Promulgation of NCUA Rules and Regulations, 57512-57517 [2015-24165]
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Federal Register / Vol. 80, No. 185 / Thursday, September 24, 2015 / Rules and Regulations
do not require, individually or in the
aggregate, a compliance audit;
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■ 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.
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■ 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. * * *
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[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
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SUMMARY:
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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).
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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.
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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).
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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: https://www.ncua.gov/Legal/
Regs/Pages/PR20150219Promulgation.aspx.
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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.
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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.
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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.
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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.
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(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.
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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
%
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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.
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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 https://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 https://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]
=======================================================================
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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: https://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:
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\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).
---------------------------------------------------------------------------
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
