Liquidity and Contingency Funding Plans, 64879-64883 [2013-25714]
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Federal Register / Vol. 78, No. 210 / Wednesday, October 30, 2013 / Rules and Regulations
15. In § 894.101, the definition of
‘‘Acquiring an eligible child’’ is revised
and definitions for ‘‘Domestic partner,’’
‘‘Domestic partnership’’ and
‘‘Stepchild’’ are added in alphabetical
order to read as follows:
■
§ 894.101
Definitions.
emcdonald on DSK67QTVN1PROD with RULES
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Acquiring an eligible child means one
of the following:
(1) Birth of a child;
(2) Adoption of a child;
(3) Acquisition of a foster child as
described in § 890.101(a)(8) of this
chapter;
(4) Acquisition of a stepchild who
lives with the enrollee in a regular
parent-child relationship;
(5) Establishment of a recognized
natural child;
(6) Residence change of the enrollee’s
stepchild or recognized natural child
who moves in with the enrollee; and
(7) An otherwise eligible child
becoming unmarried due to divorce or
annulment of marriage, or death.
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Domestic partner means a person in a
domestic partnership with an employee
or annuitant.
Domestic partnership means a
committed relationship between two
adults of the same sex, in which the
partners—
(1) Are each other’s sole domestic
partner and intend to remain so
indefinitely;
(2) Maintain a common residence, and
intend to continue to do so (or would
maintain a common residence but for an
assignment abroad or other
employment-related, financial, or
similar obstacle);
(3) Are at least 18 years of age and
mentally competent to consent to a
contract;
(4) Share responsibility for a
significant measure of each other’s
financial obligations;
(5) Are not married or joined in a civil
union to anyone else;
(6) Are not a domestic partner of
anyone else;
(7) Are not related in a way that, if
they were of opposite sex, would
prohibit legal marriage in the U.S.
jurisdiction in which the domestic
partnership was formed;
(8) Provide documentation
demonstrating fulfillment of the
requirements of paragraphs (1) through
(7) of this definition as prescribed by
OPM; and
(9) Certify that they understand that
willful falsification of the
documentation described in paragraph
(8) of this definition may lead to
disciplinary action and the recovery of
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the cost of benefits received related to
such falsification and may constitute a
criminal violation under 18 U.S.C. 1001.
(10) Certify that they would marry but
for the failure of their state of residence
to permit same-sex marriage.
(11) Termination of Domestic
Partnership. An enrollee or his or her
domestic partner must notify the
employing office within thirty calendar
days in the event that any of the
conditions listed in paragraphs (1)
through (7) of this definition are no
longer met, in which case a domestic
partnership will be deemed terminated.
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Stepchild means:
(1) Except as provided in paragraph
(2) of this definition, the child of an
enrollee’s spouse or domestic partner
and shall continue to refer to such child
after the enrollee’s divorce from the
spouse, termination of the domestic
partnership, or death of the spouse or
domestic partner, so long as the child
continues to live with the enrollee in a
regular parent-child relationship.
(2) The child of an enrollee and a
domestic partner who otherwise meet
the requirements of paragraphs (1)
through (8), set forth in the definition of
Domestic Partnership, but live in a state
that has authorized marriage by samesex couples prior to the first day of
Open Season, shall not be considered a
stepchild who is the child of a domestic
partner in the following plan year. The
determination of whether a state’s
marriage laws render a child ineligible
for coverage as a stepchild who is the
child of a domestic partner shall be
made once annually, based on the law
of the state where the same-sex couple
lives on the last day before Open Season
begins for enrollment for the following
year. A child’s eligibility for coverage as
a stepchild who is the child of a
domestic partner in a particular plan
year shall not be affected by a mid-year
change to a state’s marriage law or by
the couple’s relocation to a different
state. For midyear enrollment changes
involving the addition of a new
stepchild, as defined by this regulation,
outside of Open Season, the
determination of whether a state’s
marriage laws render the child ineligible
for coverage shall be made at the time
the employee notifies the employing
office of his or her desire to cover the
child.
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16. Add § 894.308 to subpart C to read
as follows:
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§ 894.308 How do I establish the
dependency of my recognized natural
child?
(a) Dependency is established for a
recognized natural child who lives with
the enrollee in a regular parent-child
relationship, a recognized natural child
for whom a judicial determination of
support has been obtained, or a
recognized natural child to whose
support the enrollee makes regular and
substantial contributions.
(b) The following are examples of
proof of regular and substantial support.
More than one of the following proofs
may be required to show support of a
recognized natural child who does not
live with the enrollee in a regular
parent-child relationship and for whom
a judicial determination of support has
not been obtained:
(1) Evidence of eligibility as a
dependent child for benefits under other
State or Federal programs;
(2) Proof of inclusion of the child as
a dependent on the enrollee’s income
tax returns;
(3) Canceled checks, money orders, or
receipts for periodic payments from the
enrollee for or on behalf of the child.
(4) Evidence of goods or services
which show regular and substantial
contributions of considerable value;
(5) Any other evidence which OPM
shall find to be sufficient proof of
support or of paternity or maternity.
■ 17. In § 894.403, add a sentence to the
end of paragraph (a) to read as follows:
§ 894.403 Are FEDVIP premiums paid on a
pre-tax basis?
(a) * * * However, if your enrollment
covers a stepchild who is the child of
a domestic partner as defined in
§ 894.101, and that stepchild does not
qualify for favorable tax treatment under
applicable tax laws, the allotted amount
of premium that represents the fair
market value of the FEDVIP coverage
provided to the stepchild will be
separately imputed to the employee as
income and subject to applicable taxes.
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[FR Doc. 2013–25734 Filed 10–29–13; 8:45 am]
BILLING CODE 6325–63–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 741
RIN 3133–AD96
Liquidity and Contingency Funding
Plans
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
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The NCUA Board (Board) is
issuing a final rule to require federally
insured credit unions (FICUs) with less
than $50 million in assets to maintain
a basic written policy that provides a
credit union board-approved framework
for managing liquidity and a list of
contingent liquidity sources that can be
employed under adverse circumstances.
The rule requires FICUs with assets of
$50 million or more to have a
contingency funding plan that clearly
sets out strategies for addressing
liquidity shortfalls in emergency
situations. Finally, the rule requires
FICUs with assets of $250 million or
more to have access to a backup federal
liquidity source for emergency
situations.
SUMMARY:
DATES:
This rule is effective March 31,
2014.
Lisa
Henderson, Staff Attorney, Office of
General Counsel, (703) 518–6540; or J.
Owen Cole, Jr., Director, Division of
Capital and Credit Markets, Office of
Examination and Insurance, (703) 518–
6620.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
Table of Contents
I. Background
A. Why is NCUA adopting this final rule?
B. What did the 2012 proposed rule say?
C. How did the commenters respond to the
2012 proposed rule?
II. Final Rule
A. In general
B. How does the final rule affect FICUs
with less than $50 million in assets?
C. How does the final rule affect FICUs
with $50 million or more in assets?
D. What additional requirements apply to
FICUs with $250 million or more in
assets?
E. How are a FICU’s assets calculated for
purposes of the final rule?
F. Request for Comment Regarding Basel
Liquidity
III. Regulatory Procedures
I. Background
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A. Why is NCUA adopting this final
rule?
The recent financial crisis
demonstrated the importance of good
liquidity risk management to the safety
and soundness of financial institutions.
Many institutions experienced
significant financial stress because they
did not manage their liquidity in a
prudent manner. In some cases, these
institutions had difficulty meeting their
obligations as they became due because
sources of funding became severely
restricted. In the financial crisis, even
institutions that were healthy used
emergency federal liquidity facilities
when funding costs became
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prohibitively high. At the time, the
borrowing authority of NCUA’s Central
Liquidity Facility (CLF) was more than
$40 billion, and it was able to play a
significant role in making liquidity
available to credit unions. Because of
the 2012 closure of U.S. Central Credit
Union and the redemption of most of its
CLF stock, however, the CLF’s
borrowing authority has been reduced to
just over $2 billion.
These events followed several years of
ample liquidity. The rapid reversal in
market conditions and availability of
liquidity during the crisis illustrated
how quickly liquidity can evaporate.
This illiquidity can last for an extended
period, leading to an institution’s
inability to meet its financial obligations
and possibly its insolvency. Many of the
liquidity-related difficulties experienced
by financial institutions were due to
lapses in basic principles of liquidity
risk management. This rule will
strengthen FICU liquidity risk
management, which is crucial to
ensuring the credit union system’s
resiliency during periods of financial
market stress.
B. What did the 2012 proposed rule say?
The 2012 proposed liquidity rule
required FICUs with less than $10
million in assets to maintain a written
liquidity policy, including a list of
contingent liquidity sources.1 It also
required FICUs with assets of $10
million or more to have a contingency
funding plan (CFP) that clearly sets out
strategies for addressing liquidity
shortfalls in emergency situations.
Finally, it required FICUs with assets of
$100 million or more to have access to
either the CLF or the Federal Reserve
Discount Window (Discount Window).
The proposed rule also requested
comment on the costs and benefits of
applying Basel III liquidity measures to
FICUs with assets over $500 million.2
C. How did the commenters respond to
the 2012 proposed rule?
NCUA received 45 comments on the
proposed rule. More than half of the
commenters urged that the rule not go
forward, stating that NCUA had not
justified a need for a liquidity regulation
and that the guidance provided by the
2010 Interagency Policy Statement on
Funding and Liquidity Risk
Management (Policy Statement) 3 was
sufficient to control liquidity risk.
1 77
FR 44503 (July 30, 2012).
Basel Committee on Banking Supervision,
‘‘Basel III: International Framework for Liquidity
Risk Measurement, Standards and Monitoring,’’
Dec. 2010, available at https://www.bis.org/publ/
bcbs188.htm.
3 75 FR 13656 (Mar. 22, 2010).
2 See
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Twenty commenters stated that any
emergency liquidity regulation should
include the option of membership in a
Federal Home Loan Bank (FHLB), and
ten stated that it should include the
option of holding marketable securities.
A number of commenters praised the
three-tiered approach, although 12
suggested that the lower threshold
should be raised to match NCUA’s thenproposed amendment to the definition
of ‘‘small entity.’’ 4 Seven commenters
suggested that the higher threshold
should be raised. Six stated that asset
size is a poor basis on which to
determine whether liquidity
requirements should be imposed.
Several commenters seemed confused
about the proposed requirement that
FICUs with assets of $100 million or
more have access to the CLF or Discount
Window. Their comments suggested
they believed the requirement meant
that these larger credit unions would be
prohibited from establishing other
sources of liquidity. This is incorrect.
As discussed in greater detail below, the
Board encourages all FICUs to have
multiple sources of liquidity.
Twenty-five commenters objected to
the CLF’s structure, specifically the
required stock investment and the CLF’s
inability to guarantee same-day funding.
The Board notes that the stock
investment is required under the
Federal Credit Union Act.5 The Board
also notes that the CLF cannot guarantee
same-day funding to credit unions
because it borrows the funds it lends
from the Federal Financing Bank under
terms prescribed by the U.S. Treasury.
Eighteen commenters either opposed
applying Basel III liquidity measures
and monitoring tools to FICUs with
assets over $500 million or suggested
that NCUA proceed very slowly in
considering such application.
II. Final Rule
A. In General
After careful consideration of the
comments, the Board has concluded
that a liquidity rule is necessary to
ensure that FICUs remain resilient in
times of economic stress. It, therefore, is
adopting as final a modified version of
the 2012 proposed rule. As discussed in
greater detail below, this final rule
addresses concerns raised by the
commenters. Accordingly, the Board is
adding a new § 741.12 to part 741, titled
‘‘Liquidity and Contingency Funding
Plans.’’ The Board believes that FICUs,
relying on the guidance provided in the
Policy Statement, generally have
4 See
5 See
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77 FR 59139 (Sept. 26, 2012).
generally 12 U.S.C. 1795–1795k.
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managed liquidity risk adequately.
However, the financial crisis
highlighted the importance for FICUs to
have strong policies and programs
explicitly addressing the credit union’s
liquidity risk management. The Board
believes it is critical to expand the
credit union industry’s borrowing
capacity after the liquidation of U.S.
Central Credit Union.
The Board is retaining the tiered
approach of the proposed rule and is
continuing to base the tiers on asset
size. The Board believes that, while
there are exceptions, larger credit
unions generally present greater
exposure to the NCUSIF. The Board is,
however, raising the triggering
thresholds from those in the proposed
rule.
Since the proposed rule was issued,
the Board revised the definition of
‘‘small entity’’ from a credit union with
less than $10 million in assets to one
with less than $50 million in assets.6
The Board also amended two NCUA
regulations that grant relief based on an
asset threshold, raising that threshold
from $10 million to $50 million.7 For
regulatory relief and regulatory
consistency, the Board is raising the
lowest threshold in this rule—requiring
a basic written policy—to include credit
unions with less than $50 million in
assets.
In response to comments, and to
reduce regulatory burden, the Board is
raising the highest threshold—requiring
established access to a federal liquidity
provider—from $100 million to $250
million. While the Board encourages
FICUs with assets between $100 million
and $250 million to have this access, the
Board is not requiring it at this time.
B. How does the final rule affect FICUs
with less than $50 million in assets?
The Board continues to believe that it
is essential for every FICU, regardless of
size and complexity, to have a
management process for identifying,
measuring, monitoring, and controlling
liquidity risk that is commensurate with
its respective needs. FICUs with less
than $50 million in assets present
relatively limited liquidity concerns, as
they tend to have lower loan-to-share
ratios, shorter duration assets, and
higher amounts of balance sheet
liquidity than larger credit unions.
Accordingly, § 741.12(a) of the final rule
requires these smaller FICUs to
maintain a basic written policy that
provides a credit union board-approved
framework for managing liquidity and a
list of contingent liquidity sources that
6 78
FR 4032 (Jan. 18, 2013).
7 Id.
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can be employed under adverse
circumstances. Such a policy establishes
liquidity measures and associated
benchmarks, a reporting requirement to
keep the board apprised of the
institution’s liquidity position, and a
contingent source, or sources, of
funding, such as a corporate credit
union or correspondent bank.
C. How does the final rule affect FICUs
with $50 million or more in assets?
Section 741.12(b) requires any FICU
with assets of at least $50 million to
have a fully developed, written CFP that
clearly sets out strategies for addressing
liquidity shortfalls in emergency
situations. In addition to the policy
items required for smaller FICUs, a fully
developed CFP also provides for
evaluation of adverse liquidity
scenarios, outlines specific actions to be
taken and specific sources of liquidity
in emergency liquidity events, and
provides for periodic testing of
contingent liquidity sources. Section
741.12(d) of the final rule details all of
the requirements of a CFP. The Board is
imposing greater requirements on these
larger FICUs because of the critical
importance of a well-developed CFP to
the viability of these institutions and,
ultimately, the safety of the NCUSIF.
D. What additional requirements apply
to FICUs with $250 million or more in
assets?
In addition to the requirement to have
a written CFP, § 741.12(c) of the final
rule requires any FICU with assets of
$250 million or more to ensure it has
immediate, established access to either
the CLF or the Discount Window. These
larger credit unions have a greater
degree of interconnectedness with other
market entities. When they experience
unexpected or severe liquidity
circumstances, they are more likely to
adversely affect the credit union system,
public perception, and the NCUSIF.
The Board determined not to include
FHLB membership as a federal
contingency source for purposes of
meeting the requirements of this rule.
As discussed in the preamble to the
proposed rule, FHLBs can be valuable
contingency funding sources. However,
while government sponsored, FHLBs are
not federal facilities and are not
obligated to meet emergency liquidity
demands in the same way that the CLF
and Discount Window are designed to
do. The Board also declines to allow
large FICUs to meet the requirements of
the rule by holding a portfolio of
marketable securities. While it is
prudent for every FICU to have a
cushion of highly liquid assets on its
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balance sheet, these assets have proven
to be insufficient in a crisis.
The Board emphasizes that all FICUs
should have access to multiple sources
of funding, from both their own balance
sheets and through market funding
sources. In requiring the largest FICUs
to have established access to the CLF or
the Discount Window, the Board is not
suggesting that these sources are
sufficient by themselves. FICUs with
assets of $250 million or more should
have three distinct sources of liquidity
readily available.
First, all FICUs should maintain a
balance sheet cushion of highly liquid
assets as a basic element of liquidity risk
management. It is essential for FICUs of
all sizes to hold an adequate safeguard
of cash and cash equivalents (such as
short-term deposits and Treasury
securities) on the balance sheet
continuously. A balance-sheet cushion
affords an institution time to avoid
service disruptions and enter external
funding arrangements if necessary.
A second element of liquidity
management is borrowing from market
counterparties, such as corporate credit
unions, correspondent banks, FHLBs,
and repurchase agreement
counterparties. The ability to borrow
from market sources requires having
unencumbered assets that can be readily
pledged against a loan. Larger FICUs
with greater potential funding needs
should have multiple stable borrowing
sources and a clear understanding of
which assets can be pledged.
The third element of protection is
access to a federal emergency liquidity
provider: The CLF or the Discount
Window. These providers exist to
provide backup liquidity in
circumstances where on-balance sheet
liquidity and market sources prove
inadequate. Like the market funding
sources, the CLF and Discount Window
are both collateral-based lending
facilities. The Board believes that, to
protect the NCUSIF, it is essential for
FICUs with assets of at least $250
million to have this third element of
liquidity in place.
The rule provides that a FICU may
demonstrate access by becoming a
regular member of the CLF, becoming a
member of the CLF through an agent, or
establishing borrowing access through
the Discount Window. As discussed in
the preamble to the proposed rule,
corporate credit unions may facilitate
natural person credit unions becoming
regular CLF members by, for example,
assisting with applications of credit,
serving as a collateral custodian and
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administrator, and assisting with credit
reporting requirements.8
The Discount Window serves all
depository institutions that meet
eligibility requirements established by
Federal Reserve regulations.9 To gain
access to the Discount Window, the
Federal Reserve requires specific
agreements to be executed. Information
regarding these agreements, as set forth
in Operating Circular No. 10, and
Discount Window operation can be
found at www.frbdiscountwindow.org.
The Board notes that, while not
required in the final rule, a FICU may
wish to both become a member of the
CLF and establish borrowing access at
the Discount Window. The combination
of the CLF and the Discount Window
would provide the greatest protection in
the event of a sudden and sustained
liquidity emergency. The Discount
Federal reserve discount window
Similarities ..........
Window is designed to handle sudden
emergencies that require same-day
access to liquidity. The CLF, on the
other hand, is designed to handle
sustained emergencies that require
federal backup liquidity for several
months.
The following table shows some of the
similarities and differences between the
CLF and the Discount Window.
Central Liquidity Facility (CLF)
Both the Discount Window and the CLF function as safety valves to relieve liquidity pressure on individual depository institutions and to stabilize broader liquidity systems.
Both are fully secured collateral-based lenders.
Both met emergency liquidity needs for individual institutions and for entire systems during the latest financial crisis.
Differences .........
The Fed is able to advance same-day funds to qualifying
credit unions (subject to collateral requirements).
The Fed’s overnight loans may be renewable, but any series
of rollovers is expected to be brief in duration.
With established access to both, in a
liquidity crisis, when balance sheet and
market sources are not enough, a FICU
would have the ability to immediately
obtain federal backup liquidity through
the Discount Window. If the FICU’s
emergency liquidity needs persist for
more than a few days, the FICU would
have the flexibility to maintain federal
backup liquidity through the CLF for
several months at a time. The amount of
liquidity advances available from either
facility is a function of the eligible
collateral available to pledge.
A FICU with $250 million or more in
assets will be in compliance with this
final rule if, by the effective date of
March 31, 2014, it has submitted either
a completed application for access to
the CLF or the necessary lending
agreements and corporate resolutions to
obtain credit from the Discount
Window.
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E. How are a FICU’s assets calculated
for purposes of the final rule?
Credit unions’ assets can grow and
shrink rapidly, and a particular FICU’s
assets may cross the $50 million or $250
million threshold repeatedly over a
short period of time. In light of this
fluctuation, § 741.12(e) of the final rule
provides that a FICU is subject to the
requirements of a higher asset category
when two consecutive Call Reports
8 A corporate acting as a CLF correspondent
would not be an agent member of the CLF within
the meaning of 12 U.S.C. 1795c(b) or 12 CFR 725.4,
as it would not subscribe to CLF stock for its
members. For a natural person credit union to be
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CLF funding may take 1–10 business days depending on the
requested dollar amount (also subject to collateral requirements).
The CLF makes loans up to 90 days, and these 90-day
loans may be renewed for an additional term under certain
circumstances.
show its assets to be in that higher
category. A FICU will then have 120
days from the effective date of that
second Call Report to meet the higher
triggered requirements.
F. Request for Comment Regarding
Basel Liquidity
In the proposed rule, the Board
requested comment on whether certain
Basel III liquidity measures and
monitoring tools should be incorporated
into NCUA’s supervisory expectations
for the largest FICUs. In response to
comments, the Board has determined
not to take up the Basel measures at this
time.
III. Regulatory Procedures
a. Regulatory Flexibility Act
The Regulatory Flexibility Act
requires NCUA to prepare an analysis to
describe any significant economic
impact any regulation may have on a
substantial number of small entities
(those under $50 million in assets). The
final rule requires small FICUs to
establish a basic liquidity policy, which
is a best practice for every depository
institution. Because the policy requires
only modest effort, it will not have a
significant economic impact on a
substantial number of small credit
unions.
a regular member of the CLF, it must subscribe to
CLF stock. 12 U.S.C. 1795c(a); 12 CFR 725.3.
9 Any depository institution holding liabilities
potentially subject to reserve requirements under
Federal Reserve regulations can establish access to
the Discount Window. Such ‘‘reserveable
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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.10 For
purposes of the PRA, a paperwork
burden may take the form of a reporting,
recordkeeping, or disclosure
requirement, each referred to as an
information collection.
NCUA has determined the
requirement to maintain a basic written
liquidity policy is an information
collection requirement. NCUA estimates
that all 4,444 credit unions under $50
million in total assets may have to
formalize their liquidity risk policies
and that this task should take
approximately 8 hours per credit union.
The expected burden of the requirement
is: 4,444 FICUs × 8 hours = 35,552
hours.
NCUA has further determined the
requirement to establish and document
a CFP constitutes an information
collection requirement but that, because
of the Policy Statement, approximately
447 out of 2,237 (or 20%) of FICUs with
assets of at least $50 million will
already have established such a plan.
NCUA estimates that 1,790 FICUs will
have to develop a written CFP and that
the task should take a FICU
approximately 24 hours. The expected
liabilities’’ include transaction accounts and
nonpersonal time deposits. For most credit unions,
share draft accounts would be the principal
reserveable liability. See 12 CFR part 204.
10 44 U.S.C. 3507(d); 5 CFR part 1320.
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burden of the requirement is: 1,790
FICUs × 24 hours = 42,960 hours.
NCUA has also determined the
requirement to either become a member
of the CLF or establish borrowing access
through the Discount Window creates a
new information collection requirement.
There are 771 FICUs with assets of at
least $250 million, 374 of which are not
currently regular members of CLF and/
or do not report having established
Discount Window access. NCUA
estimates that it should take a FICU
approximately 4 hours to complete the
necessary paperwork to establish either
CLF or Discount Window access. The
expected burden of the requirement is:
374 FICUs × 4 hours = 1,496 hours.
While the regulation provides the
option of establishing CLF membership
through an agent, NCUA estimates that
no corporates will opt to be agent
members at this time and, therefore, no
FICUs will establish membership in this
manner.
As required by the PRA, NCUA
submitted a copy of this final rule to
OMB for its review and approval.
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 does not have
substantial direct effects on the states,
on the relationship between the national
government and the states, or on the
distribution of power and
responsibilities among the various
levels of government. NCUA has
determined that this rule does not
constitute a policy that has federalism
implications for purposes of the
executive order.
emcdonald on DSK67QTVN1PROD with RULES
d. The Treasury and General
Government Appropriations Act, 1999—
Assessment of Federal Regulations and
Policies on Families
The NCUA has determined that this
final rule will not affect family wellbeing within the meaning of section 654
of the Treasury and General
Government Appropriations Act, 1999,
Public Law 105–277, 112 Stat. 2681
(1998).
e. Small Business Regulatory
Enforcement Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996 (Pub.
L. 104–121) provides generally for
congressional review of agency rules. A
reporting requirement is triggered in
VerDate Mar<15>2010
15:50 Oct 29, 2013
Jkt 232001
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 and has
submitted the rule to the Office of
Management and Budget for its
determination in that regard.
List of Subjects in 12 CFR Part 741
Credit, Credit unions, Reporting and
recordkeeping requirements.
By the National Credit Union
Administration Board on October 24, 2013.
Gerard Poliquin,
Secretary of the Board.
For the reasons stated above, the
National Credit Union Administration
amends 12 CFR part 741 as follows:
PART 741—REQUIREMENTS FOR
INSURANCE
1. The authority citation for part 741
continues to read as follows:
■
Authority: 12 U.S.C. 1757, 1766(a), 1781–
1790, and 1790d; 31 U.S.C. 3717.
2. Add § 741.12 to subpart A to read
as follows:
■
§ 741.12 Liquidity and Contingency
Funding Plans.
(a) Any credit union insured pursuant
to Title II of the Act that has assets of
less than $50 million must maintain a
basic written policy that provides a
credit union board-approved framework
for managing liquidity and a list of
contingent liquidity sources that can be
employed under adverse circumstances.
(b) Any credit union insured pursuant
to Title II of the Act that has assets of
$50 million or more must establish and
document a contingency funding plan
(CFP) that meets the requirements of
paragraph (d) of this section.
(c) In addition to the requirement
specified in paragraph (b) of this section
to establish and maintain a CFP, any
credit union insured pursuant to Title II
of the Act that has assets of $250 million
or more must establish and document
access to at least one contingent federal
liquidity source for use in times of
financial emergency and distressed
economic circumstances. These credit
unions must conduct advance planning
and periodic testing to ensure that
contingent funding sources are readily
available when needed. A credit union
subject to this paragraph may
demonstrate access to a contingent
federal liquidity source by:
(1) Maintaining regular membership
in the Central Liquidity Facility
(Facility), as described in part 725 of
this chapter;
(2) Maintaining membership in the
Facility through an Agent, as described
in part 725 of this chapter; or
(3) Establishing borrowing access at
the Federal Reserve Discount Window
by filing the necessary lending
agreements and corporate resolutions to
obtain credit from a Federal Reserve
Bank pursuant to 12 CFR part 201.
(d) Contingency Funding Plan: A
credit union must have a written CFP
commensurate with its complexity, risk
profile, and scope of operations that sets
out strategies for addressing liquidity
shortfalls in emergency situations. The
CFP may be a separate policy or may be
incorporated into an existing policy
such as an asset/liability policy, a funds
management policy, or a business
continuity policy. The CFP must
address, at a minimum, the following:
(1) The sufficiency of the institution’s
liquidity sources to meet normal
operating requirements as well as
contingent events;
(2) The identification of contingent
liquidity sources;
(3) Policies to manage a range of stress
environments, identification of some
possible stress events, and identification
of likely liquidity responses to such
events;
(4) Lines of responsibility within the
institution to respond to liquidity
events;
(5) Management processes that
include clear implementation and
escalation procedures for liquidity
events; and
(6) The frequency that the institution
will test and update the plan.
(e) A credit union is subject to the
requirements of paragraphs (b) or (c) of
this section when two consecutive Call
Reports show its assets to be at least $50
million or $250 million, respectively. A
FICU then has 120 days from the
effective date of that second Call Report
to meet the greater requirements.
[FR Doc. 2013–25714 Filed 10–29–13; 8:45 am]
BILLING CODE 7535–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 741 and 748
RIN 3313–AE25
Filing Financial and Other Reports
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
The NCUA Board (Board) is
issuing a final rule to amend its
SUMMARY:
11 5
PO 00000
U.S.C. 551.
Frm 00011
Fmt 4700
64883
Sfmt 4700
E:\FR\FM\30OCR1.SGM
30OCR1
]]>Agencies
[Federal Register Volume 78, Number 210 (Wednesday, October 30, 2013)]
[Rules and Regulations]
[Pages 64879-64883]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-25714]
=======================================================================
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 741
RIN 3133-AD96
Liquidity and Contingency Funding Plans
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
-----------------------------------------------------------------------
[[Page 64880]]
SUMMARY: The NCUA Board (Board) is issuing a final rule to require
federally insured credit unions (FICUs) with less than $50 million in
assets to maintain a basic written policy that provides a credit union
board-approved framework for managing liquidity and a list of
contingent liquidity sources that can be employed under adverse
circumstances. The rule requires FICUs with assets of $50 million or
more to have a contingency funding plan that clearly sets out
strategies for addressing liquidity shortfalls in emergency situations.
Finally, the rule requires FICUs with assets of $250 million or more to
have access to a backup federal liquidity source for emergency
situations.
DATES: This rule is effective March 31, 2014.
FOR FURTHER INFORMATION CONTACT: Lisa Henderson, Staff Attorney, Office
of General Counsel, (703) 518-6540; or J. Owen Cole, Jr., Director,
Division of Capital and Credit Markets, Office of Examination and
Insurance, (703) 518-6620.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Why is NCUA adopting this final rule?
B. What did the 2012 proposed rule say?
C. How did the commenters respond to the 2012 proposed rule?
II. Final Rule
A. In general
B. How does the final rule affect FICUs with less than $50
million in assets?
C. How does the final rule affect FICUs with $50 million or more
in assets?
D. What additional requirements apply to FICUs with $250 million
or more in assets?
E. How are a FICU's assets calculated for purposes of the final
rule?
F. Request for Comment Regarding Basel Liquidity
III. Regulatory Procedures
I. Background
A. Why is NCUA adopting this final rule?
The recent financial crisis demonstrated the importance of good
liquidity risk management to the safety and soundness of financial
institutions. Many institutions experienced significant financial
stress because they did not manage their liquidity in a prudent manner.
In some cases, these institutions had difficulty meeting their
obligations as they became due because sources of funding became
severely restricted. In the financial crisis, even institutions that
were healthy used emergency federal liquidity facilities when funding
costs became prohibitively high. At the time, the borrowing authority
of NCUA's Central Liquidity Facility (CLF) was more than $40 billion,
and it was able to play a significant role in making liquidity
available to credit unions. Because of the 2012 closure of U.S. Central
Credit Union and the redemption of most of its CLF stock, however, the
CLF's borrowing authority has been reduced to just over $2 billion.
These events followed several years of ample liquidity. The rapid
reversal in market conditions and availability of liquidity during the
crisis illustrated how quickly liquidity can evaporate. This
illiquidity can last for an extended period, leading to an
institution's inability to meet its financial obligations and possibly
its insolvency. Many of the liquidity-related difficulties experienced
by financial institutions were due to lapses in basic principles of
liquidity risk management. This rule will strengthen FICU liquidity
risk management, which is crucial to ensuring the credit union system's
resiliency during periods of financial market stress.
B. What did the 2012 proposed rule say?
The 2012 proposed liquidity rule required FICUs with less than $10
million in assets to maintain a written liquidity policy, including a
list of contingent liquidity sources.\1\ It also required FICUs with
assets of $10 million or more to have a contingency funding plan (CFP)
that clearly sets out strategies for addressing liquidity shortfalls in
emergency situations. Finally, it required FICUs with assets of $100
million or more to have access to either the CLF or the Federal Reserve
Discount Window (Discount Window). The proposed rule also requested
comment on the costs and benefits of applying Basel III liquidity
measures to FICUs with assets over $500 million.\2\
---------------------------------------------------------------------------
\1\ 77 FR 44503 (July 30, 2012).
\2\ See Basel Committee on Banking Supervision, ``Basel III:
International Framework for Liquidity Risk Measurement, Standards
and Monitoring,'' Dec. 2010, available at https://www.bis.org/publ/bcbs188.htm.
---------------------------------------------------------------------------
C. How did the commenters respond to the 2012 proposed rule?
NCUA received 45 comments on the proposed rule. More than half of
the commenters urged that the rule not go forward, stating that NCUA
had not justified a need for a liquidity regulation and that the
guidance provided by the 2010 Interagency Policy Statement on Funding
and Liquidity Risk Management (Policy Statement) \3\ was sufficient to
control liquidity risk. Twenty commenters stated that any emergency
liquidity regulation should include the option of membership in a
Federal Home Loan Bank (FHLB), and ten stated that it should include
the option of holding marketable securities.
---------------------------------------------------------------------------
\3\ 75 FR 13656 (Mar. 22, 2010).
---------------------------------------------------------------------------
A number of commenters praised the three-tiered approach, although
12 suggested that the lower threshold should be raised to match NCUA's
then-proposed amendment to the definition of ``small entity.'' \4\
Seven commenters suggested that the higher threshold should be raised.
Six stated that asset size is a poor basis on which to determine
whether liquidity requirements should be imposed.
---------------------------------------------------------------------------
\4\ See 77 FR 59139 (Sept. 26, 2012).
---------------------------------------------------------------------------
Several commenters seemed confused about the proposed requirement
that FICUs with assets of $100 million or more have access to the CLF
or Discount Window. Their comments suggested they believed the
requirement meant that these larger credit unions would be prohibited
from establishing other sources of liquidity. This is incorrect. As
discussed in greater detail below, the Board encourages all FICUs to
have multiple sources of liquidity.
Twenty-five commenters objected to the CLF's structure,
specifically the required stock investment and the CLF's inability to
guarantee same-day funding. The Board notes that the stock investment
is required under the Federal Credit Union Act.\5\ The Board also notes
that the CLF cannot guarantee same-day funding to credit unions because
it borrows the funds it lends from the Federal Financing Bank under
terms prescribed by the U.S. Treasury.
---------------------------------------------------------------------------
\5\ See generally 12 U.S.C. 1795-1795k.
---------------------------------------------------------------------------
Eighteen commenters either opposed applying Basel III liquidity
measures and monitoring tools to FICUs with assets over $500 million or
suggested that NCUA proceed very slowly in considering such
application.
II. Final Rule
A. In General
After careful consideration of the comments, the Board has
concluded that a liquidity rule is necessary to ensure that FICUs
remain resilient in times of economic stress. It, therefore, is
adopting as final a modified version of the 2012 proposed rule. As
discussed in greater detail below, this final rule addresses concerns
raised by the commenters. Accordingly, the Board is adding a new Sec.
741.12 to part 741, titled ``Liquidity and Contingency Funding Plans.''
The Board believes that FICUs, relying on the guidance provided in the
Policy Statement, generally have
[[Page 64881]]
managed liquidity risk adequately. However, the financial crisis
highlighted the importance for FICUs to have strong policies and
programs explicitly addressing the credit union's liquidity risk
management. The Board believes it is critical to expand the credit
union industry's borrowing capacity after the liquidation of U.S.
Central Credit Union.
The Board is retaining the tiered approach of the proposed rule and
is continuing to base the tiers on asset size. The Board believes that,
while there are exceptions, larger credit unions generally present
greater exposure to the NCUSIF. The Board is, however, raising the
triggering thresholds from those in the proposed rule.
Since the proposed rule was issued, the Board revised the
definition of ``small entity'' from a credit union with less than $10
million in assets to one with less than $50 million in assets.\6\ The
Board also amended two NCUA regulations that grant relief based on an
asset threshold, raising that threshold from $10 million to $50
million.\7\ For regulatory relief and regulatory consistency, the Board
is raising the lowest threshold in this rule--requiring a basic written
policy--to include credit unions with less than $50 million in assets.
---------------------------------------------------------------------------
\6\ 78 FR 4032 (Jan. 18, 2013).
\7\ Id.
---------------------------------------------------------------------------
In response to comments, and to reduce regulatory burden, the Board
is raising the highest threshold--requiring established access to a
federal liquidity provider--from $100 million to $250 million. While
the Board encourages FICUs with assets between $100 million and $250
million to have this access, the Board is not requiring it at this
time.
B. How does the final rule affect FICUs with less than $50 million in
assets?
The Board continues to believe that it is essential for every FICU,
regardless of size and complexity, to have a management process for
identifying, measuring, monitoring, and controlling liquidity risk that
is commensurate with its respective needs. FICUs with less than $50
million in assets present relatively limited liquidity concerns, as
they tend to have lower loan-to-share ratios, shorter duration assets,
and higher amounts of balance sheet liquidity than larger credit
unions. Accordingly, Sec. 741.12(a) of the final rule requires these
smaller FICUs to maintain a basic written policy that provides a credit
union board-approved framework for managing liquidity and a list of
contingent liquidity sources that can be employed under adverse
circumstances. Such a policy establishes liquidity measures and
associated benchmarks, a reporting requirement to keep the board
apprised of the institution's liquidity position, and a contingent
source, or sources, of funding, such as a corporate credit union or
correspondent bank.
C. How does the final rule affect FICUs with $50 million or more in
assets?
Section 741.12(b) requires any FICU with assets of at least $50
million to have a fully developed, written CFP that clearly sets out
strategies for addressing liquidity shortfalls in emergency situations.
In addition to the policy items required for smaller FICUs, a fully
developed CFP also provides for evaluation of adverse liquidity
scenarios, outlines specific actions to be taken and specific sources
of liquidity in emergency liquidity events, and provides for periodic
testing of contingent liquidity sources. Section 741.12(d) of the final
rule details all of the requirements of a CFP. The Board is imposing
greater requirements on these larger FICUs because of the critical
importance of a well-developed CFP to the viability of these
institutions and, ultimately, the safety of the NCUSIF.
D. What additional requirements apply to FICUs with $250 million or
more in assets?
In addition to the requirement to have a written CFP, Sec.
741.12(c) of the final rule requires any FICU with assets of $250
million or more to ensure it has immediate, established access to
either the CLF or the Discount Window. These larger credit unions have
a greater degree of interconnectedness with other market entities. When
they experience unexpected or severe liquidity circumstances, they are
more likely to adversely affect the credit union system, public
perception, and the NCUSIF.
The Board determined not to include FHLB membership as a federal
contingency source for purposes of meeting the requirements of this
rule. As discussed in the preamble to the proposed rule, FHLBs can be
valuable contingency funding sources. However, while government
sponsored, FHLBs are not federal facilities and are not obligated to
meet emergency liquidity demands in the same way that the CLF and
Discount Window are designed to do. The Board also declines to allow
large FICUs to meet the requirements of the rule by holding a portfolio
of marketable securities. While it is prudent for every FICU to have a
cushion of highly liquid assets on its balance sheet, these assets have
proven to be insufficient in a crisis.
The Board emphasizes that all FICUs should have access to multiple
sources of funding, from both their own balance sheets and through
market funding sources. In requiring the largest FICUs to have
established access to the CLF or the Discount Window, the Board is not
suggesting that these sources are sufficient by themselves. FICUs with
assets of $250 million or more should have three distinct sources of
liquidity readily available.
First, all FICUs should maintain a balance sheet cushion of highly
liquid assets as a basic element of liquidity risk management. It is
essential for FICUs of all sizes to hold an adequate safeguard of cash
and cash equivalents (such as short-term deposits and Treasury
securities) on the balance sheet continuously. A balance-sheet cushion
affords an institution time to avoid service disruptions and enter
external funding arrangements if necessary.
A second element of liquidity management is borrowing from market
counterparties, such as corporate credit unions, correspondent banks,
FHLBs, and repurchase agreement counterparties. The ability to borrow
from market sources requires having unencumbered assets that can be
readily pledged against a loan. Larger FICUs with greater potential
funding needs should have multiple stable borrowing sources and a clear
understanding of which assets can be pledged.
The third element of protection is access to a federal emergency
liquidity provider: The CLF or the Discount Window. These providers
exist to provide backup liquidity in circumstances where on-balance
sheet liquidity and market sources prove inadequate. Like the market
funding sources, the CLF and Discount Window are both collateral-based
lending facilities. The Board believes that, to protect the NCUSIF, it
is essential for FICUs with assets of at least $250 million to have
this third element of liquidity in place.
The rule provides that a FICU may demonstrate access by becoming a
regular member of the CLF, becoming a member of the CLF through an
agent, or establishing borrowing access through the Discount Window. As
discussed in the preamble to the proposed rule, corporate credit unions
may facilitate natural person credit unions becoming regular CLF
members by, for example, assisting with applications of credit, serving
as a collateral custodian and
[[Page 64882]]
administrator, and assisting with credit reporting requirements.\8\
---------------------------------------------------------------------------
\8\ A corporate acting as a CLF correspondent would not be an
agent member of the CLF within the meaning of 12 U.S.C. 1795c(b) or
12 CFR 725.4, as it would not subscribe to CLF stock for its
members. For a natural person credit union to be a regular member of
the CLF, it must subscribe to CLF stock. 12 U.S.C. 1795c(a); 12 CFR
725.3.
---------------------------------------------------------------------------
The Discount Window serves all depository institutions that meet
eligibility requirements established by Federal Reserve regulations.\9\
To gain access to the Discount Window, the Federal Reserve requires
specific agreements to be executed. Information regarding these
agreements, as set forth in Operating Circular No. 10, and Discount
Window operation can be found at www.frbdiscountwindow.org.
---------------------------------------------------------------------------
\9\ Any depository institution holding liabilities potentially
subject to reserve requirements under Federal Reserve regulations
can establish access to the Discount Window. Such ``reserveable
liabilities'' include transaction accounts and nonpersonal time
deposits. For most credit unions, share draft accounts would be the
principal reserveable liability. See 12 CFR part 204.
---------------------------------------------------------------------------
The Board notes that, while not required in the final rule, a FICU
may wish to both become a member of the CLF and establish borrowing
access at the Discount Window. The combination of the CLF and the
Discount Window would provide the greatest protection in the event of a
sudden and sustained liquidity emergency. The Discount Window is
designed to handle sudden emergencies that require same-day access to
liquidity. The CLF, on the other hand, is designed to handle sustained
emergencies that require federal backup liquidity for several months.
The following table shows some of the similarities and differences
between the CLF and the Discount Window.
------------------------------------------------------------------------
Federal reserve Central Liquidity
discount window Facility (CLF)
------------------------------------------------------------------------
Similarities........... Both the Discount Window and the CLF function
as safety valves to relieve liquidity pressure
on individual depository institutions and to
stabilize broader liquidity systems.
------------------------------------------------
Both are fully secured collateral-based
lenders.
------------------------------------------------
Both met emergency liquidity needs for
individual institutions and for entire systems
during the latest financial crisis.
------------------------------------------------
Differences............ The Fed is able to CLF funding may take 1-
advance same-day funds 10 business days
to qualifying credit depending on the
unions (subject to requested dollar
collateral amount (also subject
requirements). to collateral
requirements).
The Fed's overnight The CLF makes loans up
loans may be to 90 days, and these
renewable, but any 90-day loans may be
series of rollovers is renewed for an
expected to be brief additional term under
in duration. certain
circumstances.
------------------------------------------------------------------------
With established access to both, in a liquidity crisis, when
balance sheet and market sources are not enough, a FICU would have the
ability to immediately obtain federal backup liquidity through the
Discount Window. If the FICU's emergency liquidity needs persist for
more than a few days, the FICU would have the flexibility to maintain
federal backup liquidity through the CLF for several months at a time.
The amount of liquidity advances available from either facility is a
function of the eligible collateral available to pledge.
A FICU with $250 million or more in assets will be in compliance
with this final rule if, by the effective date of March 31, 2014, it
has submitted either a completed application for access to the CLF or
the necessary lending agreements and corporate resolutions to obtain
credit from the Discount Window.
E. How are a FICU's assets calculated for purposes of the final rule?
Credit unions' assets can grow and shrink rapidly, and a particular
FICU's assets may cross the $50 million or $250 million threshold
repeatedly over a short period of time. In light of this fluctuation,
Sec. 741.12(e) of the final rule provides that a FICU is subject to
the requirements of a higher asset category when two consecutive Call
Reports show its assets to be in that higher category. A FICU will then
have 120 days from the effective date of that second Call Report to
meet the higher triggered requirements.
F. Request for Comment Regarding Basel Liquidity
In the proposed rule, the Board requested comment on whether
certain Basel III liquidity measures and monitoring tools should be
incorporated into NCUA's supervisory expectations for the largest
FICUs. In response to comments, the Board has determined not to take up
the Basel measures at this time.
III. Regulatory Procedures
a. Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any regulation may have on
a substantial number of small entities (those under $50 million in
assets). The final rule requires small FICUs to establish a basic
liquidity policy, which is a best practice for every depository
institution. Because the policy requires only modest effort, it 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.\10\ For purposes of the PRA, a
paperwork burden may take the form of a reporting, recordkeeping, or
disclosure requirement, each referred to as an information collection.
---------------------------------------------------------------------------
\10\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------
NCUA has determined the requirement to maintain a basic written
liquidity policy is an information collection requirement. NCUA
estimates that all 4,444 credit unions under $50 million in total
assets may have to formalize their liquidity risk policies and that
this task should take approximately 8 hours per credit union. The
expected burden of the requirement is: 4,444 FICUs x 8 hours = 35,552
hours.
NCUA has further determined the requirement to establish and
document a CFP constitutes an information collection requirement but
that, because of the Policy Statement, approximately 447 out of 2,237
(or 20%) of FICUs with assets of at least $50 million will already have
established such a plan. NCUA estimates that 1,790 FICUs will have to
develop a written CFP and that the task should take a FICU
approximately 24 hours. The expected
[[Page 64883]]
burden of the requirement is: 1,790 FICUs x 24 hours = 42,960 hours.
NCUA has also determined the requirement to either become a member
of the CLF or establish borrowing access through the Discount Window
creates a new information collection requirement. There are 771 FICUs
with assets of at least $250 million, 374 of which are not currently
regular members of CLF and/or do not report having established Discount
Window access. NCUA estimates that it should take a FICU approximately
4 hours to complete the necessary paperwork to establish either CLF or
Discount Window access. The expected burden of the requirement is: 374
FICUs x 4 hours = 1,496 hours.
While the regulation provides the option of establishing CLF
membership through an agent, NCUA estimates that no corporates will opt
to be agent members at this time and, therefore, no FICUs will
establish membership in this manner.
As required by the PRA, NCUA submitted a copy of this final rule to
OMB for its review and approval.
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 does not have substantial direct
effects on the states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. NCUA has
determined that this rule does not constitute a policy that has
federalism implications for purposes of the executive order.
d. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this final rule will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999, Public Law 105-277, 112
Stat. 2681 (1998).
e. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final rule as defined by section 551 of the Administrative
Procedure Act.\11\ NCUA does not believe this final rule is a ``major
rule'' within the meaning of the relevant sections of SBREFA and has
submitted the rule to the Office of Management and Budget for its
determination in that regard.
---------------------------------------------------------------------------
\11\ 5 U.S.C. 551.
---------------------------------------------------------------------------
List of Subjects in 12 CFR Part 741
Credit, Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on October 24,
2013.
Gerard Poliquin,
Secretary of the Board.
For the reasons stated above, the National Credit Union
Administration amends 12 CFR part 741 as follows:
PART 741--REQUIREMENTS FOR INSURANCE
0
1. The authority citation for part 741 continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31
U.S.C. 3717.
0
2. Add Sec. 741.12 to subpart A to read as follows:
Sec. 741.12 Liquidity and Contingency Funding Plans.
(a) Any credit union insured pursuant to Title II of the Act that
has assets of less than $50 million must maintain a basic written
policy that provides a credit union board-approved framework for
managing liquidity and a list of contingent liquidity sources that can
be employed under adverse circumstances.
(b) Any credit union insured pursuant to Title II of the Act that
has assets of $50 million or more must establish and document a
contingency funding plan (CFP) that meets the requirements of paragraph
(d) of this section.
(c) In addition to the requirement specified in paragraph (b) of
this section to establish and maintain a CFP, any credit union insured
pursuant to Title II of the Act that has assets of $250 million or more
must establish and document access to at least one contingent federal
liquidity source for use in times of financial emergency and distressed
economic circumstances. These credit unions must conduct advance
planning and periodic testing to ensure that contingent funding sources
are readily available when needed. A credit union subject to this
paragraph may demonstrate access to a contingent federal liquidity
source by:
(1) Maintaining regular membership in the Central Liquidity
Facility (Facility), as described in part 725 of this chapter;
(2) Maintaining membership in the Facility through an Agent, as
described in part 725 of this chapter; or
(3) Establishing borrowing access at the Federal Reserve Discount
Window by filing the necessary lending agreements and corporate
resolutions to obtain credit from a Federal Reserve Bank pursuant to 12
CFR part 201.
(d) Contingency Funding Plan: A credit union must have a written
CFP commensurate with its complexity, risk profile, and scope of
operations that sets out strategies for addressing liquidity shortfalls
in emergency situations. The CFP may be a separate policy or may be
incorporated into an existing policy such as an asset/liability policy,
a funds management policy, or a business continuity policy. The CFP
must address, at a minimum, the following:
(1) The sufficiency of the institution's liquidity sources to meet
normal operating requirements as well as contingent events;
(2) The identification of contingent liquidity sources;
(3) Policies to manage a range of stress environments,
identification of some possible stress events, and identification of
likely liquidity responses to such events;
(4) Lines of responsibility within the institution to respond to
liquidity events;
(5) Management processes that include clear implementation and
escalation procedures for liquidity events; and
(6) The frequency that the institution will test and update the
plan.
(e) A credit union is subject to the requirements of paragraphs (b)
or (c) of this section when two consecutive Call Reports show its
assets to be at least $50 million or $250 million, respectively. A FICU
then has 120 days from the effective date of that second Call Report to
meet the greater requirements.
[FR Doc. 2013-25714 Filed 10-29-13; 8:45 am]
BILLING CODE 7535-01-P
