Promulgation of NCUA Rules and Regulations, 57512-57517 [2015-24165]

Download as PDF 57512 Federal Register / Vol. 80, No. 185 / Thursday, September 24, 2015 / Rules and Regulations do not require, individually or in the aggregate, a compliance audit; * * * * * ■ 5. Section 910.507 is amended by: ■ a. Revising the section heading; ■ b. Removing the second occurrence of ‘‘program-specific audit’’ in the last sentence in paragraph (a) introductory text and adding in its place ‘‘compliance audit’’; ■ c. Removing ‘‘Program-specific audits’’ in the second sentence in paragraph (b) introductory text and adding in its place ‘‘Compliance audits’’. The revision reads as follows: § 910.507 Compliance audits. * * * * * ■ 6. In § 910.502 introductory text, revise the subject heading and the first sentence to read as follows: § 910.502 Basis for determining DOE awards expended. Determining Federal awards expended. The determination of when a Federal award is expended must be based on when the activity related to the DOE award occurs. * * * * * * * * [FR Doc. 2015–24276 Filed 9–23–15; 8:45 am] BILLING CODE 6450–01–P NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 791 RIN 3133–AE45 Promulgation of NCUA Rules and Regulations National Credit Union Administration (NCUA). ACTION: Final rule and Interpretive Ruling and Policy Statement 15–1. AGENCY: 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 13–1. The amended IRPS increases the asset threshold used to define the term ‘‘small entity’’ under the Regulatory Flexibility Act (RFA) from $50 million to $100 million and, thereby, provides transparent consideration of regulatory relief for a greater number of credit unions in future rulemakings. The final rule and IRPS also makes a technical change to NCUA’s regulations in connection with procedures for developing regulations. DATES: This rule and IRPS are effective November 23, 2015. FOR FURTHER INFORMATION CONTACT: Kevin Tuininga, Lead Liquidations tkelley on DSK3SPTVN1PROD with RULES SUMMARY: VerDate Sep<11>2014 16:28 Sep 23, 2015 Jkt 235001 Counsel, Office of General Counsel, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314–3428 or telephone: (703) 518–6543. SUPPLEMENTARY INFORMATION: I. Background II. Summary of Public Comments III. The Final Rule and IRPS IV. Regulatory Procedures I. Background A. What changes does this final rule and IRPS make? The RFA, as amended, generally requires federal agencies to determine and consider the impact of proposed and final rules on small entities. Since adopting IRPS 13–1 in 2013, the Board has defined ‘‘small entity’’ in this context as a federally insured credit union (FICU) with less than $50 million in assets.1 This final rule and IRPS 15–1 redefines ‘‘small entity’’ as a FICU with less than $100 million in assets. In addition, the final rule amends § 791.8(a) of NCUA’s regulations to reference IRPS 15–1. Section 791.8(a) governs NCUA’s procedures for developing regulations and incorporates IRPS 87–2 and each of its amendments. B. What changes were proposed? On February 19, 2015, the Board issued a proposed rulemaking and IRPS with a 60-day comment period.2 In doing so, the Board proposed to increase from $50 million to $100 million the asset threshold used to define small entity under the RFA. In support of proposing to double, rather than incrementally increase, the RFA threshold, the Board weighed competitive disadvantages within the credit union industry, relative threats to the National Credit Union Share Insurance Fund (Insurance Fund), and the need for broader regulatory relief. The proposed increase would provide an additional 733 small FICUs with special consideration of the economic impact of proposed and final regulations, bringing the total number of FICUs covered by the RFA to approximately 4,690. The proposed rule and IRPS 15–1 retained the three-year review cycle the Board adopted in 2013. Finally, the proposal referenced IRPS 15–1 in § 791.8(a) of NCUA’s regulations governing regulatory procedures. C. What is the history and purpose of the RFA? Congress enacted the RFA in 1980, Public Law 96–354, and amended it 1 IRPS 2 80 PO 00000 13–1, 78 FR 4032 (Jan. 18, 2013). FR 11954 (Mar. 5, 2015). Frm 00004 Fmt 4700 Sfmt 4700 with the Small Business Regulatory Enforcement Fairness Act of 1996.3 The RFA, in part, requires federal agencies to determine whether a proposed or final rule would have a significant economic impact on a substantial number of small entities.4 If so, the RFA requires agencies to engage in a small entity impact analysis, known as an initial regulatory flexibility analysis (IRFA) for proposed rules and a final regulatory flexibility analysis (FRFA) for final rules.5 The IRFA and FRFA (or a summary of them) must be published in the Federal Register.6 If an agency determines that a proposed or final rule will not have a ‘‘significant economic impact on a substantial number of small entities,’’ the agency may certify as much in the Federal Register and forego the IRFA and FRFA.7 For an IRFA, the procedural requirements include, among other things, ‘‘a description of and, where feasible, an estimate of the number of small entities to which the proposed rule will apply,’’ a description of reporting, recordkeeping, and other compliance burden, and an identification of any overlapping or conflicting federal rules.8 In addition, the IRFA must ‘‘contain a description of any significant alternatives to the proposed rule which accomplish the stated objectives . . . and which minimize any significant economic impact of the proposed rule on small entities.’’ 9 This discussion must include alternatives such as allowing ‘‘differing compliance or reporting requirements or timetables,’’ ‘‘the clarification, consolidation, or simplification of compliance and reporting requirements,’’ ‘‘the use of performance rather than design standards,’’ and a full or partial exemption for small entities.10 The FRFA must meet requirements similar to that of the IRFA, but must also discuss and respond to public comments and describe ‘‘the steps the agency has taken to minimize the significant economic impact on small entities . . . , including a statement of factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each one of the other 3 Public Law 104–121. A principal purpose of the 1996 amendment was to provide an opportunity for judicial review of agency compliance with the RFA. Id. 4 5 U.S.C. 603, 604, 605(b). 5 5 U.S.C. 603, 604. 6 Id. 7 5 U.S.C. 605(b). 8 5 U.S.C. 603(b). The IRFA must also include a description of why the agency is considering action and ‘‘a succinct statement of the objectives of, and legal basis for, the proposed rule. . . .’’ Id. 9 5 U.S.C. 603(c). 10 Id. E:\FR\FM\24SER1.SGM 24SER1 Federal Register / Vol. 80, No. 185 / Thursday, September 24, 2015 / Rules and Regulations significant alternatives to the rule . . . was rejected.’’ 11 These processes encourage federal agencies to give special consideration to the ability of smaller entities to absorb compliance burdens imposed by new rules. The RFA establishes terms for various subgroups that fall within the meaning of ‘‘small entity,’’ including ‘‘small business,’’ ‘‘small organization,’’ and ‘‘small governmental jurisdiction.’’ 12 FICUs, as not-for-profit enterprises, are ‘‘small organizations,’’ within the broader meaning of ‘‘small entity.’’ The RFA permits a regulator, including NCUA, to establish one or more definitions of ‘‘small organization,’’ as appropriate to the activities of the agency.13 An agency’s definition must be subjected to public comment and published in the Federal Register.14 The RFA provides a default definition of ‘‘small organization’’ as ‘‘a not-for-profit enterprise which is independently owned and operated and is not dominant in its field. . . .’’ 15 In 1981, the Board initially defined ‘‘small entity’’ in IRPS 81–4 as any FICU with less than $1 million in assets.16 IRPS 87–2 superseded IRPS 81–4, but retained the definition of ‘‘small entity’’ as a FICU with assets under $1 million.17 The Board updated the definition in 2003 to include FICUs with less than $10 million in assets with IRPS 03–2.18 The last update occurred in 2013, when the Board increased the defining threshold to include FICUs with less than $50 million in assets.19 In addition, the Board pledged to review the RFA threshold after two years and thereafter on a three-year cycle, similar to its regulatory review process.20 On February 19, 2015, the Board issued a proposed rule and IRPS with a 60-day comment period, proposing to increase the threshold used to define ‘‘small entity’’ from $50 million to $100 million.21 II. Summary of Public Comments The public comment period for the proposed rule and IRPS ended on May 4, 2015. NCUA received 16 comment letters from commenters that included credit union trade associations, state 11 5 U.S.C. 604(a). U.S.C. 601. 13 5 U.S.C. 601(4). 14 Id. 15 Id. 16 IRPS 81–4, 46 FR 29248 (June 1, 1981). 17 52 FR 35231 (Sept. 8, 1987). 18 68 FR 31949 (May 29, 2003). 19 IRPS 13–1, 78 FR 4032 (Jan. 18, 2013). 20 Id. IRPSs 87–2, 03–2, and 13–1 are referenced in NCUA’s rule governing the promulgation of regulations. 12 CFR 791.8(a). 21 80 FR 11954 (Mar. 5, 2015). tkelley on DSK3SPTVN1PROD with RULES 12 5 VerDate Sep<11>2014 16:28 Sep 23, 2015 Jkt 235001 credit union leagues, federal credit unions, and a federally insured, statechartered credit union.22 All commenters expressly supported the proposal at some level. One commenter supported the proposal without advocating any additional changes or expressing concerns. A number of commenters, however, made specific recommendations or expressed concerns about one or more aspects of the proposal. A. What were the general comments on the asset threshold? More than one-third of commenters either expressed some level of satisfaction with the $100 million threshold or did not directly advocate a specific threshold higher than $100 million. Two of these commenters observed that the proposed threshold ‘‘sufficiently captures small [FICUs] that have unique challenges and particular sensitivity to even the smallest regulatory requirement.’’ Another stated that the increase will benefit and account for the FICUs generally facing significant challenges based on the characteristics NCUA identified in the proposal. One commenter noted that increasing the RFA threshold to $100 million is consistent with NCUA’s proposed definition of the term ‘‘complex’’ credit union for risk-based capital purposes. This commenter also stated that $100 million seemed appropriate in comparison to the RFA threshold used for banks. One commenter praised NCUA for proposing to increase the threshold to $100 million only two years after approving an increase from $10 million to $50 million. Multiple commenters, including some that expressed satisfaction with the proposed threshold, alluded to compelling reasons to set the threshold higher than $100 million, but did not directly advocate a specific number or discuss the reasons for doing so. Approximately half of the commenters expressed concern about the proposed $100 million asset threshold and recommended a higher threshold for the final rule. Many from this group favored the $550 million threshold set by the Small Business Administration (SBA), citing one or more of the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Federal Reserve Board as examples of regulators that use the SBA asset threshold for purposes of the RFA. Some commenters also 22 The comments can be found on the Web at the following address: http://www.ncua.gov/Legal/ Regs/Pages/PR20150219Promulgation.aspx. PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 57513 suggested a threshold of at least $250 million, as an alternative to $550 million. One commenter suggested that $175 million would also be more appropriate than $100 million, noting that the Consumer Financial Protection Bureau uses this threshold to assemble panels in complying with its obligations under the Small Business Regulatory Enforcement Fairness Act. Another commenter suggested $300 million as the appropriate asset threshold. Two commenters posited that, if NCUA is willing to adopt a risk-based capital rule with requirements on par with banking regulators, it should be willing to bring its RFA threshold into parity as well. One commenter maintained that even FICUs with $250 million in assets are not dominant in their field and did not present greater risk to the Insurance Fund, particularly because the RFA does not mandate specific changes to existing regulations. One commenter argued the RFA does not require use of a bright-line asset threshold, which risks ‘‘bifurcating the industry’’ when used to determine eligibility for regulatory relief. This commenter also expressed concern that some FICUs over $100 million in assets but with few employees and branches will not be taken into consideration when NCUA is studying the economic impact of rules on FICUs under the $100 million threshold. A few commenters that advocated an asset threshold higher than $100 million contended that NCUA should consider the definition of ‘‘small entity’’ in the context of the entire group of financial institutions against which FICUs compete, including banks. At least eight commenters expressed concerns about the capacity of NCUA’s Office of Small Credit Union Initiatives (OSCUI) to serve small credit unions under an increased asset threshold. Many of these commenters suggested that NCUA should separate the eligibility threshold OSCUI uses from the asset threshold set for RFA purposes, leaving the OSCUI threshold at $50 million or adjusting it to $75 million. If NCUA increases OSCUI’s eligibility threshold,23 some commenters encouraged NCUA to provide OSCUI with additional or adequate resources to help bolster and preserve small credit unions. One commenter recommended that NCUA establish a process to allocate OSCUI resources to various asset categories for 23 The proposed rule and IRPS did not address the eligibility threshold for OSCUI assistance. While NCUA will consider the comments it received on the OSCUI threshold, that threshold is not addressed in this final rule and IRPS. E:\FR\FM\24SER1.SGM 24SER1 57514 Federal Register / Vol. 80, No. 185 / Thursday, September 24, 2015 / Rules and Regulations a more equitable distribution to the smallest credit unions. B. What were the comments on the review period? Two commenters advocated, without elaboration, that NCUA adjust the threshold annually based on an index to capture a percentage of the smallest credit unions. One commenter asked for review every two years and another advocated an annual review. Anticipating additional future increases in the RFA threshold, one commenter suggested that NCUA increase efficiency and avoid more comment periods by effecting a larger increase in the final rule. C. What other comments did NCUA receive? Several commenters commented generally on excessive regulatory burden, a lack of resources and employees to cope with the burden, and the continuing loss of small FICUs. One commenter asked that NCUA explain in the preamble to the final rule the circumstances under which it might make distinctions among small FICUs. Another commenter noted the RFA classification does not convey any immediate regulatory relief to FICUs in existing rules and recommended that NCUA revisit its current regulations to consider substituting the final rule’s small entity threshold for existing size standards. This commenter also criticized the use of the term ‘‘small credit union’’ in both the Small Credit Union Exam Program and the RFA context, indicating that using the same term in reference to different thresholds could be confusing. The Board has carefully considered all the public comments it received in response to the proposed rule and IRPS. The final rule and IRPS and the Board’s response to the public comments are discussed below. tkelley on DSK3SPTVN1PROD with RULES III. The Final Rule and IRPS Based on the comment letters and economic analysis of FICUs in various asset ranges, the Board maintains $100 million is the most appropriate asset threshold for the final rule and IRPS. The proposed threshold received significant support in public comments, and the factors NCUA considered in the proposal continue to support $100 million as the most suitable threshold at this time. Increasing the RFA threshold to $100 million will account for FICUs that generally face more significant challenges than their larger peers based on their relatively small asset base, membership, and economies of scale. VerDate Sep<11>2014 16:28 Sep 23, 2015 Jkt 235001 Increasing the threshold to levels recommended by a minority of commenters would cover up to 93 percent of FICUs and risk dilution of the RFA’s special consideration for the smallest FICUs.24 As explained below, the $100 million threshold results in a similar institution coverage ratio as the RFA threshold the FDIC uses in relation to banks. In addition, the $100 million threshold covers a significantly greater percentage of FICU assets, compared to the percentage of bank assets covered by the banking agencies’ $550 million threshold. Finally, the RFA threshold does not make larger FICUs ineligible for regulatory relief. The Board fully intends to continue to carefully consider the impact of all of its regulations on all FICUs. In general, deposit growth rates drop off significantly for FICUs with less than $100 million in assets. FICUs with less than $100 million in assets as of the end of the year 2000 grew their deposits by an average of 3.9 percent annually over the next 14 years. In comparison, FICUs with greater than $100 million in assets as of the end of the year 2000 grew deposits at 7.1 percent annually, on average, over the same period. On an asset-weighted basis, the industry’s average deposit growth rate from 2001 to 2014 was 6.8 percent per year. A. What data supports the $100 million threshold? Data gathered for the period between 2001 and 2014 reflects the competitive disadvantages across multiple industry metrics for FICUs below $100 million in assets, including the following: • Deposit growth rates; • asset growth rates; membership growth rates; • loan origination growth rates; • inflation-adjusted average loan amounts; • ratio of operating costs to assets; • merger and liquidation trends; • average year-to-date loan amounts; • non-interest expenses per dollar loaned; • average assets per full-time employee; and • average non-interest expense per annual loan originations. Particularly, rates of deposit growth, rates of membership growth, rates of loan origination growth, and the ratio of operating costs to assets, each discussed more fully below, exemplify differentiations between FICUs both above and below the $100 million threshold. (ii) Slower Membership Growth Rates FICUs with less than $100 million in assets also had significantly slower membership growth rates than larger FICUs. On average, FICUs with less than $100 million in assets as of the end of the year 2000 had their membership shrink by 0.5 percent annually over the next 14 years. In contrast, FICUs $100 million or more in assets as of the end of the year 2000 grew their membership by 2.3 percent annually over the same period. On an asset-weighted basis, the industry’s membership growth rate was 1.8 percent per year from 2001 to 2014. (iii) Slower Growth in Loan Originations FICUs with less than $100 million in assets also had significantly slower growth in loan originations than larger FICUs. On average, FICUs with less than $100 million in assets as of the end of the year 2000 grew loan originations by 3.7 percent annually over the next 14 years. In contrast, FICUs with $100 million or more in assets as of the end of the year 2000 grew their loan originations by 9.6 percent annually over the same period. On an assetweighted basis, the industry’s loan origination growth was 6.6 percent per year from 2001 to 2014. (i) Slower Deposit Growth Rates Smaller FICUs have consistently demonstrated an inability to grow their deposit base at a rate that keeps pace with larger FICUs. This slower growth rate makes it difficult for smaller FICUs to cover fixed costs, which are increasing over time. FICUs with growing deposits and loans are able to spread out fixed costs and incrementally reduce operating costs. 24 An asset threshold of $175 million would cover 84 percent of all FICUs; $250 million would cover 87% of all FICUs; $550 million would cover 93 percent of all FICUs. PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 (iv) Higher Operating Expenses FICUs with less than $100 million in assets also had higher annual operating expenses per unit of assets and per dollar of loan originations compared to other asset groups. On average, FICUs with less than $100 million in assets as of the end of the year 2000 had annual operating expenses equal to 4.0 percent of assets over the next 14 years. FICUs with $100 million or more in assets as of the end of the year 2000 had annual operating expenses of 3.5 percent of assets over the same period. The impact of these differences in operating expenses can be dramatic. Between 2001 and 2014, FICUs with less than $100 million in assets as of the end of the year 2000, had operating expenses, on average, equal to 18 cents for every dollar in loan originations. E:\FR\FM\24SER1.SGM 24SER1 Federal Register / Vol. 80, No. 185 / Thursday, September 24, 2015 / Rules and Regulations This expense ratio was close to a third higher than FICUs with $100 million or more in assets as of the end of the year 2000, which averaged annual operating expenses equal to 13 cents for every dollar in loan originations over the same period. The 55 basis point difference in operating expenses between FICUs above and below the $100 million asset threshold resulted in large and persistent differences in earnings between these FICUs. The earnings gap between FICUs above and below the threshold averaged 41 basis points over the 2001 to 2014 period. To put this in perspective, during that period, 25 percent of FICUs below the $100 million asset threshold had negative earnings. Only 2.8 percent of FICUs with $100 million or more in assets had negative earnings over the same period. FICUs with persistently weak or negative earnings are more likely to go out of business via failure or merger. Despite representing 83 percent of all FICUs, FICUs with less than $100 million in assets experienced 93 percent of mergers and liquidations since 2004. The disappearance of these FICUs threatens to deprive the credit union industry of a critical constituency. Although the number of mergers and failures for FICUs below $100 million is disproportionately high, these FICUs do not represent a correspondingly high risk exposure to the Insurance Fund. For FICUs with assets of $50 million to less than $100 million (those which this final rule and IRPS include in RFA coverage), losses have historically been relatively small. Nine FICUs between $50 million and $100 million in inflation-adjusted assets failed between the first quarter of 2001 and fourth quarter of 2014. Resulting losses totaled less than $56 million. In contrast, losses for FICUs between $100 million and $250 million were $379 million, more than six times that amount over the same period. FICUs between $100 million and $550 million accounted for $790 million in inflation-adjusted losses. 57515 Rather than expanding the RFA threshold to $550 million or $250 million, which would include FICUs responsible for significantly more losses and risk, the Board believes the $100 million threshold represents a reasonable additional share for RFA coverage. FICUs with assets of $50 million to less than $100 million hold 4.5 percent of system assets, bringing the total system assets within RFA coverage to 10 percent. To the extent the increase to $100 million results in more FICU exemptions from rules governing safety and soundness, it will not present material risk to the Insurance Fund. For additional background, the table below shows the differentiation of the characteristics between the final rule’s $100 million threshold and the expanded RFA coverage thresholds that also received support from some commenters. Unless otherwise indicated, the table includes cumulative data from 2001 to 2014. Inflation-adjusted assets at time of failure <$100M Share of Industry Losses ............................................................................................................. <$250M 32% <$550M 63% 97% Assets as of year 2000 <$100M % Asset Growth ............................................................................................................................... Membership Growth .................................................................................................................... Loan Growth ................................................................................................................................ The Board’s task under the RFA is to designate as ‘‘small’’ a subset of institutions to which its regulations apply, rather than comparing FICUs to the array of competing institutions that are not subject to NCUA’s regulations.25 A $100 million threshold covers a similar portion of FICUs and a significantly higher portion of FICU assets (76 percent and 10 percent, respectively) in comparison to the FDIC’s $550 million RFA threshold for banks subject to its regulations (81 percent and 6 percent, respectively). In Credit unions <$100M % tkelley on DSK3SPTVN1PROD with RULES Share of Industry Assets ................................................................................. Share of Institutions ......................................................................................... <$250M % 77 ¥12 49 <$550M % 104 0 78 125 10 104 contrast, a $250 million or $550 million threshold for credit unions would cover a disproportionate percentage of FICUs and of total FICU assets, as reflected in the table below: Credit unions <$250M % 10 76 20 87 Credit unions <$550M % Banks <$550M % 32 93 6 81 Although a bright line asset threshold arguably bifurcates groups of FICUs for purposes of the RFA, it also avoids diluting the pool of FICUs for which the RFA requires special consideration. The Board believes a threshold significantly higher than $100 million would divert focus from the FICUs that are most in need of the RFA process. Further, the $100 million threshold does not preclude the Board from considering regulatory impacts on larger FICUs. The Board fully intends to continue reviewing the impact of all of its regulations on all FICUs. 25 The Initial Regulatory Flexibility Analysis requires consideration of alternatives such as ‘‘the establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities. . . .’’ 5 U.S.C. 603(c)(1). Differing compliance and reporting requirements or timetables can only be considered within the group of institutions to which the regulations apply. Thus NCUA’s definition of ‘‘small entities’’ does not factor in banks or other institutions outside NCUA’s jurisdiction. VerDate Sep<11>2014 16:28 Sep 23, 2015 Jkt 235001 PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 E:\FR\FM\24SER1.SGM 24SER1 tkelley on DSK3SPTVN1PROD with RULES 57516 Federal Register / Vol. 80, No. 185 / Thursday, September 24, 2015 / Rules and Regulations The RFA requires a formal, published, analytical process during promulgation of a regulation whenever such regulation would impose significant economic burdens on a substantial number of small FICUs. It subjects this published consideration to the benefit of public comments. It does not, however, impose a substantive limit on the conclusions the Board may draw based on its analyses. On the contrary, the Board is still able to make distinctions in future rulemakings above or below the threshold designated in this final rule and IRPS. The Board can make these distinctions based on its RFA analysis and its broader consideration of regulatory impacts across all FICUs. The Board’s rule governing liquidity and contingency funding demonstrates this possibility by imposing differing compliance requirements on three asset tiers of FICUs.26 The RFA threshold was $50 million at the time of the rule’s adoption. While the Board exempted FICUs with assets under $50 million from most of the rule’s compliance requirements, the Board also exempted a second tier ($50 million to $250 million) from some requirements. Only the largest tier (over $250 million) is required to comply with the entire rule. As the liquidity rule also demonstrates, asset thresholds remain a principal comparative tool used to determine a FICU’s relative size. As such, an asset threshold, rather than an employee- or branch-based demarcation, continues to be the most transparent and administratively feasible as a framework for its RFA analyses. An asset threshold is consistent with size standards that appear in the FCU Act and other NCUA regulations. With respect to review, the Board continues to believe that the three-year period the proposed rule retained from 2013 provides a reasonable time within which to discern and interpret new trends in relevant data. Further, it is consistent with the longstanding review period NCUA uses for all its regulations. Rather than an annual or biannual adjustment, the three-year cycle avoids the uncertainty of continuous fluctuation that more frequent adjustments could create. Further, the scheduled opportunity to study trends and receive comments provides an advantage over automatically indexed adjustments. As discussed in the proposal, the Board will separately consider whether to align thresholds in existing rules, such as those applying interest rate risk and liquidity requirements, with the RFA threshold. The NCUA’s regular 26 12 CFR 741.12. VerDate Sep<11>2014 16:28 Sep 23, 2015 Jkt 235001 three-year review cycle provides appropriate opportunities for these considerations. Individual reviews will facilitate transparent considerations of unique risks and compliance burdens specific to those rules, rather than encouraging a one-size-fits-all approach. B. How will the final rule and IRPS affect FICUs? By increasing the RFA threshold to $100 million in assets, the Board recognizes its role in ensuring additional scrutiny of regulatory costs for FICUs under that threshold. The increase requires the Board to engage in the RFA’s public analytical process for the benefit of considerably more FICUs, whenever a regulation would impose significant economic burdens on a substantial number of them. Further, future rules are more likely to invoke an RFA analysis because of the greater number of FICUs for which the Board must consider substantial economic impacts. The $100 million threshold will cause NCUA to give special consideration to an additional 733 small FICUs. The total number of FICUs covered by the RFA will increase to approximately 4,690. This represents 75.6 percent of FICUs, which hold 10 percent of FICU assets. When an IRFA or FRFA is triggered, these additional FICUs will have the benefit of an opportunity to comment on a transparent and published analysis of impacts and alternatives. For all of these FICUs, future regulations will be thoroughly evaluated to determine whether an exemption or other separate consideration should apply. The $100 million threshold ensures that regulatory relief will be consistently and robustly considered for significantly more FICUs. This final rule and IRPS retains the three-year review cycle that the Board adopted in 2013. The review period gives FICUs a regular opportunity to provide input on the Board’s RFA threshold. Finally, the rule references IRPS 15–1 in § 791.8(a) of NCUA’s regulations governing regulatory procedures, replacing the reference to IRPS 13–1. IV. Regulatory Procedures A. Regulatory Flexibility Act For any final rule it adopts, the RFA requires NCUA to prepare a FRFA that, among other things, describes the steps the agency has taken to minimize economic impact on small entities (currently defined by NCUA as FICUs with under $50 million in assets), unless the NCUA certifies that the final rule will not have a significant PO 00000 Frm 00008 Fmt 4700 Sfmt 4700 economic impact on a substantial number of small entities. In this case, the final rule and IRPS expands the number of FICUs defined as small entities under the RFA. It, therefore, will not have a significant economic impact on a substantial number of FICUs under $50 million in assets that are already covered by the RFA. With respect to additional FICUs that will now be covered, the principal component of the final rule and IRPS will provide prospective relief in the form of special and more robust consideration of FICUs’ ability to handle compliance burdens. This prospective relief is not yet quantifiable. Further, the final rule and IRPS can only reduce, rather than increase, compliance burdens for these FICUs and, therefore, will not raise costs in a manner that requires a FRFA. 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 FRFA is required. B. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency creates a new paperwork burden on regulated entities or modifies an existing burden.27 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. The changes to IRPS 87–2, as amended, will not create any new paperwork burden for FICUs. Thus, NCUA has determined that this final rule and IRPS does 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 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 and IRPS does not constitute a policy that has federalism implications for purposes of the executive order. 27 44 E:\FR\FM\24SER1.SGM U.S.C. 3507(d). 24SER1 Federal Register / Vol. 80, No. 185 / Thursday, September 24, 2015 / Rules and Regulations 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, 1999, Public Law 105–277, 112 Stat. 2681 (1998). List of Subjects in 12 CFR Part 791 Administrative practice and procedure, Credit unions, Sunshine Act. 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 15–1. * * * * * [FR Doc. 2015–24165 Filed 9–23–15; 8:45 am] BILLING CODE 7535–01–P DEPARTMENT OF TRANSPORTATION By the National Credit Union Administration Board on September 17, 2015. Gerard Poliquin, Secretary of the Board. Federal Aviation Administration For the reasons discussed above, the Board amends IRPS 87–2 (as amended by IRPS 03–2 and IRPS 13–1) by revising the second sentence of paragraph 2 of Section II and replacing the last two sentences of paragraph 2 of Section II to read as follows: RIN 2120–AA66 14 CFR Part 71 [Docket No. FAA–2015–2905; Airspace Docket No. 15–AWA–3] Interpretive Ruling and Policy Statement 87–2 * * * * * * * * * 2. * * * NCUA will designate federally insured credit unions with less than $100 million in assets as small entities. * * * Every three years, 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. * * * * * For the reasons discussed above, the Board amends 12 CFR part 791 as follows: PART 791—RULES OF NCUA BOARD PROCEDURES; PROMULGATION OF NCUA RULES AND REGULATIONS; PUBLIC OBSERVATION OF NCUA BOARD MEETINGS 1. The authority citation for part 791 continues to read as follows: ■ Authority: 12 U.S.C. 1766, 1789 and 5 U.S.C 552b. 2. In § 791.8, revise paragraph (a) to read as follows: tkelley on DSK3SPTVN1PROD with RULES ■ § 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 16:28 Sep 23, 2015 Jkt 235001 Federal Aviation Administration (FAA), DOT. ACTION: Final rule, technical amendment. AGENCY: This action amends geographic coordinates of Portland International Airport, Portland, OR, under Class C airspace, due to recent surveys of the airport. This action also updates the name and geographic coordinates of satellite airports referenced in the Portland description. This action does not change the boundaries or operating requirements of the airspace. DATES: Effective date 0901 UTC, December 10, 2015. The Director of the Federal Register approves this incorporation by reference action under title 1, Code of Federal Regulations, part 51, subject to the annual revision of FAA Order 7400.9 and publication of conforming amendments. ADDRESSES: FAA Order 7400.9Z, Airspace Designations and Reporting Points and subsequent amendments can be viewed online at http://www.faa.gov/ airtraffic/publications/. For further information, you can contact the Airspace Policy and Regulations Group, Federal Aviation Administration, 800 Independence Avenue SW., Washington, DC 20591; telephone: (202) 267–8783. The order is also available for inspection at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call (202) 741–6030, or go to http://www.archives.gov/ federal_register/code_of_federal_ regulations/ibr_locations.html. FAA Order 7400.9, Airspace Designations and Reporting Points, is SUMMARY: * II. Procedures for the Development of Regulations VerDate Sep<11>2014 Amendment of Class C Airspace; Portland International Airport, OR PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 57517 published yearly and effective on September 15. FOR FURTHER INFORMATION CONTACT: Jason Stahl, Airspace Policy and Regulations Group, Office of Airspace Services, Federal Aviation Administration, 800 Independence Avenue SW., Washington, DC 20591; telephone: (202) 267–8783. SUPPLEMENTARY INFORMATION: Authority for This Rulemaking The FAA’s authority to issue rules regarding 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 I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it updates the geographic coordinates of Portland International Airport, Portland, OR. History During a review of the airspace for Portland International Airport, Portland, OR, the FAA identified that the airport’s geographic coordinates were incorrect. This action updates the geographic coordinates to coincide with the FAA’s aeronautical database for the respective Class C airspace area. Additionally, this action updates the names and geographic coordinates of referenced airports within the Portland International Airport’s Class C airspace description. Class C airspace designations are published in paragraph 4000 of FAA Order 7400.9Z dated August 6, 2015, and effective September 15, 2015, which is incorporated by reference in 14 CFR 71.1. The Class C airspace designations listed in this document will be published subsequently in the Order. Availability and Summary of Documents for Incorporation by Reference This document amends FAA Order 7400.9Z, Airspace Designations and Reporting Points, dated August 6, 2015, and effective September 15, 2015. FAA Order 7400.9Z is publicly available as listed in the ADDRESSES section of this final rule. FAA Order 7400.9Z lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points. E:\FR\FM\24SER1.SGM 24SER1

Agencies

[Federal Register Volume 80, Number 185 (Thursday, September 24, 2015)]
[Rules and Regulations]
[Pages 57512-57517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24165]


=======================================================================
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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 791

RIN 3133-AE45


Promulgation of NCUA Rules and Regulations

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule and Interpretive Ruling and Policy Statement 15-1.

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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 13-1. The amended IRPS increases the asset threshold used 
to define the term ``small entity'' under the Regulatory Flexibility 
Act (RFA) from $50 million to $100 million and, thereby, provides 
transparent consideration of regulatory relief for a greater number of 
credit unions in future rulemakings. The final rule and IRPS also makes 
a technical change to NCUA's regulations in connection with procedures 
for developing regulations.

DATES: This rule and IRPS are effective November 23, 2015.

FOR FURTHER INFORMATION CONTACT: Kevin Tuininga, Lead Liquidations 
Counsel, Office of General Counsel, National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428 or 
telephone: (703) 518-6543.

SUPPLEMENTARY INFORMATION:

I. Background
II. Summary of Public Comments
III. The Final Rule and IRPS
IV. Regulatory Procedures

I. Background

A. What changes does this final rule and IRPS make?

    The RFA, as amended, generally requires federal agencies to 
determine and consider the impact of proposed and final rules on small 
entities. Since adopting IRPS 13-1 in 2013, the Board has defined 
``small entity'' in this context as a federally insured credit union 
(FICU) with less than $50 million in assets.\1\ This final rule and 
IRPS 15-1 redefines ``small entity'' as a FICU with less than $100 
million in assets. In addition, the final rule amends Sec.  791.8(a) of 
NCUA's regulations to reference IRPS 15-1. Section 791.8(a) governs 
NCUA's procedures for developing regulations and incorporates IRPS 87-2 
and each of its amendments.
---------------------------------------------------------------------------

    \1\ IRPS 13-1, 78 FR 4032 (Jan. 18, 2013).
---------------------------------------------------------------------------

B. What changes were proposed?

    On February 19, 2015, the Board issued a proposed rulemaking and 
IRPS with a 60-day comment period.\2\ In doing so, the Board proposed 
to increase from $50 million to $100 million the asset threshold used 
to define small entity under the RFA. In support of proposing to 
double, rather than incrementally increase, the RFA threshold, the 
Board weighed competitive disadvantages within the credit union 
industry, relative threats to the National Credit Union Share Insurance 
Fund (Insurance Fund), and the need for broader regulatory relief. The 
proposed increase would provide an additional 733 small FICUs with 
special consideration of the economic impact of proposed and final 
regulations, bringing the total number of FICUs covered by the RFA to 
approximately 4,690. The proposed rule and IRPS 15-1 retained the 
three-year review cycle the Board adopted in 2013. Finally, the 
proposal referenced IRPS 15-1 in Sec.  791.8(a) of NCUA's regulations 
governing regulatory procedures.
---------------------------------------------------------------------------

    \2\ 80 FR 11954 (Mar. 5, 2015).
---------------------------------------------------------------------------

C. What is the history and purpose of the RFA?

    Congress enacted the RFA in 1980, Public Law 96-354, and amended it 
with the Small Business Regulatory Enforcement Fairness Act of 1996.\3\ 
The RFA, in part, requires federal agencies to determine whether a 
proposed or final rule would have a significant economic impact on a 
substantial number of small entities.\4\ If so, the RFA requires 
agencies to engage in a small entity impact analysis, known as an 
initial regulatory flexibility analysis (IRFA) for proposed rules and a 
final regulatory flexibility analysis (FRFA) for final rules.\5\ The 
IRFA and FRFA (or a summary of them) must be published in the Federal 
Register.\6\ If an agency determines that a proposed or final rule will 
not have a ``significant economic impact on a substantial number of 
small entities,'' the agency may certify as much in the Federal 
Register and forego the IRFA and FRFA.\7\
---------------------------------------------------------------------------

    \3\ Public Law 104-121. A principal purpose of the 1996 
amendment was to provide an opportunity for judicial review of 
agency compliance with the RFA. Id.
    \4\ 5 U.S.C. 603, 604, 605(b).
    \5\ 5 U.S.C. 603, 604.
    \6\ Id.
    \7\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    For an IRFA, the procedural requirements include, among other 
things, ``a description of and, where feasible, an estimate of the 
number of small entities to which the proposed rule will apply,'' a 
description of reporting, recordkeeping, and other compliance burden, 
and an identification of any overlapping or conflicting federal 
rules.\8\ In addition, the IRFA must ``contain a description of any 
significant alternatives to the proposed rule which accomplish the 
stated objectives . . . and which minimize any significant economic 
impact of the proposed rule on small entities.'' \9\ This discussion 
must include alternatives such as allowing ``differing compliance or 
reporting requirements or timetables,'' ``the clarification, 
consolidation, or simplification of compliance and reporting 
requirements,'' ``the use of performance rather than design 
standards,'' and a full or partial exemption for small entities.\10\
---------------------------------------------------------------------------

    \8\ 5 U.S.C. 603(b). The IRFA must also include a description of 
why the agency is considering action and ``a succinct statement of 
the objectives of, and legal basis for, the proposed rule. . . .'' 
Id.
    \9\ 5 U.S.C. 603(c).
    \10\ Id.
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    The FRFA must meet requirements similar to that of the IRFA, but 
must also discuss and respond to public comments and describe ``the 
steps the agency has taken to minimize the significant economic impact 
on small entities . . . , including a statement of factual, policy, and 
legal reasons for selecting the alternative adopted in the final rule 
and why each one of the other

[[Page 57513]]

significant alternatives to the rule . . . was rejected.'' \11\ These 
processes encourage federal agencies to give special consideration to 
the ability of smaller entities to absorb compliance burdens imposed by 
new rules.
---------------------------------------------------------------------------

    \11\ 5 U.S.C. 604(a).
---------------------------------------------------------------------------

    The RFA establishes terms for various subgroups that fall within 
the meaning of ``small entity,'' including ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction.'' \12\ FICUs, as 
not-for-profit enterprises, are ``small organizations,'' within the 
broader meaning of ``small entity.'' The RFA permits a regulator, 
including NCUA, to establish one or more definitions of ``small 
organization,'' as appropriate to the activities of the agency.\13\ An 
agency's definition must be subjected to public comment and published 
in the Federal Register.\14\ The RFA provides a default definition of 
``small organization'' as ``a not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field. . . 
.'' \15\
---------------------------------------------------------------------------

    \12\ 5 U.S.C. 601.
    \13\ 5 U.S.C. 601(4).
    \14\ Id.
    \15\ Id.
---------------------------------------------------------------------------

    In 1981, the Board initially defined ``small entity'' in IRPS 81-4 
as any FICU with less than $1 million in assets.\16\ IRPS 87-2 
superseded IRPS 81-4, but retained the definition of ``small entity'' 
as a FICU with assets under $1 million.\17\ The Board updated the 
definition in 2003 to include FICUs with less than $10 million in 
assets with IRPS 03-2.\18\ The last update occurred in 2013, when the 
Board increased the defining threshold to include FICUs with less than 
$50 million in assets.\19\ In addition, the Board pledged to review the 
RFA threshold after two years and thereafter on a three-year cycle, 
similar to its regulatory review process.\20\ On February 19, 2015, the 
Board issued a proposed rule and IRPS with a 60-day comment period, 
proposing to increase the threshold used to define ``small entity'' 
from $50 million to $100 million.\21\
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    \16\ IRPS 81-4, 46 FR 29248 (June 1, 1981).
    \17\ 52 FR 35231 (Sept. 8, 1987).
    \18\ 68 FR 31949 (May 29, 2003).
    \19\ IRPS 13-1, 78 FR 4032 (Jan. 18, 2013).
    \20\ Id. IRPSs 87-2, 03-2, and 13-1 are referenced in NCUA's 
rule governing the promulgation of regulations. 12 CFR 791.8(a).
    \21\ 80 FR 11954 (Mar. 5, 2015).
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II. Summary of Public Comments

    The public comment period for the proposed rule and IRPS ended on 
May 4, 2015. NCUA received 16 comment letters from commenters that 
included credit union trade associations, state credit union leagues, 
federal credit unions, and a federally insured, state-chartered credit 
union.\22\ All commenters expressly supported the proposal at some 
level. One commenter supported the proposal without advocating any 
additional changes or expressing concerns. A number of commenters, 
however, made specific recommendations or expressed concerns about one 
or more aspects of the proposal.
---------------------------------------------------------------------------

    \22\ The comments can be found on the Web at the following 
address: http://www.ncua.gov/Legal/Regs/Pages/PR20150219Promulgation.aspx.
---------------------------------------------------------------------------

A. What were the general comments on the asset threshold?

    More than one-third of commenters either expressed some level of 
satisfaction with the $100 million threshold or did not directly 
advocate a specific threshold higher than $100 million. Two of these 
commenters observed that the proposed threshold ``sufficiently captures 
small [FICUs] that have unique challenges and particular sensitivity to 
even the smallest regulatory requirement.'' Another stated that the 
increase will benefit and account for the FICUs generally facing 
significant challenges based on the characteristics NCUA identified in 
the proposal. One commenter noted that increasing the RFA threshold to 
$100 million is consistent with NCUA's proposed definition of the term 
``complex'' credit union for risk-based capital purposes. This 
commenter also stated that $100 million seemed appropriate in 
comparison to the RFA threshold used for banks. One commenter praised 
NCUA for proposing to increase the threshold to $100 million only two 
years after approving an increase from $10 million to $50 million. 
Multiple commenters, including some that expressed satisfaction with 
the proposed threshold, alluded to compelling reasons to set the 
threshold higher than $100 million, but did not directly advocate a 
specific number or discuss the reasons for doing so.
    Approximately half of the commenters expressed concern about the 
proposed $100 million asset threshold and recommended a higher 
threshold for the final rule. Many from this group favored the $550 
million threshold set by the Small Business Administration (SBA), 
citing one or more of the Federal Deposit Insurance Corporation, Office 
of the Comptroller of the Currency, and the Federal Reserve Board as 
examples of regulators that use the SBA asset threshold for purposes of 
the RFA. Some commenters also suggested a threshold of at least $250 
million, as an alternative to $550 million. One commenter suggested 
that $175 million would also be more appropriate than $100 million, 
noting that the Consumer Financial Protection Bureau uses this 
threshold to assemble panels in complying with its obligations under 
the Small Business Regulatory Enforcement Fairness Act. Another 
commenter suggested $300 million as the appropriate asset threshold.
    Two commenters posited that, if NCUA is willing to adopt a risk-
based capital rule with requirements on par with banking regulators, it 
should be willing to bring its RFA threshold into parity as well. One 
commenter maintained that even FICUs with $250 million in assets are 
not dominant in their field and did not present greater risk to the 
Insurance Fund, particularly because the RFA does not mandate specific 
changes to existing regulations.
    One commenter argued the RFA does not require use of a bright-line 
asset threshold, which risks ``bifurcating the industry'' when used to 
determine eligibility for regulatory relief. This commenter also 
expressed concern that some FICUs over $100 million in assets but with 
few employees and branches will not be taken into consideration when 
NCUA is studying the economic impact of rules on FICUs under the $100 
million threshold. A few commenters that advocated an asset threshold 
higher than $100 million contended that NCUA should consider the 
definition of ``small entity'' in the context of the entire group of 
financial institutions against which FICUs compete, including banks.
    At least eight commenters expressed concerns about the capacity of 
NCUA's Office of Small Credit Union Initiatives (OSCUI) to serve small 
credit unions under an increased asset threshold. Many of these 
commenters suggested that NCUA should separate the eligibility 
threshold OSCUI uses from the asset threshold set for RFA purposes, 
leaving the OSCUI threshold at $50 million or adjusting it to $75 
million. If NCUA increases OSCUI's eligibility threshold,\23\ some 
commenters encouraged NCUA to provide OSCUI with additional or adequate 
resources to help bolster and preserve small credit unions. One 
commenter recommended that NCUA establish a process to allocate OSCUI 
resources to various asset categories for

[[Page 57514]]

a more equitable distribution to the smallest credit unions.
---------------------------------------------------------------------------

    \23\ The proposed rule and IRPS did not address the eligibility 
threshold for OSCUI assistance. While NCUA will consider the 
comments it received on the OSCUI threshold, that threshold is not 
addressed in this final rule and IRPS.
---------------------------------------------------------------------------

B. What were the comments on the review period?

    Two commenters advocated, without elaboration, that NCUA adjust the 
threshold annually based on an index to capture a percentage of the 
smallest credit unions. One commenter asked for review every two years 
and another advocated an annual review. Anticipating additional future 
increases in the RFA threshold, one commenter suggested that NCUA 
increase efficiency and avoid more comment periods by effecting a 
larger increase in the final rule.

C. What other comments did NCUA receive?

    Several commenters commented generally on excessive regulatory 
burden, a lack of resources and employees to cope with the burden, and 
the continuing loss of small FICUs. One commenter asked that NCUA 
explain in the preamble to the final rule the circumstances under which 
it might make distinctions among small FICUs. Another commenter noted 
the RFA classification does not convey any immediate regulatory relief 
to FICUs in existing rules and recommended that NCUA revisit its 
current regulations to consider substituting the final rule's small 
entity threshold for existing size standards. This commenter also 
criticized the use of the term ``small credit union'' in both the Small 
Credit Union Exam Program and the RFA context, indicating that using 
the same term in reference to different thresholds could be confusing.
    The Board has carefully considered all the public comments it 
received in response to the proposed rule and IRPS. The final rule and 
IRPS and the Board's response to the public comments are discussed 
below.

III. The Final Rule and IRPS

    Based on the comment letters and economic analysis of FICUs in 
various asset ranges, the Board maintains $100 million is the most 
appropriate asset threshold for the final rule and IRPS. The proposed 
threshold received significant support in public comments, and the 
factors NCUA considered in the proposal continue to support $100 
million as the most suitable threshold at this time. Increasing the RFA 
threshold to $100 million will account for FICUs that generally face 
more significant challenges than their larger peers based on their 
relatively small asset base, membership, and economies of scale.
    Increasing the threshold to levels recommended by a minority of 
commenters would cover up to 93 percent of FICUs and risk dilution of 
the RFA's special consideration for the smallest FICUs.\24\ As 
explained below, the $100 million threshold results in a similar 
institution coverage ratio as the RFA threshold the FDIC uses in 
relation to banks. In addition, the $100 million threshold covers a 
significantly greater percentage of FICU assets, compared to the 
percentage of bank assets covered by the banking agencies' $550 million 
threshold.
---------------------------------------------------------------------------

    \24\ An asset threshold of $175 million would cover 84 percent 
of all FICUs; $250 million would cover 87% of all FICUs; $550 
million would cover 93 percent of all FICUs.
---------------------------------------------------------------------------

    Finally, the RFA threshold does not make larger FICUs ineligible 
for regulatory relief. The Board fully intends to continue to carefully 
consider the impact of all of its regulations on all FICUs.

A. What data supports the $100 million threshold?

    Data gathered for the period between 2001 and 2014 reflects the 
competitive disadvantages across multiple industry metrics for FICUs 
below $100 million in assets, including the following:
     Deposit growth rates;
     asset growth rates; membership growth rates;
     loan origination growth rates;
     inflation-adjusted average loan amounts;
     ratio of operating costs to assets;
     merger and liquidation trends;
     average year-to-date loan amounts;
     non-interest expenses per dollar loaned;
     average assets per full-time employee; and
     average non-interest expense per annual loan originations.
    Particularly, rates of deposit growth, rates of membership growth, 
rates of loan origination growth, and the ratio of operating costs to 
assets, each discussed more fully below, exemplify differentiations 
between FICUs both above and below the $100 million threshold.
(i) Slower Deposit Growth Rates
    Smaller FICUs have consistently demonstrated an inability to grow 
their deposit base at a rate that keeps pace with larger FICUs. This 
slower growth rate makes it difficult for smaller FICUs to cover fixed 
costs, which are increasing over time. FICUs with growing deposits and 
loans are able to spread out fixed costs and incrementally reduce 
operating costs.
    In general, deposit growth rates drop off significantly for FICUs 
with less than $100 million in assets. FICUs with less than $100 
million in assets as of the end of the year 2000 grew their deposits by 
an average of 3.9 percent annually over the next 14 years. In 
comparison, FICUs with greater than $100 million in assets as of the 
end of the year 2000 grew deposits at 7.1 percent annually, on average, 
over the same period. On an asset-weighted basis, the industry's 
average deposit growth rate from 2001 to 2014 was 6.8 percent per year.
(ii) Slower Membership Growth Rates
    FICUs with less than $100 million in assets also had significantly 
slower membership growth rates than larger FICUs. On average, FICUs 
with less than $100 million in assets as of the end of the year 2000 
had their membership shrink by 0.5 percent annually over the next 14 
years. In contrast, FICUs $100 million or more in assets as of the end 
of the year 2000 grew their membership by 2.3 percent annually over the 
same period. On an asset-weighted basis, the industry's membership 
growth rate was 1.8 percent per year from 2001 to 2014.
(iii) Slower Growth in Loan Originations
    FICUs with less than $100 million in assets also had significantly 
slower growth in loan originations than larger FICUs. On average, FICUs 
with less than $100 million in assets as of the end of the year 2000 
grew loan originations by 3.7 percent annually over the next 14 years. 
In contrast, FICUs with $100 million or more in assets as of the end of 
the year 2000 grew their loan originations by 9.6 percent annually over 
the same period. On an asset-weighted basis, the industry's loan 
origination growth was 6.6 percent per year from 2001 to 2014.
(iv) Higher Operating Expenses
    FICUs with less than $100 million in assets also had higher annual 
operating expenses per unit of assets and per dollar of loan 
originations compared to other asset groups. On average, FICUs with 
less than $100 million in assets as of the end of the year 2000 had 
annual operating expenses equal to 4.0 percent of assets over the next 
14 years. FICUs with $100 million or more in assets as of the end of 
the year 2000 had annual operating expenses of 3.5 percent of assets 
over the same period.
    The impact of these differences in operating expenses can be 
dramatic. Between 2001 and 2014, FICUs with less than $100 million in 
assets as of the end of the year 2000, had operating expenses, on 
average, equal to 18 cents for every dollar in loan originations.

[[Page 57515]]

This expense ratio was close to a third higher than FICUs with $100 
million or more in assets as of the end of the year 2000, which 
averaged annual operating expenses equal to 13 cents for every dollar 
in loan originations over the same period.
    The 55 basis point difference in operating expenses between FICUs 
above and below the $100 million asset threshold resulted in large and 
persistent differences in earnings between these FICUs. The earnings 
gap between FICUs above and below the threshold averaged 41 basis 
points over the 2001 to 2014 period. To put this in perspective, during 
that period, 25 percent of FICUs below the $100 million asset threshold 
had negative earnings. Only 2.8 percent of FICUs with $100 million or 
more in assets had negative earnings over the same period.
    FICUs with persistently weak or negative earnings are more likely 
to go out of business via failure or merger. Despite representing 83 
percent of all FICUs, FICUs with less than $100 million in assets 
experienced 93 percent of mergers and liquidations since 2004. The 
disappearance of these FICUs threatens to deprive the credit union 
industry of a critical constituency.
    Although the number of mergers and failures for FICUs below $100 
million is disproportionately high, these FICUs do not represent a 
correspondingly high risk exposure to the Insurance Fund. For FICUs 
with assets of $50 million to less than $100 million (those which this 
final rule and IRPS include in RFA coverage), losses have historically 
been relatively small. Nine FICUs between $50 million and $100 million 
in inflation-adjusted assets failed between the first quarter of 2001 
and fourth quarter of 2014. Resulting losses totaled less than $56 
million. In contrast, losses for FICUs between $100 million and $250 
million were $379 million, more than six times that amount over the 
same period. FICUs between $100 million and $550 million accounted for 
$790 million in inflation-adjusted losses.
    Rather than expanding the RFA threshold to $550 million or $250 
million, which would include FICUs responsible for significantly more 
losses and risk, the Board believes the $100 million threshold 
represents a reasonable additional share for RFA coverage. FICUs with 
assets of $50 million to less than $100 million hold 4.5 percent of 
system assets, bringing the total system assets within RFA coverage to 
10 percent. To the extent the increase to $100 million results in more 
FICU exemptions from rules governing safety and soundness, it will not 
present material risk to the Insurance Fund.
    For additional background, the table below shows the 
differentiation of the characteristics between the final rule's $100 
million threshold and the expanded RFA coverage thresholds that also 
received support from some commenters. Unless otherwise indicated, the 
table includes cumulative data from 2001 to 2014.

----------------------------------------------------------------------------------------------------------------
                                                                   Inflation-adjusted assets at time of failure
                                                                 -----------------------------------------------
                                                                      <$100M          <$250M          <$550M
----------------------------------------------------------------------------------------------------------------
Share of Industry Losses........................................             32%             63%             97%
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                              Assets as of year 2000
                                                                 -----------------------------------------------
                                                                     <$100M %        <$250M %        <$550M %
----------------------------------------------------------------------------------------------------------------
Asset Growth....................................................              77             104             125
Membership Growth...............................................             -12               0              10
Loan Growth.....................................................              49              78             104
----------------------------------------------------------------------------------------------------------------

    The Board's task under the RFA is to designate as ``small'' a 
subset of institutions to which its regulations apply, rather than 
comparing FICUs to the array of competing institutions that are not 
subject to NCUA's regulations.\25\ A $100 million threshold covers a 
similar portion of FICUs and a significantly higher portion of FICU 
assets (76 percent and 10 percent, respectively) in comparison to the 
FDIC's $550 million RFA threshold for banks subject to its regulations 
(81 percent and 6 percent, respectively). In contrast, a $250 million 
or $550 million threshold for credit unions would cover a 
disproportionate percentage of FICUs and of total FICU assets, as 
reflected in the table below:
---------------------------------------------------------------------------

    \25\ The Initial Regulatory Flexibility Analysis requires 
consideration of alternatives such as ``the establishment of 
differing compliance or reporting requirements or timetables that 
take into account the resources available to small entities. . . .'' 
5 U.S.C. 603(c)(1). Differing compliance and reporting requirements 
or timetables can only be considered within the group of 
institutions to which the regulations apply. Thus NCUA's definition 
of ``small entities'' does not factor in banks or other institutions 
outside NCUA's jurisdiction.

----------------------------------------------------------------------------------------------------------------
                                                   Credit unions   Credit unions   Credit unions
                                                     <$100M %        <$250M %        <$550M %     Banks <$550M %
----------------------------------------------------------------------------------------------------------------
Share of Industry Assets........................              10              20              32               6
Share of Institutions...........................              76              87              93              81
----------------------------------------------------------------------------------------------------------------

    Although a bright line asset threshold arguably bifurcates groups 
of FICUs for purposes of the RFA, it also avoids diluting the pool of 
FICUs for which the RFA requires special consideration. The Board 
believes a threshold significantly higher than $100 million would 
divert focus from the FICUs that are most in need of the RFA process. 
Further, the $100 million threshold does not preclude the Board from 
considering regulatory impacts on larger FICUs. The Board fully intends 
to continue reviewing the impact of all of its regulations on all 
FICUs.

[[Page 57516]]

    The RFA requires a formal, published, analytical process during 
promulgation of a regulation whenever such regulation would impose 
significant economic burdens on a substantial number of small FICUs. It 
subjects this published consideration to the benefit of public 
comments. It does not, however, impose a substantive limit on the 
conclusions the Board may draw based on its analyses. On the contrary, 
the Board is still able to make distinctions in future rulemakings 
above or below the threshold designated in this final rule and IRPS. 
The Board can make these distinctions based on its RFA analysis and its 
broader consideration of regulatory impacts across all FICUs.
    The Board's rule governing liquidity and contingency funding 
demonstrates this possibility by imposing differing compliance 
requirements on three asset tiers of FICUs.\26\ The RFA threshold was 
$50 million at the time of the rule's adoption. While the Board 
exempted FICUs with assets under $50 million from most of the rule's 
compliance requirements, the Board also exempted a second tier ($50 
million to $250 million) from some requirements. Only the largest tier 
(over $250 million) is required to comply with the entire rule.
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    \26\ 12 CFR 741.12.
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    As the liquidity rule also demonstrates, asset thresholds remain a 
principal comparative tool used to determine a FICU's relative size. As 
such, an asset threshold, rather than an employee- or branch-based 
demarcation, continues to be the most transparent and administratively 
feasible as a framework for its RFA analyses. An asset threshold is 
consistent with size standards that appear in the FCU Act and other 
NCUA regulations.
    With respect to review, the Board continues to believe that the 
three-year period the proposed rule retained from 2013 provides a 
reasonable time within which to discern and interpret new trends in 
relevant data. Further, it is consistent with the longstanding review 
period NCUA uses for all its regulations. Rather than an annual or 
biannual adjustment, the three-year cycle avoids the uncertainty of 
continuous fluctuation that more frequent adjustments could create. 
Further, the scheduled opportunity to study trends and receive comments 
provides an advantage over automatically indexed adjustments.
    As discussed in the proposal, the Board will separately consider 
whether to align thresholds in existing rules, such as those applying 
interest rate risk and liquidity requirements, with the RFA threshold. 
The NCUA's regular three-year review cycle provides appropriate 
opportunities for these considerations. Individual reviews will 
facilitate transparent considerations of unique risks and compliance 
burdens specific to those rules, rather than encouraging a one-size-
fits-all approach.

B. How will the final rule and IRPS affect FICUs?

    By increasing the RFA threshold to $100 million in assets, the 
Board recognizes its role in ensuring additional scrutiny of regulatory 
costs for FICUs under that threshold. The increase requires the Board 
to engage in the RFA's public analytical process for the benefit of 
considerably more FICUs, whenever a regulation would impose significant 
economic burdens on a substantial number of them. Further, future rules 
are more likely to invoke an RFA analysis because of the greater number 
of FICUs for which the Board must consider substantial economic 
impacts.
    The $100 million threshold will cause NCUA to give special 
consideration to an additional 733 small FICUs. The total number of 
FICUs covered by the RFA will increase to approximately 4,690. This 
represents 75.6 percent of FICUs, which hold 10 percent of FICU assets. 
When an IRFA or FRFA is triggered, these additional FICUs will have the 
benefit of an opportunity to comment on a transparent and published 
analysis of impacts and alternatives. For all of these FICUs, future 
regulations will be thoroughly evaluated to determine whether an 
exemption or other separate consideration should apply. The $100 
million threshold ensures that regulatory relief will be consistently 
and robustly considered for significantly more FICUs.
    This final rule and IRPS retains the three-year review cycle that 
the Board adopted in 2013. The review period gives FICUs a regular 
opportunity to provide input on the Board's RFA threshold. Finally, the 
rule references IRPS 15-1 in Sec.  791.8(a) of NCUA's regulations 
governing regulatory procedures, replacing the reference to IRPS 13-1.

IV. Regulatory Procedures

A. Regulatory Flexibility Act

    For any final rule it adopts, the RFA requires NCUA to prepare a 
FRFA that, among other things, describes the steps the agency has taken 
to minimize economic impact on small entities (currently defined by 
NCUA as FICUs with under $50 million in assets), unless the NCUA 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small entities. In this case, the 
final rule and IRPS expands the number of FICUs defined as small 
entities under the RFA. It, therefore, will not have a significant 
economic impact on a substantial number of FICUs under $50 million in 
assets that are already covered by the RFA.
    With respect to additional FICUs that will now be covered, the 
principal component of the final rule and IRPS will provide prospective 
relief in the form of special and more robust consideration of FICUs' 
ability to handle compliance burdens. This prospective relief is not 
yet quantifiable. Further, the final rule and IRPS can only reduce, 
rather than increase, compliance burdens for these FICUs and, 
therefore, will not raise costs in a manner that requires a FRFA. 
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 FRFA is required.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency creates a new paperwork burden on regulated entities or 
modifies an existing burden.\27\ 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. The changes 
to IRPS 87-2, as amended, will not create any new paperwork burden for 
FICUs. Thus, NCUA has determined that this final rule and IRPS does not 
increase the paperwork requirements under the PRA and regulations of 
the Office of Management and Budget.
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    \27\ 44 U.S.C. 3507(d).
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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 and IRPS 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 and IRPS does not constitute a policy 
that has federalism implications for purposes of the executive order.

[[Page 57517]]

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, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

List of Subjects in 12 CFR Part 791

    Administrative practice and procedure, Credit unions, Sunshine Act.

    By the National Credit Union Administration Board on September 
17, 2015.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the Board amends IRPS 87-2 (as 
amended by IRPS 03-2 and IRPS 13-1) by revising the second sentence of 
paragraph 2 of Section II and replacing the last two sentences of 
paragraph 2 of Section II to read as follows:

Interpretive Ruling and Policy Statement 87-2

* * * * *

II. Procedures for the Development of Regulations

* * * * *
    2. * * * NCUA will designate federally insured credit unions with 
less than $100 million in assets as small entities. * * * Every three 
years, 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.
* * * * *
    For the reasons discussed above, the Board amends 12 CFR part 791 
as follows:

PART 791--RULES OF NCUA BOARD PROCEDURES; PROMULGATION OF NCUA 
RULES AND REGULATIONS; PUBLIC OBSERVATION OF NCUA BOARD MEETINGS

0
1. 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
2. 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 15-1.
* * * * *
[FR Doc. 2015-24165 Filed 9-23-15; 8:45 am]
BILLING CODE 7535-01-P