 29, 2003).
---------------------------------------------------------------------------
What changes were proposed?
On September 20, 2012, the Board issued a proposed rule and IRPS
with a 30-day comment period, which the Board later extended to 60
days. The proposal increased from $10 million to $30 million the asset
thresholds used to define small entity under the RFA and to determine
the applicability of interest rate risk and risk-based net worth
requirements, subject to review every three years.\2\ This increase
addressed the Board's concern that various asset thresholds affecting
regulatory relief for small FICUs were outdated. By proposing an
increase to the applicable thresholds to $30 million, the Board
intended to account for industry asset growth, consolidation, and
inflation, while avoiding undue risk to the National Credit Union Share
Insurance Fund (NCUSIF).
---------------------------------------------------------------------------
\2\ The proposal also included a technical amendment to 12 CFR
791.8.
---------------------------------------------------------------------------
What is the history and purpose of the RFA?
Congress enacted the RFA in 1980 and amended it with the Small
Business Regulatory Enforcement Fairness Act of 1996, Public Law 104-
121. The RFA requires federal agencies to determine whether a proposed
or final rule will have a significant economic impact on a substantial
number of small entities.\3\ If so, agencies must prepare an analysis
that describes the rule's impact on small entities.\4\ The analysis
must include descriptions of any significant alternatives that minimize
the impact.\5\ This requirement encourages federal agencies to give
special consideration to the ability of smaller entities to absorb
compliance burden imposed by new rules.
---------------------------------------------------------------------------
\3\ 5 U.S.C. 603, 604, 605(b). The term ``small entity'' as used
in the RFA includes small businesses, small organizations, and small
government jurisdictions. 5 U.S.C. 601(6). Credit unions fall within
the definition of organization. 5 U.S.C. 601(4). The RFA gives
agencies authority, under certain conditions, to establish their own
definition of ``small entity.'' Id.
\4\ Id.
\5\ Id.
---------------------------------------------------------------------------
In IRPS 81-4, the Board initially defined ``small entity'' for
purposes of the RFA as any credit union with less than $1 million in
assets.\6\ IRPS 87-2 superseded IRPS 81-4 but retained the definition
of ``small entity'' as a credit union with less than $1 million in
assets.\7\ The Board updated the definition in 2003 to include credit
unions with less than $10 million in assets.\8\ IRPS 87-2 and IRPS 03-2
were incorporated by reference into NCUA's rule governing the
promulgation of regulations.\9\
---------------------------------------------------------------------------
\6\ 46 FR 29248 (June 1, 1981).
\7\ 52 FR 35231 (Sept. 8, 1987).
\8\ 68 FR at 31949.
\9\ 12 CFR 791.8(a).
---------------------------------------------------------------------------
When the Board updated its RFA threshold to $10 million, it noted
that amendments to the Federal Credit Union Act (FCU Act) in 1998
employed a $10 million threshold for multiple new provisions.\10\ These
new provisions addressed the use of generally accepted accounting
principles and voluntary audits; prompt corrective action (PCA) for new
credit unions; and assistance for small credit unions in filing net
worth restoration plans.\11\ IRPS 03-2 set the threshold in NCUA's RFA
definition consistent with the $10 million threshold in the new FCU Act
provisions. The Board has not increased the RFA threshold since 2003.
---------------------------------------------------------------------------
\10\ 68 FR at 31950.
\11\ 12 U.S.C. 1782(a)(6); 1790d.
---------------------------------------------------------------------------
II. Summary of Public Comments
The public comment period for the proposed rule and IRPS ended on
November 26, 2012. NCUA received 51 comments from 52 commenters. The
commenters included 19 federal credit unions, 13 state-chartered credit
unions, four trade associations (representing credit unions and state
credit union regulators), 15 state credit union leagues, and one
individual.
Almost all commenters expressly supported the Board's efforts to
relieve regulatory burden, with just over half advocating for changes
to the proposed asset threshold, the criteria NCUA uses to define small
entity, and/or the proposed three-year review period. In addition to
resource concerns, multiple commenters drew comparisons between FICUs
and non-credit union institutions with which they compete to advocate
for a higher RFA threshold. The general comments on the proposal are
described in detail below.
What were the general comments supporting the proposed rule or
advocating for a higher asset threshold?
Commenters generally fell into groups that supported or advocated
three different asset thresholds or ranges, including (a) $30 million;
(b) $40 million to approximately $50 million; and (c) approximately
$100 million to $500 million. The first group, comprised of 22
commenters, supported the rule without advocating changes. These
commenters noted that raising the threshold would give them more time
and resources to serve members. Seventeen of these commenters submitted
similar form letters.
A second group of six commenters advocated for a threshold between
$40 million and $51.5 million. Two of these commenters suggested NCUA
reference the Home Mortgage Disclosure Act reporting threshold
(currently $42 million) to support increasing the RFA threshold to $40
million or $50 million. One commenter suggested an increase to $45
million, noting minimal operational differences between credit unions
of $30 million and $45 million. Finally, one of these six commenters
suggested NCUA adopt a threshold of $51.5 million based on an industry
risk assessment.
A third group, comprised of 16 commenters, suggested NCUA reference
the $175 million asset threshold the Small Business Administration
(SBA) uses in its small business size standards.\12\ Most of these
commenters suggested that NCUA simply adopt the SBA's threshold for the
RFA, stating that the Consumer Financial Protection Bureau and Federal
Reserve Board have done so.\13\ These commenters also
[[Page 4034]]
generally supported the SBA's proposal to increase its size standard to
$500 million and suggested that NCUA follow such an increase, if
finalized.\14\ One of these commenters suggested NCUA weigh three
different metrics, including industry percentages, loss history, and
the SBA's size standard to support a threshold of $99 million. Two of
these commenters acknowledged $40 million and $50 million,
respectively, as minimum alternatives to the SBA threshold.
---------------------------------------------------------------------------
\12\ 13 CFR 121.201.
\13\ One commenter that advised referencing the SBA's threshold
suggested $150 million as a threshold for NCUA. Another advised a
comparison to the Consumer Financial Protection Bureau in suggesting
a $150 million threshold.
\14\ 77 FR 55737, 55747 (Sept. 11, 2012).
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What were the general comments on the three-year review period and
criteria for defining small entities?
Eleven commenters thought NCUA's RFA threshold should be reviewed
or automatically adjusted every 18 months, or at least more frequently
than every three years, asserting that the SBA reviewed its threshold
on such a schedule. The other supportive commenters (over two-thirds of
all commenters) either expressed support for the three-year review
period or did not mention the review period in their comments
supporting the proposal. A few commenters suggested using one or more
additional or alternative criteria to define small entity, including
number of branches, number of employees, relative risk, and gross
revenues.
What were the comments opposing or not expressly supporting the
proposed rule?
One commenter stated that the RFA is bad policy for financial
institutions and that smaller institutions have more risk and should be
subject to equally or more stringent standards and oversight. This
commenter thought the proposed rule would create a tiered regulatory
system and impede consolidation and efficiency that benefits members.
One commenter noted the challenge and expense of regulatory compliance
but did not expressly support or oppose any aspect of the proposed
rule. Finally, one commenter advocated for three groups of small credit
unions: A micro small group (less than $10 million), a small group ($10
million to $30 million), and a mid-small group ($30 million to $50
million).
What other comments did NCUA receive?
A few commenters made suggestions that no other commenters proposed
or made suggestions on matters the Board did not address in the
proposed rule. One commenter, who otherwise supported reference to the
SBA's threshold, suggested NCUA use an alternative threshold of $50
million for the interest rate risk and risk-based net worth rules.
Several commenters that supported reference to the SBA threshold stated
that NCUA should use a separate threshold of $50 million for assistance
eligibility from the Office of Small Credit Union Initiatives to avoid
strain on NCUA's budget. One commenter suggested a longer period
between examinations for well-run FICUs.
One commenter criticized NCUA for requiring compliance with the
interest rate risk rule on the rule's September 30, 2012 effective date
and stated that failing to relieve small credit unions from proposed
Financial Accounting Standards Board requirements further negated the
benefit of increasing the asset threshold in that rule.\15\ Another
requested that NCUA include more discussion in the final rule's
preamble of the proposed emergency liquidity rule and discuss which
rules would remain unchanged by the new threshold.\16\ One commenter
suggested removal of the term ``complex'' from NCUA regulations and an
immediate effective date for the final rule.\17\
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\15\ The Board understands that some FICUs exempt from interest
rate risk rule requirements because of this final rule nevertheless
adopted an interest rate risk policy and program as of September 30,
2012 to comply with the interest rate risk rule's deadline. The
Board determined an extension of the September deadline was
imprudent due to uncertainty about when the proposed rule would
become final and what threshold amount the final rule would
incorporate after consideration of public comments. With respect to
FASB requirements, the FCU Act contains provisions governing
compliance with generally accepted accounting principles. See, e.g.,
12 U.S.C. 1782(a)(6). Only Congress can amend these FCU Act
provisions; the Board cannot alter them by regulation.
\16\ The Board will consider regulatory burden in the emergency
liquidity rule in a manner consistent with the principles expressed
here and seeks to avoid blending parallel, ongoing rulemakings.
Further, the Board believes a discussion of unaffected thresholds
would make this rulemaking confusing and more cumbersome without
contributing to its clarity. This final rule and IRPS will affect
only the thresholds it expressly addresses.
\17\ The term ``complex'' appears in the FCU Act in connection
with risk-based net worth requirements. See 12 U.S.C. 1790d(d). Only
Congress can amend the FCU Act.
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Multiple commenters stated that NCUA's complexity index from the
proposed rule's preamble was not a reliable indicator of risk and would
unnecessarily reduce the scope of regulatory relief and become a
disincentive to diversify products and services.\18\ A couple
commenters also requested more rigorous RFA analysis for NCUA
regulations.\19\
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\18\ The complexity index is only one reference point that
helped the Board develop a proposed threshold. While the index is a
good indicator of a FICU's relative risk, it does not necessarily
measure whether a particular risk presented by an exemption from a
specific rule is acceptable.
\19\ The Board welcomes general comments in this respect and
also particular comments on ensuring an effective RFA analysis in
future regulations.
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The Board has carefully considered all the public comments it
received in response to the proposed rule and IRPS. Recognizing the
concerns and suggestions the above commenters raised, the Board has
made a substantial adjustment in the final rule. The final rule and the
Board's response to the public comments are discussed below.
III. Final Rule
What changes does this final rule make?
a. The RFA Asset Threshold
This final rule and IRPS 13-1 amends IRPS 87-2 and partially
supersedes IRPS 03-2 by changing the definition of ``small entity'' to
include credit unions with less than $50 million in assets. Several
commenters advocated for a threshold near $50 million based on industry
characteristics, risk data, and the Home Mortgage Disclosure Act
reporting threshold set by the Consumer Financial Protection Bureau.
The Board believes increasing the RFA threshold to $50 million is
reasonable and supportable. As the starting point for its analysis in
the proposed rule, the Board used industry percentages for credit
unions of less than $10 million in assets from 1998, when Congress
established a $10 million threshold in multiple provisions of the FCU
Act. Based on Call Report data from September 30, 2012, a threshold of
$50 million would still approximate several of the industry percentages
from 1998 that the Board referenced in the proposed rule.
As shown in the table below, FICUs with less than $50 million in
assets currently represent 569.6 percent of the NCUSIF, which is very
close to the percentage represented by credit unions with less than $10
million in assets in 1998 (562.0 percent).\20\ Further, using a $50
million threshold, the percentage of system assets and system net worth
would remain within one percentage point of 1998 ratios. A $50 million
threshold also makes a reasonable allowance for asset growth before the
Board's next review of the threshold.
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\20\ The table also shows percentages for various other asset
thresholds, based on the most recent Call Report, for comparison to
the 1998 percentages. The percentages for FICUs with less than $10
million in assets from 1998 and for FICUs with less than $50 million
in assets today are shaded for ease of comparison.
[[Page 4035]]
----------------------------------------------------------------------------------------------------------------
% System % System net
Threshold ($M) % Units assets worth % NCUSIF Units
----------------------------------------------------------------------------------------------------------------
< $10 (1998).................... 60.4 5.5 6.9 561.2 6,637
< $10........................... 34.9 1.0 1.3 80.4 2,402
< $25........................... 54.2 3.1 4.0 264.3 3,731
< $30........................... 58.0 3.8 4.8 325.5 3,997
< $35........................... 61.2 4.5 5.6 384.2 4,213
< $40........................... 63.5 5.1 6.2 434.7 4,374
< $45........................... 65.8 5.8 7.0 490.9 4,532
< $50........................... 67.8 6.4 7.7 569.6 4,672
< $175.......................... 86.0 18.1 19.7 1534.5 5,925
< $500.......................... 94.2 34.5 36.3 2931.4 6,485
----------------------------------------------------------------------------------------------------------------
Commenters advocating that the Board set the threshold higher than
$50 million, including up to $175 million or $500 million, generally
suggested that the Board reference indicators outside of the credit
union industry. The Board believes it should establish NCUA's RFA
threshold by focusing primarily on credit union characteristics, rather
than external indicators and thresholds that apply across multiple and
distinct institution charters. A $50 million threshold will represent a
substantial majority of FICUs, close to 68 percent, and almost 6.5
percent of system assets. It will also align with the RFA's language
permitting agencies to establish a definition that is appropriate to
their own activities, as opposed to the activities of other
agencies.\21\
---------------------------------------------------------------------------
\21\ See 12 U.S.C. 601(4) (permitting agencies to establish one
or more definitions that ``are appropriate to the activities of the
agency'').
---------------------------------------------------------------------------
In the context of the SBA's broad mandate covering a host of
industries, a $175 million threshold encompasses only 54 percent of all
financial institutions and only three percent of total financial
institution assets. Under the narrower scope of NCUA's regulatory
authority, the SBA's $175 million threshold envelops 86 percent of
FICUs and over 18 percent of FICU assets. When compared in this
context, the percentages of FICUs (68 percent) and assets (6.4 percent)
under this rule's $50 million threshold are significantly higher than
the percentages of all financial institutions (54 percent) and their
assets (three percent) under the SBA's $175 million threshold.\22\
---------------------------------------------------------------------------
\22\ 77 FR 55747.
---------------------------------------------------------------------------
With respect to commenters advocating alternative criteria for the
RFA definition, the Board continues to believe that an asset threshold
is the best and most transparent measurement for NCUA's RFA definition.
Using an asset threshold is consistent with size standards that appear
elsewhere in the FCU Act and NCUA regulations. Further, regardless of a
FICU's business model, the Board believes the total assets measurement
remains the principal comparative tool that the industry uses to
determine a FICU's relative size.
b. The Review Period
The final rule sets an initial review period of two years, but it
retains the three-year period from the proposed rule for subsequent
reviews. The majority of commenters either expressly supported the
proposed review period or did not advocate for an alternative period.
As stated in the proposal, a three-year review period provides a
reasonable time within which to discern new trends in percentage, loss,
and risk data. In addition, a three-year period is consistent with the
longstanding review period NCUA uses for all its regulations. It
provides sufficient time to avoid the uncertainty of a continuous cycle
of rulemakings and policy adjustments that a shorter period could
create.
Finally, a three-year period will provide more frequent review than
that required of the SBA, which several commenters referenced. Under
the Small Business Jobs Act of 2010 (Jobs Act), the SBA must review at
least one-third of its size standards in 18-month intervals, starting
from date the Jobs Act was enacted, with no longer than five-year
review periods thereafter.\23\ Reviewing one-third of size standards at
18-month intervals would bring each standard up for SBA review every
4.5 years. The Board will initially review the size standards in this
rule, however, within two years of its effective date. After that, the
Board will review the standards every three years. The Board believes a
shorter initial review period is appropriate given the time passed
since the threshold was last reviewed and updated.
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\23\ 77 FR 55737.
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c. The Interest Rate Risk and Risk-Based Net Worth Rules
This final rule adopts a $50 million asset threshold for defining a
``complex'' credit union in 12 CFR 702.103(a). This update will
increase by approximately 2,270, to around 4,670, the number of FICUs
removed from the definition of ``complex'' based on asset size alone.
The increase eliminates the possibility that these FICUs could become
subject to additional PCA provisions due solely to a risk-based net
worth requirement.
In addition, the final rule exempts FICUs of $50 million or less in
assets from the requirements of 12 CFR 741.3(b)(5), NCUA's interest
rate risk rule. The final rule will streamline the tiered system in the
interest rate risk rule by simply requiring all FICUs with more than
$50 million in assets to adopt an interest rate risk policy and
program. FICUs with $50 million or less in assets will not be subject
to interest rate risk requirements by regulation, regardless of their
first mortgage loans and investment maturities. This change will
increase by approximately 2,270, to a total of around 4,670, the number
of FICUs that are exempt, based on asset size alone, from adopting an
interest rate risk policy and program.
In general, incremental risk elevation will accompany the exclusion
of more FICUs from regulations aimed principally at reducing risk. The
Board believes the incremental risk presented by raising the regulatory
thresholds to $50 million is acceptable, especially when weighed
against the advantages of implementing a uniform threshold across
multiple regulations and the benefits of regulatory relief.
The proposed rule's preamble acknowledged that FICU loss history
since 1998 shows that even FICUs with somewhat more than $30 million in
assets have caused a relatively small amount of losses to the NCUSIF.
Loss history data for FICUs of various asset sizes from 1998 through
September 30, 2012 appears below.
[[Page 4036]]
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Number of failures NCUSIF Loss ($M) Percentage of total NCUSIF
---------------------------------------------------------------- losses
-------------------------------
Assets ($M) Failures for Loss for asset Percent for
asset range Cumulative range Cumulative asset range Cumulative
(%) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
< $10................................................... 205 205 $138.5 $138.5 14.3 14.3
$10 to < $20............................................ 12 217 31.0 169.5 3.2 17.5
$20 to < $30............................................ 8 225 22.8 192.2 2.4 19.9
$30 to < $40............................................ 9 234 36.2 228.4 3.7 23.6
$40 to < $50............................................ 4 238 11.3 239.7 1.2 24.8
$50 to < $60............................................ 1 239 3.3 243.1 0.3 25.1
$60 to < $70............................................ 0 239 0.0 243.1 0.0 25.1
$70 to < $80............................................ 2 241 11.3 254.4 1.2 26.3
$80 to < $90............................................ 4 245 22.4 276.8 2.3 28.6
$90 to < $100........................................... 3 248 66.1 342.9 6.8 35.4
$100 to < $200.......................................... 10 258 76.3 419.2 7.9 43.3
$200 to < $500.......................................... 7 265 512.7 931.9 53.0 96.3
>= $500................................................. 1 266 36.1 968.0 3.7 100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
As reflected in the table below, almost half of total losses over
the last ten years for FICUs under $50 million in assets occurred in
credit unions with under $10 million in assets, which were already
exempt from interest rate risk and risk-based net worth regulatory
requirements.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Asset size < $10M < $20M < $30M < $40M < $50M
--------------------------------------------------------------------------------------------------------------------------------------------------------
Failures Last 10 years................................... 132 143 151 160 162
Losses ($M) Last 10 years.......................................... $104.4 $150.3 $171.7 $207.9 $212.8
Avg. Failures Per Year................................... 12.3 13.3 14 14.9 15.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
More specifically, NCUA determined that, as of the last Call
Report, only one credit union between the proposed $30 million
threshold and a $50 million threshold would have been subject to
additional PCA because it failed to meet risk-based net worth
requirements. Further, only 4.5 percent of FICUs with assets between
$10 million and $50 million have a net worth ratio below seven percent.
For the interest rate risk rule, 56.3 percent of the approximately
2,270 FICUs between $10 million and $50 million were not covered by the
rule as of the last Call Report, because their level of first mortgage
loans and investment maturities, relative to net worth, exempted them.
The 992 FICUs with assets between $10 million and $50 million that were
subject to the interest rate risk rule as of September 30, 2012
(because of their level of first mortgage loans and investment
maturities, relative to net worth) held only 2.7 percent of industry
assets. As with IRPS 13-1, the Board will review and consider adjusting
the thresholds in 12 CFR 702.103(a) and 741.3(b)(5) within two years of
the effective date of this final rule and, subsequently, at least once
every three years. This review period will permit the Board to adjust
the thresholds accordingly if the risk and losses attributable to
increased thresholds are greater than expected.
How does the final rule and IRPS affect FICUs?
The change to the RFA threshold will ensure that regulatory burden
will be more consistently and robustly considered for approximately
2,270 additional FICUs. Around 4,670 FICUs with less than $50 million
in assets would come within the RFA's mandates. Future regulations,
including the proposed emergency liquidity rule, 77 FR 44503 (July 30,
2012), will be more thoroughly evaluated to determine whether FICUs
below $50 million in assets should be exempt from some provisions or
separately considered.
The $50 million threshold for defining ``complex'' credit unions
would categorically exclude around 2,270 more FICUs from the definition
of ``complex'' based on asset size alone, bringing the total number of
excluded FICUs to approximately 4,670. NCUA previously defined a
``complex'' credit union in 12 CFR 702.103 as one with more than $10
million in assets and with a risk-based net worth requirement of more
than six percent. If a ``complex'' credit union fails its risk-based
net worth requirement, the credit union is subject to mandatory PCA
requirements that it otherwise would not be subject to when measured
solely by its net worth.\24\ These PCA requirements govern earnings
retention, net worth restoration plans, asset increases, and member
business loans. Of the 2,270 additional credit unions that the final
rule excludes, approximately 358 FICUs with at least six percent net
worth are no longer subject to a risk-based net worth requirement.
These FICUs are removed one step further from the possibility of PCA
requirements.
---------------------------------------------------------------------------
\24\ 12 CFR 702.202(a).
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The new $50 million threshold in NCUA's interest rate risk rule
categorically excludes around 2,270 more FICUs from complying with the
interest rate risk rule based on asset size alone. Once again, this
change brings the total FICUs excluded to around 4,670. The prior
version of the regulation required FICUs between $10 million and $50
million in assets holding combined first mortgages and investments with
maturities greater than five years that equal or exceed net worth to
adopt and implement an interest rate risk policy. Of the approximately
2,270 additional FICUs that this final rule and IRPS excludes, 992 are
no longer required by regulation to adopt and implement an interest
rate risk policy.
IV. Regulatory Procedures
A. Regulatory Flexibility Act
The RFA requires NCUA to prepare an analysis to describe any
significant economic impact a final rule may have on a substantial
number of small entities (defined in this final rule and IRPS as credit
unions with under $50 million in
[[Page 4037]]
assets). In this case, the final rule and IRPS expands the number of
FICUs defined as small entities under the RFA from those with less than
$10 million in assets to those with less than $50 million. It similarly
expands the group of FICUs eligible for relief from risk-based net
worth and interest rate risk requirements. The final rule will reduce
compliance burden for approximately 2,270 more FICUs and, therefore,
will not raise costs in a manner that requires a regulatory flexibility
analysis or a discussion of alternatives for minimizing the final
rule's compliance burden.
With respect to additional FICUs covered by the RFA for future
regulations, the final rule and IRPS provides prospective relief in the
form of special and more robust consideration of their ability to
handle compliance burden. This prospective relief is not quantifiable.
Accordingly, NCUA has determined and certifies that the final rule and
IRPS will not have a significant economic impact on a substantial
number of small entities. No regulatory flexibility analysis is
required.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995, Public Law 104-13 (PRA),
applies to rulemakings in which an agency creates a new paperwork
burden on regulated entities or modifies an existing burden. 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's changes to 12 CFR 702.103
and 741.3(b)(5) will cause an immediate and prospective reduction in
paperwork burden related to PCA requirements and interest rate risk
policies for FICUs between $10 million and $50 million in assets. The
changes to IRPS 87-2, as amended by IRPS 03-2, will not create any new
paperwork burden for FICUs. Thus, NCUA has determined that the
requirements of this final rule and IRPS do not increase the paperwork
requirements under the PRA and regulations of the Office of Management
and Budget.
C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests.
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the Executive Order to adhere to fundamental
federalism principles. This final rule and IRPS does not have a
substantial direct effect on the states, on the relationship between
the national government and the states, or on the distribution of power
and responsibilities among the various levels of government. NCUA has
determined that this final rule does not constitute a policy that has
federalism implications for purposes of the Executive Order.
D. Assessment of Federal Regulations and Policies on Families
NCUA has determined that this final rule and IRPS will not affect
family well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act of 1999, Public Law 105-277.
E. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996,
Public Law 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 in the Administrative Procedure
Act.\25\ NCUA believes this final rule is not a major rule for purposes
of the Small Business Regulatory Enforcement Fairness Act, but a
determination from the Office of Management and Budget is pending.
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\25\ 5 U.S.C. 551.
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List of Subjects
12 CFR Part 702
Credit unions, Reporting and recordkeeping requirements.
12 CFR Part 741
Credit unions, Requirements for insurance.
12 CFR Part 791
Administrative practice and procedure, Sunshine Act.
By the National Credit Union Administration Board on January 10,
2013.
Mary Rupp,
Secretary of the Board.
Interpretive Ruling and Policy Statement 87-2
For the reasons stated above, IRPS 13-1 amends IRPS 87-2 (52 FR
35231, September 18, 1987) and partially supersedes IRPS 03-2 (68 FR
31951, May 29, 2003) by revising the second sentence in Section II,
paragraph 2 of IRPS 87-2 and adding two sentences to the end of Section
II, paragraph 2 of IRPS 87-2 to read as follows:
II. Procedures for the Development of Regulations
* * * * *
2. * * * NCUA will designate credit unions with less than $50
million in assets as small entities. * * * Within two years of the
effective date of the increase to $50 million, the NCUA Board will
review and consider adjusting the asset threshold it uses to define
small entities for purposes of analyzing whether a regulation will have
a significant economic impact on a substantial number of small
entities. Thereafter, the NCUA Board will conduct reviews of the asset
threshold every three years.
* * * * *
Conforming Amendments to NCUA Regulations
For the reasons discussed above, the Board amends 12 CFR parts 702,
741 and 791 as follows:
PART 702--PROMPT CORRECTIVE ACTION
0
1. The authority citation for part 702 continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1790d.
0
2. In Sec. 702.103, amend paragraph (a) by:
0
a. Removing ``ten'' and adding in its place ``fifty'', and
0
b. Removing ``($10,000,000)'' and adding in its place
``($50,000,000)''.
PART 741--REQUIREMENTS FOR INSURANCE
0
3. The authority citation for part 741 continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781-1790 and 1790d; 31
U.S.C. 3717.
0
4. In Sec. 741.3, revise paragraph (b)(5) to read as follows:
Sec. 741.3 Criteria.
* * * * *
(b) * * *
(5) The existence of a written interest rate risk policy (``IRR
policy'') and an effective interest rate risk management program
(``effective IRR program'') as part of asset liability management.
Federally insured credit unions (``FICUs'') with assets of more than
$50 million, as measured by the most recent Call Report filing, must
adopt a written IRR policy and implement an effective IRR program.
Appendix B to this Part 741 provides guidance on how to develop an IRR
policy and an effective IRR program. The guidance describes widely
accepted best practices in the management of interest rate risk for the
benefit of all FICUs.
* * * * *
[[Page 4038]]
PART 791--RULES OF NCUA BOARD PROCEDURES; PROMULGATION OF NCUA
RULES AND REGULATIONS; PUBLIC OBSERVATION OF NCUA BOARD MEETINGS
0
5. The authority citation for part 791 continues to read as follows:
Authority: 12 U.S.C. 1766, 1789 and 5 U.S.C. 552b.
0
6. In Sec. 791.8, revise paragraph (a) to read as follows:
Sec. 791.8 Promulgation of NCUA rules and regulations.
* * * * *
(a) NCUA's procedures for developing regulations are governed by
the Administrative Procedure Act (5 U.S.C. 551 et seq.), the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), and NCUA's policies for the
promulgation of rules and regulations as set forth in its Interpretive
Ruling and Policy Statement 87-2 as amended by Interpretive Ruling and
Policy Statements 03-2 and 13-1.
* * * * *
[FR Doc. 2013-00864 Filed 1-17-13; 8:45 am]
BILLING CODE 7535-01-P
