Requirements for Insurance; National Credit Union Share Insurance Fund Equity Distributions, 35705-35714 [2017-15687]

Download as PDF Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules (f) A party seeking court review of an Adverse Determination must first appeal the Adverse Determination under this section. § 603.17 Fees. (a) The NCPC shall charge for the duplication of Records under this subpart in accordance with the schedule of fees set forth in NCPC’s FOIA Regulations. The NCPC shall not charge duplication fees when the Requester asks to inspect the Records personally but is provided copies at the discretion of the agency. (b) The NCPC shall not charge any fees for the search for or review of Records requested by an Individual. information technology that collects, maintains, or disseminates Information in Identifiable Form. (f) The SAOP shall approve and sign the NCPC’s PIA. If the SAOP is the Contracting Officer for the IT system that necessitated preparation of the PIA, the Executive Director shall approve and sign the PIA. (g) Following approval of the PIA, the NCPC shall post the PIA document on the NCPC Web site located at www.ncpc.gov. Dated: July 24, 2017. Anne R. Schuyler, General Counsel. [FR Doc. 2017–15882 Filed 7–31–17; 8:45 am] BILLING CODE 7502–02–P mstockstill on DSK30JT082PROD with PROPOSALS § 603.18 VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 741 RIN 3133–AE77 Requirements for Insurance; National Credit Union Share Insurance Fund Equity Distributions National Credit Union Administration (NCUA). ACTION: Notice of proposed rulemaking. AGENCY: The NCUA Board (Board) proposes to amend its share insurance requirements rule to provide federally insured credit unions (FICUs) with greater transparency regarding the calculation of a FICU’s proportionate share of a declared equity distribution from the National Credit Union Share Insurance Fund (NCUSIF) and to add a temporary provision to govern NCUSIF equity distributions resulting from the Corporate System Resolution Program. The Board also proposes to prohibit a FICU that terminates federal share insurance coverage during a particular calendar year from receiving an NCUSIF equity distribution for that calendar year to provide greater fairness to FICUs that remain federally insured. The Board proposes to make technical and conforming amendments to other aspects of the share insurance requirements rule in light of these proposed changes. DATES: Comments must be received on or before Tuesday, September 5, 2017. ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only): • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • NCUA Web site: http:// www.ncua.gov/Legal/Regs/Pages/ SUMMARY: PO 00000 Frm 00017 Fmt 4702 PropRegs.aspx. Follow the instructions for submitting comments. • Email: Address to regcomments@ ncua.gov. Include ‘‘[Your name]— Comments on Requirements for Insurance; National Credit Union Share Insurance Fund Equity Distributions’’ in the email subject line. • Fax: (703) 518–6319. Use the subject line described above for email. • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. You can view all public comments on NCUA’s Web site at http://www.ncua.gov/Legal/Regs/ Pages/PropRegs.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA’s law library at 1775 Duke Street, Alexandria, Virginia 22314–3428, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518– 6546 or send an email to OGCMail@ ncua.gov. PUBLIC INSPECTION: Privacy Impact Assessments. (a) Consistent with the requirements of the E-Government Act and OMB Memorandum M–03–22, the NCPC shall conduct a PIA before: (1) Developing or procuring IT systems or projects that collect, maintain, or disseminate IFF; or (2) Installing a new collection of information that will be collected, maintained, or disseminated using IT and includes IFF for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government). (b) The PIA shall be prepared through the coordinated effort of the NCPC’s privacy Officers (SAOP, PAO), Division Directors, CIO, and IT staff. (c) As a general rule, the level of detail and content of a PIA shall be commensurate with the nature of the information to be collected and the size and complexity of the IT system involved. Specifically, a PIA shall analyze and describe: (1) The information to be collected; (2) The reason the information is being collected; (3) The intended use for the information; (4) The identity of those with whom the information will be shared; (5) The opportunities Individuals have to decline to provide the information or to consent to particular uses and how to consent; (6) The manner in which the information will be secured; and (7) The extent to which the system of records is being created under the Privacy Act. (d) In addition to the information specified in §§ (b)(1)–(7) above, the PIA must also identify the choices NCPC made regarding an IT system or collection of information as result of preparing the PIA. (e) The CCB shall verify that a PIA has been prepared prior to approving a request to develop or procure 35705 Sfmt 4702 FOR FURTHER INFORMATION CONTACT: Benjamin M. Litchfield, Staff Attorney, Office of General Counsel, at (703) 518– 6540; or Steve Farrar, Supervisory Financial Analyst, Office of Examination and Insurance, at (703) 518–6360. You may also contact them at the National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314–3428. SUPPLEMENTARY INFORMATION: I. Background II. Section-by-Section Analysis III. Technical and Conforming Amendments IV. Regulatory Procedures I. Background NCUA is the chartering authority for federal credit unions and the federal share insurer for FICUs.1 In NCUA’s capacity as federal share insurer, the Board, among other things, administers the NCUSIF, a revolving fund created within the United States Treasury to 1 NCUA’s authority to charter federal credit unions is contained in Title I of the Federal Credit Union Act (12 U.S.C. 1752–1775), and its various authorities as federal share insurer are contained in Title II of the Federal Credit Union Act (12 U.S.C. 1781–1790e). Title III of the Federal Credit Union Act (12 U.S.C. 1795–1795k) governs the Board’s responsibilities overseeing the NCUA Central Liquidity Facility, a federal instrumentality that provides liquidity for member credit unions. E:\FR\FM\01AUP1.SGM 01AUP1 35706 Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules provide federal share insurance coverage to FICU members.2 The Federal Credit Union Act (FCU Act) requires a FICU to pay and maintain an NCUSIF capitalization deposit equal to 1 percent of a FICU’s insured shares, in part, to capitalize the NCUSIF.3 The amount of a FICU’s required NCUSIF capitalization deposit is adjusted periodically to reflect changes in the FICU’s insured shares.4 For a FICU with assets less than $50 million, this adjustment occurs annually.5 For all other FICUs, this adjustment occurs semiannually.6 A FICU that terminates federal share insurance coverage is entitled to have its NCUSIF capitalization deposit returned within a reasonable time.7 The FCU Act also requires a FICU to pay a federal share insurance premium to the NCUSIF at such times as the Board prescribes but no more than twice in any calendar year.8 The FCU Act permits the Board to assess a federal share insurance premium if the NCUSIF’s equity ratio is less than 1.3 percent, but only in an amount necessary to restore the equity ratio to 1.3 percent.9 However, if the Board projects that the NCUSIF’s equity ratio will fall below 1.2 percent within the next six months or if the NCUSIF’s equity ratio actually falls below 1.2 percent at any time, the FCU Act requires the Board to implement a restoration plan or charge a premium.10 Furthermore, the FCU Act requires the Board to make a proportionate distribution from the NCUSIF to FICUs for each year where, at the end of the year, the following circumstances are present: (1) The NCUSIF has no outstanding loans from the United States Treasury and any outstanding interest on those loans has been repaid; 2 12 U.S.C. 1783. at 1782(c)(1)(A)(i). 4 Id. at 1782(c)(1)(A)(iii). 5 Id. at 1782(c)(1)(A)(iii)(I). 6 Id. at 1782(c)(1)(A)(iii)(II). 7 Id. at 1782(c)(1)(B)(i). A FICU may terminate federal share insurance coverage by converting to or merging into a nonfederally insured credit union or a noncredit union financial institution such as a mutual savings bank. If permitted under state law, a federally insured, state-chartered credit union may also convert to private share insurance. See 12 CFR 708b (NCUA’s regulation governing mergers and conversions to private share insurance). A FICU may also terminate federal share insurance coverage through voluntary or involuntary liquidation. 8 Id. at 1782(c)(2)(A). 9 Id. at 1782(c)(2)(B). The equity ratio is the amount of NCUSIF capitalization, including FICU NCUSIF capitalization deposits and retained earnings of the NCUSIF (net of direct liabilities of the NCUSIF and contingent liabilities for which no provision for losses has been made) divided by the aggregate amount of insured FICU shares. Id. at 1782(h)(2). 10 Id. at 1782(c)(2)(C), (D). mstockstill on DSK30JT082PROD with PROPOSALS 3 Id. VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 (2) the NCUSIF’s equity ratio exceeds the normal operating level set by the Board; 11 and (3) the NCUSIF’s available assets ratio exceeds 1 percent.12 Where those circumstances are present, the FCU Act requires the Board to make the maximum possible distribution that does not reduce the NCUSIF’s equity ratio below its normal operating level or reduce the NCUSIF’s available assets ratio below 1 percent.13 Section 741.4 of NCUA’s regulations implements these requirements.14 The Board originally adopted this rule on October 17, 1984.15 The provisions of § 741.4 have only been slightly modified in the past 33 years since the rule was adopted.16 However, because the Board is contemplating the possibility of closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF), a temporary revolving fund created to address problems in the corporate credit union system that arose as part of the Great Recession,17 and transferring all of its remaining assets to the NCUSIF, the Board has reexamined § 741.4 and believes amendments to the rule are necessary to provide FICUs with greater fairness, transparency, and predictability regarding NCUSIF equity distributions. The Board specifically proposes to amend § 741.4(e) to adopt a method for calculating a FICU’s proportionate share of a declared NCUSIF equity distribution. The Board has historically determined the amount of a FICU’s proportionate share based on the FICU’s daily NCUSIF capitalization deposit balance. The Board recognizes that this method is not clearly stated in § 741.4(e) or any formal guidance to the credit union industry. Furthermore, the Board has identified flaws in this approach that may give an unfair advantage to FICUs with assets over $50 million. Accordingly, the Board believes that amending § 741.4(e) is necessary to provide FICUs with greater fairness, 11 The NCUSIF equity ratio’s normal operating level is between 1.2 percent and 1.5 percent as specified by the Board. Id. at 1782(h)(4). The normal operating level is currently 1.3 percent. 12 Id. at 1782(c)(3)(A)(i)–(iii). The available assets ratio is the total of cash plus market value of unencumbered investments (less direct liabilities and contingent liabilities for which no provision for loss has been made) divided by the aggregate amount of insured FICU shares. Id. at 1782(h)(1). 13 Id. at 1782(c)(3)(B)(i)–(ii). 14 12 CFR 741.4. 15 49 FR 40561 (Oct. 17, 1984). 16 The most recent substantive amendments addressed how newly chartered FICUs and FICUs that terminate federal share insurance are affected by any NCUSIF premium or deposit replenishment assessments in the same year. See 74 FR 63277 (Dec. 3, 2009). 17 12 U.S.C. 1790e. PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 transparency, and predictability regarding this calculation. The Board also proposes to amend § 741.4(j)(1)(ii) to change its current policy of making an NCUSIF equity distribution to a FICU that terminates federal share insurance coverage during the calendar year applicable to an NCUSIF equity distribution.18 The Board has historically made such a distribution under these circumstances based on the amount of time during that year that the FICU was federally insured by NCUA. However, the Board believes that amending § 741.4(j)(1)(ii) is necessary to promote greater fairness to FICUs that remain federally insured by NCUA throughout the entire calendar year. Moreover, the Board proposes to make technical and conforming amendments to §§ 741.4(b) and (i) to accommodate the proposed amendments to §§ 741.4(e) and 741.4(j)(1)(ii) and to eliminate Appendix A to part 741, which provides examples of partial year NCUSIF assessments and distributions under § 741.4, in favor of developing more user-friendly and easily updated examples that can be posted on NCUA’s Web site. Finally, the Board proposes to add temporary § 741.13 to address any NCUSIF equity distributions related to the winding down of the Corporate System Resolution Program, a special purpose initiative to stabilize the corporate credit union system funded principally through advances from the TCCUSF. Because the Corporate System Resolution Program involved a series of corporate assessments against FICUs over multiple years and any NCUSIF equity distributions related to that program would likely take place over multiple years and in varying amounts, the Board believes that any NCUSIF equity distributions related to the Corporate System Resolution Program should be addressed in a separate, temporary provision of the rule. For purposes of this temporary provision, any NCUSIF equity distributions declared for calendar years 2017 through 2021 are deemed to be ‘‘resulting from the Corporate System Resolution Program.’’ While not part of the specific amendments proposed in this rulemaking, the Board is also requesting comments on ways to improve the current process for assessing and collecting federal share insurance premiums. The Board is interested in providing FICUs with greater fairness, transparency, and predictability in this 18 This includes a FICU that terminates federal share insurance through voluntary or involuntary liquidation. E:\FR\FM\01AUP1.SGM 01AUP1 Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules regard. The Board intends to address the assessment and collection of federal share insurance premiums in a separate rulemaking based, in part, on the comments received. One possible improvement the Board is considering is to calculate federal share insurance premiums as consistently as possible with how the Board proposes to calculate each FICU’s proportionate share of an NCUSIF equity distribution. The Board requests comment on all aspects of this proposed rule on or before Tuesday, September 5, 2017. II. Section-by-Section Analysis mstockstill on DSK30JT082PROD with PROPOSALS Section 741.4(e) Distribution of NCUSIF Equity The Board proposes to amend § 741.4(e) to adopt a method for calculating a FICU’s proportionate share of an NCUSIF equity distribution. NCUA has historically determined the amount of a FICU’s proportionate share based on the FICU’s daily NCUSIF capitalization deposit balance. Under this method, NCUA determines a FICU’s proportionate share of an NCUSIF equity distribution by dividing the total dollar amount of the NCUSIF equity distribution by the total dollar amount of the NCUSIF capitalization deposits. Expressed as a percentage, this quotient represents the distribution (or dividend) rate. NCUA then divides the distribution rate by 365 (the number of calendar days in a year) to arrive at a daily distribution rate. Finally, NCUA applies this dividend rate to a FICU’s daily NCUSIF capitalization deposit balance to determine that FICU’s proportionate share.19 The principal advantage of this method is that it treats an NCUSIF equity distribution similarly to a dividend on an investment such as a share certificate. Each FICU’s proportionate share is determined based on its NCUSIF capitalization deposit which the Board invests in interestbearing government securities and other lawful investments for public funds of the United States to generate revenue for the NCUSIF.20 However, the Board recognizes that this method may give a FICU with $50 million or more in assets an unfair advantage over smaller FICUs. NCUA adjusts a smaller FICU’s NCUSIF capitalization deposit annually in April using insured shares reported on the December 31 Call Report. As a result, for 19 To address mergers completed during the calendar year applicable to the distribution, the NCUSIF equity distribution due to a merged FICU based on its independent NCUSIF capitalization deposit balance was paid to the continuing credit union. 20 12 U.S.C. 1783(c). VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 the first 3 months of the calendar year applicable to the NCUSIF equity distribution, the daily NCUSIF capitalization deposit balance is based on Call Report data that is almost two years old. Moreover, for the remainder of the calendar year, the daily NCUSIF capitalization deposit balance is based on the previous year’s Call Report data. As a result, this method not only fails to capture insured share growth at a smaller FICU during the calendar year, but also fails to capture insured share growth during the previous calendar year for a full 3 months until NCUA adjusts the NCUSIF capitalization deposit in April. In contrast, this method does capture insured share growth at a larger FICU during the calendar year. NCUA adjusts a larger FICU’s NCUSIF capitalization deposit semiannually in April using insured shares reported on the December 31 Call Report and in October using insured shares reported on the June 30 Call Report. This means that for the last 3 months of the calendar year applicable to the NCUSIF equity distribution, the daily NCUSIF capitalization deposit balance is based on current Call Report data. As a result, this method will capture insured share growth at a larger FICU during the calendar year, giving the larger FICU an unfair advantage over smaller FICUs. Recognizing this inherent unfairness, the Board proposes to adopt a new method for calculating a FICU’s proportionate share of an NCUSIF equity distribution that is more equitable to smaller FICUs and uses more contemporary share insurance activity. In determining the appropriate method for calculating a FICU’s proportionate share, the Board seeks to develop a method that: (1) Is based on a FICU’s insured shares; (2) uses the most current and accurate data readily accessible through a FICU’s quarterly Call Reports; (3) NCUA can reasonably administer without additional regulatory burden on FICUs or administrative burden on the agency; and (4) does not give an unfair advantage to one class of FICUs over another. The Board believes that using a FICU’s insured shares (as opposed to total assets or some other measure, such as the total number of FICUs in the NCUSIF system) is appropriate because a FICU’s insured share balance directly relates to the operation of the NCUSIF and is a factor in calculating the NCUSIF equity ratio and average assets ratio which trigger an NCUSIF equity distribution. Furthermore, the Board believes that using the most current and PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 35707 accurate data reasonably available through a FICU’s quarterly Call Reports allows NCUA to easily capture the actual proportionate size of each FICU in the NCUSIF system without giving an unfair timing advantage to one class of FICUs over another. The use of Call Report data also avoids additional regulatory burden on FICUs or administrative burden on NCUA. Consequently, the Board has considered and rejected a number of alternative methods for calculating a FICU’s proportionate share, including the use of a FICU’s total assets or the total number of FICUs at the end of the calendar year. The use of a FICU’s total assets bears no relation to a FICU’s insured shares and unfairly advantages larger FICUs that can leverage their size to increase total assets at the expense of smaller FICUs. Likewise, calculating a FICU’s proportionate share based on the total number of FICUs in the NCUSIF system has no relationship to an individual FICU’s insured shares and would unfairly advantage smaller FICUs at the expense of larger FICUs. Accordingly, the Board has considered and rejected these two approaches, among others. The Board is considering adopting one of two methods for calculating a FICU’s proportionate share of an NCUSIF equity distribution: (1) The average of the four quarter-end insured share balances reported on the FICU’s Call Reports during the calendar year applicable to an NCUSIF equity distribution, or (2) insured share balances reported on the FICU’s December 31 Call Report during the calendar year applicable to an NCUSIF equity distribution. Of the two methods, the Board believes the four quarter average method has more advantages, such as accounting for seasonal fluctuations, and has therefore proposed corresponding regulatory text for § 741.4 reflecting the four quarter average method in this notice of proposed rulemaking. However, the Board is requesting comment on both methods and will consider adopting one over the other based on the persuasiveness of the comments. Four Quarter Average of Insured Shares Method As noted above, the Board is considering using the average of eligible FICUs’ quarter-end insured share balances as reported on their quarterly Call Reports for the year applicable to the NCUSIF equity distribution.21 21 Under this proposed rule, credit unions that terminate NCUSIF insurance during the year E:\FR\FM\01AUP1.SGM Continued 01AUP1 35708 Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules mstockstill on DSK30JT082PROD with PROPOSALS Under this proposed method, NCUA would determine a FICU’s proportionate share of an NCUSIF equity distribution by dividing the dollar amount of the total NCUSIF equity distribution by the aggregate average dollar amount of insured shares for FICUs eligible for a distribution as reported on each quarterend Call Report for the calendar year applicable to the distribution. NCUA would then multiply the proportionate share by a FICU’s average dollar amount of insured shares. The Board would determine a FICU’s average dollar amount of insured shares by adding the dollar amounts of insured shares reported in each of the FICU’s quarterly Call Reports for the year applicable to the distribution, and then dividing by four.22 The following illustrates the application of the proposed method for calculating a FICU’s proportionate share of an NCUSIF equity distribution. Assume the Board declares an NCUSIF equity distribution of $100 million in the form of a dividend. Also assume that the aggregate average dollar amount of insured shares for FICUs eligible for a distribution for the calendar year is $100 billion. The proportionate share of $100 million and $100 billion is 0.001 or 0.1%. XYZ Credit Union, a fictitious FICU, reports quarterly insured shares of $10 million, $12 million, $11 million, and $12 million, respectively. As a result, XYZ Credit Union has an average dollar amount of insured shares of $11.25 million (adding $10 million, $12 million, $11 million, and $12 million together and dividing by 4 equals $11.25 million). Multiplying XYZ Credit Union’s average dollar amount of insured shares by its proportionate share of the dollar amount of the NCUSIF equity distribution and the aggregate average dollar amount of insured shares for FICUs eligible for a distribution yields a proportionate dividend of $11,250 ($11.25 million multiplied by 0.001 equals $11,250). The principal advantage of this method for calculating a FICU’s proportionate share is that it adjusts for seasonal fluctuations in insured share levels. It also removes any incentive to inflate year-end insured share levels. applicable to the distribution are not eligible to receive a distribution. 22 To address the effect of mergers of NCUSIF insured credit unions throughout the calendar year, the Board would combine the dollar amounts of insured shares reported separately by merging FICUs prior to the consummation of any merger with the dollar amounts of insured shares reported separately by the continuing FICU when calculating the continuing FICU’s average dollar amount of insured shares. This accounts for the merger as if it were in effect for the entire year given both institutions were NCUSIF insured. VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 Adjusting for seasonal fluctuations in insured share levels allows NCUA to make a proportionate distribution based on the actual average size of a FICU over the calendar year. In addition, this method for calculating a FICU’s proportionate share is based on publicly available information contained in each FICU’s quarterly Call Reports. This information is also periodically examined by NCUA and state regulators. Furthermore, this method would not increase regulatory burden on FICUs because they currently report insured shares in their quarterly Call Reports. However, this method for calculating a FICU’s proportionate share poses some disadvantages. First, this method is somewhat more complex than simply using year-end insured share balances. For example, NCUA has to separately track FICUs that merge during the calendar year to combine their insured shares. Consequently, this method could be more administratively burdensome for NCUA. Second, this method does not correspond exactly to the other calculations required by § 741.4(e). In particular, both the NCUSIF equity ratio and the available assets ratio are, by statute, calculated based on the aggregate amount of insured shares in FICUs as of the December 31 Call Report.23 The Board believes the advantages of this approach to calculating a FICU’s proportionate share of an NCUSIF equity distribution outweigh the disadvantages and requests comment on this proposed calculation method. The Board specifically requests comment on whether a longer look-back period, such as 18 to 24 months, is appropriate to more accurately capture the proportionate size of each FICU. The Board may adjust the proposed calendar year look-back period based on the persuasiveness of the comments. Year-End Insured Share Balance Method Alternatively, the Board is considering using eligible FICUs’ yearend insured share balances as the basis for calculating their proportionate share of an NCUSIF equity distribution. Under this method, NCUA would determine a FICU’s proportionate share by dividing the dollar amount of an NCUSIF equity distribution by the aggregate amount of insured shares in all FICUs as reported on the December 31 Call Report for the year applicable to the distribution. That proportionate share would then be multiplied by the amount of insured shares reported in the FICU’s December 31 Call Report for the year applicable to PO 00000 23 12 U.S.C. 1782(c)(4). Frm 00020 Fmt 4702 Sfmt 4702 the distribution to determine each FICU’s proportionate share. The following illustrates the application of the proposed method for calculating a FICU’s proportionate share of an NCUSIF equity distribution. Assume the Board declares an NCUSIF equity distribution of $100 million in the form of a dividend. Also assume that the aggregate average dollar amount of insured shares for FICUs eligible for a distribution for the calendar year is $100 billion. The proportionate share of $100 million and $100 billion is 0.001 or 0.1%. XYZ Credit Union, a fictitious FICU, reports insured shares of $11 million on its December 31 Call Report. Multiplying XYZ Credit Union’s yearend insured shares for the year applicable to the distribution by the proportionate share of the dollar amount of the NCUSIF equity distribution and the aggregate average dollar amount of insured shares for FICUs eligible for a distribution yields a proportionate NCUSIF equity distribution of $11,000 ($11 million multiplied by 0.001 equals $11,000). This method for calculating a FICU’s proportionate share of an NCUSIF equity distribution has several advantages. First, NCUA would not need to create a special rule regarding mergers because all merger activity for the calendar year would be captured in the continuing FICU’s December 31 Call Report. Second, NCUA would not need to create a special rule regarding terminations of federal share insurance because a FICU that terminates federal share insurance coverage during the calendar year would not file a December 31 Call Report. Third, NCUA currently uses this method when calculating: (1) The proportionate share of an NCUSIF equity distribution paid to a financial institution that converts to federal share insurance during the calendar year from private share insurance or through conversion to a credit union from a bank; 24 (2) the NCUSIF equity ratio; 25 (3) the available assets ratio; 26 and (4) the dollar amount of any federal share insurance premiums.27 However, this method for calculating a FICU’s proportionate share does not account for seasonal fluctuations in share levels. As a result, a FICU that experiences a drop off in the amount of insured shares in the fourth quarter would receive a smaller NCUSIF equity distribution even though that FICU maintained a higher amount of insured shares over the calendar year. 24 12 CFR 741.4(i)(1)(v). U.S.C. 1782(h)(2); 12 CFR 741.4(b). 26 Id. at 1782(h)(1); Id. at 741.4(b). 27 Id. at 1782(c)(2)(A); Id. at 741.4(d). 25 12 E:\FR\FM\01AUP1.SGM 01AUP1 Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules Accordingly, this approach may not accurately reflect the actual proportionate share of each FICU in the NCUSIF system. Furthermore, the Board is concerned that this approach may create an incentive for some FICUs to increase insured shares at the end of the reporting year in an attempt to receive a larger NCUSIF equity distribution. Any such attempts to receive a larger NCUSIF equity distribution could lead to inequities, and in extreme cases, potential safety and soundness issues. Additionally, significant increases in insured shares at year-end would lower the NCUSIF’s equity ratio, all else being equal, and potentially lower the amount available for distribution. The Board requests comment on this proposed calculation method. Particularly, the Board requests comment on how this proposed calculation method could be improved to address the Board’s concerns regarding seasonal fluctuations, any attempts to increase a FICU’s year-end insured share balance, and any other relevant aspects of this approach. Section 741.4(j) Conversion From, or Termination of, Federal Share Insurance The Board proposes to amend § 741.4(j)(1)(ii) to prohibit NCUSIF equity distributions to FICUs that terminate federal share insurance coverage during the calendar year.28 Currently, if a FICU terminates federal share insurance coverage during the calendar year that FICU is entitled to receive a NCUSIF equity distribution based on the FICU’s insured shares as of the last day of the most recently ended reporting period reduced by the number of months remaining in the calendar year after the FICU terminates coverage.29 The Board adopted the current calculation methodology in 2010 to simplify the manner in which an NCUSIF equity distribution is made to a FICU that terminates federal share insurance.30 The Board reasoned that this simplification was appropriate ‘‘particularly since the contribution of a departing credit union to future distributions diminishes with the passage of time.’’ 31 While the Board has 28 Id. mstockstill on DSK30JT082PROD with PROPOSALS at 741.4(j)(1)(ii). calculation methodology set out in § 741.4(j)(1)(ii) specifically requires the Board to multiply the amount of insured shares outstanding by the ‘‘modified premium/distribution ratio.’’ The ‘‘modified premium/distribution ratio’’ is the amount of full months in the calendar year preceding the termination of federal share insurance coverage divided by 12. See 12 CFR 741.4(b). 30 74 FR 36618 (July 24, 2009) (proposed rule). 31 Id. historically attempted to recognize the contribution of a departing credit union, the Board believes that prohibiting NCUSIF equity distributions to FICUs that terminate federal share insurance coverage is a more fair and reasonable approach than the Board’s current policy. The Board favors this approach because it is more equitable to FICUs that remain federally insured by NCUA throughout the calendar year and consistent with the assessment of federal share insurance premiums. A FICU that terminates federal share insurance coverage before the assessment of a premium is not required to pay that premium.32 Because that FICU is not required to bear the risk of federal share insurance coverage (i.e., an assessment of a federal share insurance premium or an increase in the FICU’s required NCUISF capitalization deposit), the Board believes it would be inherently unfair to FICUs that remain federally insured by NCUA to allow a FICU that terminates coverage to receive the rewards of federal share insurance coverage (i.e., an NCUSIF equity distribution). The Board also favors this approach because it parallels general corporate practice regarding shareholder equity distributions. A corporate shareholder that sells stock before a distribution is declared generally forfeits the right to an equity distribution from the corporation.33 This clear, bright-line rule ensures that a corporation is able to ascertain the exact number of individuals who should receive an equity distribution without significant litigation risk from former shareholders or previously unknown claimants. Likewise, adopting a clear, bright-line rule for an NCUSIF equity distribution allows the Board to reasonably ascertain the FICUs to which it must make distributions. Furthermore, this approach allocates the risk of forfeiting an NCUSIF equity distribution directly to the entity in the best position to avoid that risk, namely the FICU terminating federal share insurance coverage. The Board believes that a FICU considering the economic advisability of terminating federal share insurance coverage is in the best position to avoid forfeiting an NCUSIF equity distribution because the 29 The VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 32 See 12 CFR 741.4(j)(1)(iii) (a FICU that terminates federal share insurance coverage is only required to pay a federal share insurance premium if it is assessed on or before the date of the termination of coverage). 33 See e.g. Limbaugh v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 732 F.2d 859, 861 (11th Cir. 1984) (‘‘[w]hen stock is sold prior to the exdividend date, the right to a dividend goes with the stock to the purchaser, rather than staying with the seller.’’). PO 00000 Frm 00021 Fmt 4702 Sfmt 4702 35709 Board publishes quarterly reports on the condition of the NCUSIF that provide ample opportunity to determine whether an NCUSIF equity distribution is likely for that calendar year. Because of this advanced notice, the Board believes that the responsibility should fall on the FICU to make an independent business decision whether the benefits of receiving the NCUSIF equity distribution outweigh the benefits terminating federal share insurance coverage. While the Board believes that the proposed change to § 741.4(j)(1)(ii) presents a more equitable and reasonable approach for handling NCUSIF equity distributions to a former FICU than the Board’s current policy, the Board recognizes that this is not the only available approach. Accordingly, the Board requests comment on this aspect of the proposed rule and may make modifications to this approach depending on the persuasiveness of the comments. The Board requests specific comments on how to address a FICU that terminates federal share insurance coverage through liquidation. One approach that the Board is considering is to continue to make NCUSIF equity distributions to a liquidated FICU until the closure of its liquidation estate. In other words, the Board would interpret the termination date for federal share insurance coverage to be the date the liquidation estate officially closes. However, the Board recognizes that this approach may be problematic, especially if the liquidation estate remains open for several years, because it could result in the liquidation estate receiving an NCUSIF equity distribution while also imposing costs on the NCUSIF. As a result, the Board is also considering treating the termination date as the date the FICU enters liquidation. Accordingly, the Board requests comment on the appropriate treatment of liquidation estates under proposed § 741.4(j)(1)(ii). Section 741.13 NCUSIF Equity Distributions Related to the Corporate System Resolution Program The Board proposes to adopt a temporary provision to govern any NCUSIF equity distributions resulting from the Corporate System Resolution Program. For purposes of this temporary provision, any NCUSIF equity distributions declared for calendar years 2017 through 2021 are deemed to be ‘‘resulting from the Corporate System Resolution Program.’’ The Board created the Corporate System Resolution Program to respond to increased administrative costs resulting from the E:\FR\FM\01AUP1.SGM 01AUP1 mstockstill on DSK30JT082PROD with PROPOSALS 35710 Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules conservatorship and liquidation of corporate credit unions following the Great Recession. As part of the Corporate System Resolution Program, the Board repackaged portfolios of assetbacked securities and corporate bonds (legacy assets) into NCUA Guaranteed Notes (NGNs) and funded the securitization of these assets through corporate assessments and borrowing against a line of credit at the U.S. Treasury. Improved performance of legacy assets and NCUA’s legal recoveries in its capacity as liquidating agent for the corporate credit unions has resulted in the TCCUSF maintaining a net position of positive $1.6 billion as of March 2017. It is now possible for remaining NGNs to be funded solely from the NCUSIF without inordinate risk, meaning that the purposes of the TCCUSF and the Corporate System Resolution Program have been fulfilled. Accordingly, the Board is considering closing the TCCUSF and winding down the Corporate System Resolution Program and will be publishing a notice in the Federal Register soliciting comment in that regard. Closing the TCCUSF and winding down the Corporate System Resolution Program will require NCUA to transfer all remaining funds, property, or other assets remaining in the TCCUSF to the NCUSIF, which could trigger a significant NCUSIF equity distribution.34 Winding down of the Corporate System Resolution Program could also trigger future NCUSIF equity distributions as the NGNs mature. Given the potential size and complexity of these transactions, the Board believes that § 741.4 is ill-suited to address these potential NCUSIF equity distributions. As a result, the Board proposes to adopt a temporary provision to NCUA’s share insurance requirements rule to govern an NCUSIF equity distribution resulting from the Corporate System Resolution Program. The Board believes that any NCUSIF equity distribution related to the Corporate System Resolution Program should first go towards repaying those FICUs that paid special premiums, generally referred to as corporate assessments, rather than taking the form of a general proportionate distribution to current FICUs under § 741.4. Accordingly, the Board is considering making any NCUSIF equity distributions related to the Corporate System Resolution Program in the form of a series of NCUSIF equity 34 12 U.S.C. 1790e(h). NCUA does not have the legal authority to make distributions directly from the TCCUSF. VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 distributions repaying any corporate assessments against FICUs on either a first-in, first-out (FIFO) or a last-in, firstout (LIFO) basis. Any payments paid to a FICU that has merged into another FICU would be paid to the continuing FICU. Moreover, any payments owed to a liquidated FICU with an open liquidation estate or a closed liquidation estate still within its applicable look-back period would be made to the liquidation estate and distributed ratably to the FICU’s creditors in accordance with part 709 of NCUA’s rules. Given the payment priority set out in part 709, the Board anticipates that a majority of these creditors would be members with uninsured share balances rather than general creditors of the liquidation estate. Because any NCUSIF equity distribution related to the Corporate System Resolution Program would go first towards repaying FICUs that paid corporate assessments, a FICU that has not paid a corporate assessment would not be entitled to receive an NCUSIF equity distribution related to the Corporate System Resolution Program unless all such corporate assessments are first repaid in full. Additionally, a FICU that terminates federal share insurance coverage before the payment date for an NCUSIF equity distribution related to the Corporate System Resolution Program would not be entitled to a distribution for the reasons stated above in the discussion of proposed changes to § 741.4(j)(1)(ii). NCUSIF Equity Distribution on First-In, First-Out Basis Under a FIFO approach, the Board would make an NCUSIF equity distribution to each FICU up to the total dollar amount of corporate assessments paid by that FICU during the relevant assessment period beginning with the first assessment period in 2009. For example, assume the Board has declared four corporate assessments in the amounts of $100 million in 2009, $250 million in 2010, $550 million in 2011, and $700 million in 2012. Also assume that XYZ Credit Union, a fictitious FICU, has paid corporate assessments of $1 million, $2.5 million, $5.5 million, and $7 million, respectively. Furthermore, assume that on June 30, 2018, the Board closes the TCCUSF and declares an NCUSIF equity distribution of $500 million. Under the proposed FIFO method, XYZ Credit Union would receive $3.5 million ($1 million for 2009 plus $2.5 million for 2010 equals $3.5 million) representing the total dollar amount of corporate assessments paid by XYZ Credit Union for calendar years 2009 and 2010. PO 00000 Frm 00022 Fmt 4702 Sfmt 4702 Because there are not enough funds to fully repay the $550 million corporate assessment for 2011, XYZ Credit Union receives a distribution of remaining funds based on its pro rata share of the corporate assessment ($5.5 million divided by $550 million equals .01 or 1 percent). In this case, only $150 million remains after repaying the first and second corporate assessments (Subtracting $100 million and $250 million from $500 million equals $150 million, which is less than $550 million). As a result, XYZ Credit Union receives a distribution for that period of $1.5 million ($150 million multiplied by .01 equals $1.5 million). As a result, XYZ Credit Union receives a total NCUSIF equity distribution of $5 million ($3.5 million plus $1.5 million equals $5 million) from the $500 million distribution declared on June 30, 2018. NCUSIF Equity Distribution on Last-In, First-Out Basis Under a LIFO approach, the Board would make an NCUSIF equity distribution to each FICU up to the total dollar amount of premiums paid by that FICU during the relevant assessment period beginning with the last assessment period. For example, assume the Board has declared four corporate assessments in the amounts of $100 million in 2009, $250 million in 2010, $550 million in 2011, and $700 million in 2012. Also assume that XYZ Credit Union, a fictitious FICU, has paid corporate assessments of $1 million, $2.5 million, $5.5 million, and $7 million, respectively. Furthermore, assume that on June 30, 2018, the Board closes the TCCUSF and declares a NCUSIF equity distribution of $500 million. Because there are not enough funds to fully repay the $700 million corporate assessment for 2012, XYZ Credit Union receives a distribution based on its pro rata share of the corporate assessment ($7 million divided by $700 million equals .01 or 1 percent). As a result, under the proposed LIFO method, XYZ Credit Union would receive $5 million ($500 million multiplied by .01 equals $5 million). Of the two methods, the Board favors the LIFO method because it ensures that FICUs receive NCUSIF equity distributions for their most recent corporate assessments first, with smaller assessments that took place at the start of the Corporate System Resolution Program being repaid over time as the NGNs mature. Therefore, the Board is proposing corresponding regulatory text for § 741.13 reflecting the LIFO approach in this notice of proposed rulemaking. However, the Board is E:\FR\FM\01AUP1.SGM 01AUP1 Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules requesting comment on both methods, as well as whether the four quarter average of insured shares method or the year-end insured share balance method discussed above should apply to NCUSIF equity distributions relating to the Corporate System Resolution Program. Additionally, the Board requests comment on whether the FCU Act permits the FIFO and LIFO methods. The FCU Act requires the Board to ‘‘effect a pro rata distribution to insured credit unions after each calendar year if, as of the end of the calendar year,’’ the NCUSIF’s equity ratio exceeds its normal operating level and the available assets ratio exceeds 1 percent.35 The Board believes that the statutory text is sufficiently ambiguous to permit the Board to adopt either a FIFO or LIFO method for determining the payment priority of each series of NCUSIF equity distributions provided that each FICU receives a pro rata distribution based on the amount of funds available for the relevant assessment period. However, the Board recognizes that this is not the only interpretation of this provision and requests comment in that regard. Furthermore, the Board requests comment on whether a FICU’s liquidation estate should receive an NCUSIF equity distribution related to the Corporate System Resolution Program. The Board’s preferred approach is to make NCUSIF equity distributions to liquidation estates that remain open or were recently closed and are still within the relevant lookback period where it is possible to reopen the estate and make additional distributions to creditors. As noted above in the discussion of § 741.4(j)(1)(ii), however, the treatment of liquidation estates can be problematic, especially for liquidation estates that remain open for several years. Accordingly, the Board requests comment on the appropriate treatment of liquidation estates under proposed § 741.13. mstockstill on DSK30JT082PROD with PROPOSALS III. Technical and Conforming Amendments Section 741.4(b) Definitions The Board proposes to make a technical correction to the definition of the ‘‘available assets ratio.’’ Section 741.4(b) defines the ‘‘available assets ratio’’ as the ratio of the total of cash plus market value of unencumbered investments less direct liabilities and contingent liabilities for which no provision for loss has been made (numerator) to the aggregate amount of 35 12 insured shares in all FICUs (denominator).36 The mathematical formula immediately following this definition, however, compares the numerator to the ‘‘aggregate amount of all insured shares from the final reporting period of the calendar year.’’ 37 This discrepancy is a prior inadvertent drafting error that the Board proposes to fix by amending the qualifier to read ‘‘as reported on the calendar year-end Call Report’’ in both the definition and the mathematical formula. This proposed change is purely technical in nature and does not change the legal effect of § 741.4. The available assets ratio is used to determine whether the Board is required to make an NCUSIF equity distribution for a given calendar year.38 When making that determination, the FCU Act requires NCUA to calculate the aggregate amount of insured shares in all FICUs using information from December 31 Call Reports.39 This requirement is also codified in § 741.4(e) which generally addresses an NCUSIF equity distribution.40 Accordingly, both the written definition in § 741.4(b) and the mathematical formula are correct. However, the Board recognizes that, if uncorrected, the discrepancy in language could cause some confusion. Therefore, amending the definition of ‘‘available assets ratio’’ is appropriate to provide FICUs with greater clarity. Section 741.4(i) Conversion to Federal Insurance The Board proposes to make conforming amendments to §§ 741.4(i)(1)(v) and 741.4(i)(2)(iii) depending on the method chosen for calculating a FICU’s proportionate share of an NCUSIF equity distribution. Section 741.4(i)(1)(v) addresses an NCUSIF equity distribution to a financial institution that converts to federal share insurance coverage during the calendar year.41 If there is an NCUSIF equity distribution applicable to the calendar year in which a financial institution converts to federal share insurance, the newly insured credit union is entitled to receive an NCUSIF equity distribution based on the amount of insured shares as of the end of the calendar year multiplied by the financial institution’s premium/ distribution ratio. The premium/ U.S.C. 1782(c)(3)(A). VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 PO 00000 36 12 CFR 741.4(b). 37 Id. 38 12 U.S.C. 1782(c)(3)(A)(iii). U.S.C. 1782(c)(3)(C). 40 12 CFR 741.4(e). 41 12 CFR 741.4(i)(1)(v). distribution ratio is calculated by dividing the number of full remaining months in the calendar year following the date of the financial institution’s conversion to federal share insurance by 12.42 Section 741.4(i)(2)(iii) addresses an NCUSIF equity distribution to a FICU that merges with a financial institution that is not federally insured by NCUA where the FICU is the surviving entity.43 If the Board declares a NCUSIF equity distribution for the calendar year in which such a merger takes place, the continuing FICU is entitled to receive an NCUSIF equity distribution based on its insured shares as of the end of the year of the merger. Depending on the method chosen to calculate a FICU’s proportionate share of an NCUSIF equity distribution, the Board will make one of the following conforming amendments to §§ 741.4(i)(1)(v) and 741.4(i)(2)(iii). Four Quarter Average of Insured Shares If the Board choses to calculate a FICU’s proportionate share of an NCUSIF equity distribution based on a FICU’s average insured shares, the Board would amend §§ 741.4(i)(1)(v) and 741.4(i)(2)(iii) by removing the calculation methods set out in those paragraphs and replacing them with cross-references to amended § 741.4(e). Amended § 741.4(e) would include a provision stating that a financial institution converting to federal share insurance during the calendar year applicable to an NCUSIF equity distribution would be treated as not having any insured shares for the quarterly periods that it is not federally insured by NCUA. The Board would apply the same approach to mergers where the merging institution is not federally insured by NCUA. While this method is different from NCUA’s current practice, the difference is mathematically insignificant and promotes greater uniformity throughout § 741.4 by harmonizing the calculation methods under §§ 741.4(e) and 741.4(i). Year-end Insured Share Balance If the Board chooses to calculate a FICU’s proportionate share of an NCUSIF equity distribution based on a FICU’s year-end insured shares, the Board would not amend §§ 741.4(i)(1)(v) or 741.4(i)(2)(iii) because the rule presently calculates a converting financial institution’s proportionate share of an NCUSIF equity distribution using year end insured shares reported in the December 31 Call Report times 39 12 Frm 00023 Fmt 4702 Sfmt 4702 35711 42 Id. 43 12 E:\FR\FM\01AUP1.SGM at 741.4(b). CFR 741.4(i)(2)(iii). 01AUP1 35712 Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules Appendix A to Part 741 Examples of Partial-Year NCUSIF Assessment and Distribution Calculations under § 741.4 The Board also proposes to remove Appendix A to part 741 and replace it with examples and frequently asked questions published on NCUA’s public Web site.44 Appendix A provides examples of partial-year NCUSIF assessment and distribution calculations under various different factual scenarios. While the Board recognizes that examples of how NCUA makes these calculations may be useful to FICUs, including those examples in an appendix to part 741 makes it difficult for NCUA to update, amend, or revise the examples to provide FICUs with additional clarity. Accordingly, the Board believes that removing Appendix A and replacing it with information on the Web site is appropriate to provide FICUs with more clear, relevant, and timely examples regarding the calculation of partial-year NCUSIF assessments and distributions. IV. Regulatory Procedures Regulatory Flexibility Act mstockstill on DSK30JT082PROD with PROPOSALS The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities (primarily those under $100 million in assets).45 This rule clarifies existing requirements and will not impose any new regulatory requirements. Consequently, the rule will not have a significant economic impact on a substantial number of small credit unions. Accordingly, a regulatory flexibility analysis is not required. * * * * * CFR 741, App. A. U.S.C. 603(a). VerDate Sep<11>2014 17:34 Jul 31, 2017 12 CFR Part 741 The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency creates a new information collection requirement or amends an existing information collection requirement.46 For the purposes of the PRA, an information collection requirement may take the form of a reporting, recordkeeping, or third-party disclosure requirement. The proposed rule does not contain a new information collection requirement or amend an existing information collection requirement that requires approval by OMB under the Paperwork Reduction Act (44 U.S.C. Chap. 35). Bank deposit insurance, Credit unions, Reporting and recordkeeping requirements. Assessment of Federal Regulations and Policies on Families NCUA has determined that this rule will not affect family well-being within the meaning of § 654 of the Treasury and General Government Appropriations Act, 1999.47 Executive Order 13132 Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests.48 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. The rule will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has therefore determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order. List of Subjects (e) NCUSIF equity distribution. If, at the end of the calendar year, the 44 12 45 5 Paperwork Reduction Act 46 44 U.S.C. 3507(d); 5 CFR 1320. Law 105–277, 654, 112 Stat. 2681, 2681– 581 (1998). By the National Credit Union Administration Board on July 20, 2017. Gerard Poliquin, Secretary of the Board. For the reasons discussed above, the Board proposes to amend 12 CFR part 741 as follows: PART 741—REQUIREMENTS FOR INSURANCE 1. The authority citation for part 741 continues to read as follows: ■ Authority: 12 U.S.C. 1757, 1766(a), 1781– 1790, and 1790d; 31 U.S.C. 3717. 2. Amend § 741.4 by: a. In paragraph (b) revising the definition of ‘‘Available assets ration;’’ ■ b. Revising paragraph (e); ■ c. Revising paragraphs (i)(1)(v) and (i)(2)(iii) and (j)(1)(ii). The revisions to read as follows: ■ ■ § 741.4 Insurance premium and one percent deposit. * * * * * (b) * * * Available assets ratio means the ratio of: (i) The amount determined by subtracting all liabilities of the NCUSIF, including contingent liabilities for which no provision for losses have been made, from the sum of cash and the market value of unencumbered investments authorized under section 203 of the Federal Credit Union Act (12 U.S.C. 1783(c)), to: (ii) The aggregate amount of the insured shares in all insured credit unions as reported on the calendar yearend Call Report. (iii) Shown as an abbreviated mathematical formula, the available assets ratio is: NCUSIF’s equity ratio exceeds its normal operating level and its available 48 64 FR 43255 (Aug. 4, 1999). 47 Public Jkt 241001 PO 00000 Frm 00024 Fmt 4702 Sfmt 4702 E:\FR\FM\01AUP1.SGM 01AUP1 EP01AU17.012</GPH> the institution’s premium/distribution ratio, which adjusts the FICU’s share of the distribution for the proportion of the year it was federally insured by NCUA. Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules 35713 (4) Calculation of ratios and proportionate NCUSIF equity distribution. For purposes of this paragraph, the NCUA Board shall determine the equity ratio, available assets ratio, and a federally insured credit union’s proportionate NCUSIF equity distribution as follows: (i) Equity ratio and available assets ratio. When calculating the equity ratio and available assets ratio, the aggregate amount of insured shares in all federally insured credit unions shall be determined based on the insured shares reported on the calendar year-end Call Report for which the NCUSIF equity distribution is declared. (ii) Proportionate NCUSIF equity distribution. A federally insured credit union’s proportionate NCUSIF equity distribution shall be determined by dividing the dollar amount of the declared NCUSIF equity distribution by the aggregate average amount of insured shares in all federally insured credit unions eligible to receive the distribution and then multiplying by a federally insured credit union’s average amount of insured shares over the calendar year for which the NCUSIF equity distribution is declared. (A) Average amount of insured shares. An eligible federally insured credit union’s average amount of insured shares over a given calendar year shall be determined by dividing the sum of the insured shares reported in each of its quarterly Call Reports (including the separate Call Reports of any credit unions that have merged into the federally insured credit union) by 4. A financial institution that converts to federal share insurance or merges into a federally insured credit union during the calendar year will be treated as not having insured shares for periods where it was not federally insured by NCUA. (B) Aggregate average amount of insured shares. The aggregate average amount of insured shares over a given calendar year shall be determined by adding together the aggregate amount of insured shares in all federally insured credit unions (less any insured shares reported in any quarterly Call Report by a credit union that converts from or terminated federal share insurance during the calendar year for which the NCUSIF equity distribution is declared). (C) Mathematical formulas. Shown as an abbreviated series of mathematical formulas, a federally insured credit union’s proportionate NCUSIF equity distribution is calculated as follows: Where: i = the ith federally insured credit union in the series. N = the total number of all federally insured credit unions as of December 31 of the calendar year for which the NCUSIF equity distribution is declared. n = the nth federally insured credit union in the series. q = the qth quarterly Call Report in the series. (1) * * * (v) If the NCUSIF declares a distribution in the year following conversion based on the NCUSIF’s equity at the end of the year of conversion, receive a distribution according to paragraph (e) of this section. With regard to distributions declared in the calendar year of conversion but based on the NCUSIF’s equity from the end of the preceding year, the converting institution will receive no distribution. (2) * * * (iii) If the NCUSIF declares a distribution in the year following the merger, receive a distribution according to paragraph (e) of this section. With regard to distributions declared in the calendar year of the merger but based on the NCUSIF’s equity from the end of the preceding year, the continuing credit * * * * * (i) Conversion to federal insurance. VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 PO 00000 Frm 00025 Fmt 4702 Sfmt 4702 E:\FR\FM\01AUP1.SGM 01AUP1 EP01AU17.013</GPH> mstockstill on DSK30JT082PROD with PROPOSALS assets ratio exceeds 1 percent, the NCUA Board will make a proportionate NCUSIF equity distribution to federally insured credit unions. Newly chartered federally insured credit unions and credit unions that convert from or terminate federal share insurance during the calendar year for which the NCUSIF equity distribution is declared shall not be eligible for that distribution. (1) Amount of NCUSIF equity distribution. A NCUSIF equity distribution shall be the maximum amount possible that does not reduce the NCUSIF’s equity ratio below its normal operating level or the available assets ratio below 1 percent. (2) Form of NCUSIF equity distribution. A NCUSIF equity distribution shall be in a form determined by the NCUA Board including a waiver of insurance premiums, a rebate of insurance premiums, dividends, or any combination thereof. (3) Timing of NCUSIF equity distribution. A NCUSIF equity distribution shall occur within a reasonable time after the close of the calendar year for which the NCUSIF equity distribution is declared but no later than June 30th. 35714 Federal Register / Vol. 82, No. 146 / Tuesday, August 1, 2017 / Proposed Rules union will receive a distribution based on its average insured shares as of the end of the preceding year. (j) Conversion from, or termination of, Federal share insurance. (1) * * * (ii) Forfeit any distribution of NCUSIF equity for the calendar year in which the conversion or merger is completed; and * * * * * ■ 3. Remove Appendix A to part 741 and redesignate Appendix B and Appendix C as Appendix A and Appendix B, respectively. ■ 4. Effective until December 31, 2022, add § 741.13 to read as follows: mstockstill on DSK30JT082PROD with PROPOSALS § 741.13 NCUSIF equity distributions related to Corporate System Resolution Program. (a) Definitions. For purposes of this section, the following definitions shall apply: (1) Assessment means a special premium assessed by the Board as part of the Corporate System Resolution Program. (2) Assessment period means the relevant calendar year, or portion of a calendar year, for which the Board has charged an assessment. (3) Available assets ratio has the same meaning as used in § 741.4 of this chapter. (4) Corporate credit union has the same meaning as used in § 704.2 of this chapter. (5) Corporate System Resolution Program refers to a special program established by the NCUA Board to stabilize the corporate credit union system. (6) Board means the NCUA Board. (7) Federally insured credit union means a credit union that remains federally insured under Title II of the Federal Credit Union Act as of the end of the calendar year applicable to an NCUSIF equity distribution. This includes an open liquidation estate for a liquidated credit union that would have been considered a federally insured credit union but for its liquidation. A closed liquidation estate is considered an open liquidation estate for purposes of this section if the liquidation estate is still within any applicable look back period. (8) National Credit Union Share Insurance Fund or NCUSIF refers to a revolving fund established by Congress within the U.S. Treasury to provide federal share insurance coverage to federally insured credit union members and to offset NCUA’s administrative expenses associated with the conservatorship and liquidation of federally insured credit unions. VerDate Sep<11>2014 17:34 Jul 31, 2017 Jkt 241001 (9) NCUSIF equity distribution means the payment of funds from the NCUSIF pursuant to § 202 of the Federal Credit Union Act (12 U.S.C. 1782). (10) NCUSIF equity ratio has the same meaning as used in § 741.4 of this chapter. (11) Normal operating level has the same meaning as used in § 741.4 of this chapter. (b) NCUSIF equity distributions related to Corporate System Resolution Program. Notwithstanding § 741.4 of this chapter, the following procedures shall apply to any NCUSIF equity distribution related to the Corporate System Resolution Program declared for calendar years 2017 through 2021: (1) Amount of NCUSIF equity distribution. An NCUSIF equity distribution related to the Corporate System Resolution Program shall be the maximum amount possible that does not reduce the NCUSIF equity ratio below its normal operating level or the NCUSIF’s available assets ratio below 1 percent. (2) Timing of NCUSIF equity distribution. An NCUSIF equity distribution related to the Corporate System Resolution Program shall occur within a reasonable time after funds become available for distribution. (3) Form of NCUSIF equity distribution. An NCUSIF equity distribution related to the Corporate System Resolution Program shall take the form of a rebate of assessments. If all assessments for all assessment periods have been repaid to all federally insured credit unions, an NCUSIF equity distribution may take any form as prescribed in § 741.4 of this chapter. (4) Payment of NCUSIF equity distribution. Beginning with the last assessment period, an NCUSIF equity distribution related to the Corporate System Resolution Program shall be paid to all federally insured credit unions up to the total dollar amount paid by that federally insured credit union for that assessment period subject to the following: (i) Insufficient funds. If the total dollar amount of an NCUSIF equity distribution related to the Corporate System Resolution Program is insufficient to repay all federally insured credit unions the total dollar amount paid by that federally insured credit union for that assessment period, each federally insured credit union shall receive a proportionate share of the NCUSIF equity distribution based on the percentage of the total assessment for the assessment period attributable to that federally insured credit union. Any subsequent NCUSIF equity distribution shall be calculated in the same manner PO 00000 Frm 00026 Fmt 4702 Sfmt 4702 until all assessments for the relevant assessment period have been repaid. (ii) Excess funds. If the total dollar amount of an NCUSIF equity distribution related to the Corporate System Resolution Program exceeds the total dollar amount necessary to repay all assessments for all remaining assessment periods, each federally insured credit union shall receive a proportionate share of the NCUSIF equity distribution, after all remaining assessments have been paid, according to § 741.4 of this chapter. (c) Effective date. This provision shall expire and no longer be applicable after December 31, 2022. [FR Doc. 2017–15687 Filed 7–31–17; 8:45 am] BILLING CODE 7535–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 71 Docket No. FAA–2017–0646; Airspace Docket No. 17–AGL–17 Proposed Establishment of Class E Airspace; Ellendale, ND Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). AGENCY: This action proposes to establish Class E airspace at Ellendale, ND. Controlled airspace is necessary to accommodate new special Instrument Approach Procedures developed at Ellendale Municipal Airport, for the safety and management of instrument flight rules (IFR) operations at the airport. SUMMARY: Comments must be received on or before September 15, 2017. ADDRESSES: Send comments on this proposal to the U.S. Department of Transportation, Docket Operations, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC 20590; telephone (202) 366–9826, or (800) 647–5527. You must identify FAA Docket No. FAA–2017– 0646; Airspace Docket No. 17–AGL–17, at the beginning of your comments. You may also submit comments through the Internet at http://www.regulations.gov. You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. FAA Order 7400.11A, Airspace Designations and Reporting Points, and DATES: E:\FR\FM\01AUP1.SGM 01AUP1

Agencies

[Federal Register Volume 82, Number 146 (Tuesday, August 1, 2017)]
[Proposed Rules]
[Pages 35705-35714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15687]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 741

RIN 3133-AE77


Requirements for Insurance; National Credit Union Share Insurance 
Fund Equity Distributions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The NCUA Board (Board) proposes to amend its share insurance 
requirements rule to provide federally insured credit unions (FICUs) 
with greater transparency regarding the calculation of a FICU's 
proportionate share of a declared equity distribution from the National 
Credit Union Share Insurance Fund (NCUSIF) and to add a temporary 
provision to govern NCUSIF equity distributions resulting from the 
Corporate System Resolution Program. The Board also proposes to 
prohibit a FICU that terminates federal share insurance coverage during 
a particular calendar year from receiving an NCUSIF equity distribution 
for that calendar year to provide greater fairness to FICUs that remain 
federally insured. The Board proposes to make technical and conforming 
amendments to other aspects of the share insurance requirements rule in 
light of these proposed changes.

DATES: Comments must be received on or before Tuesday, September 5, 
2017.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
     Email: Address to regcomments@ncua.gov. Include ``[Your 
name]--Comments on Requirements for Insurance; National Credit Union 
Share Insurance Fund Equity Distributions'' in the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

PUBLIC INSPECTION: You can view all public comments on NCUA's Web site 
at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, 
except for those we cannot post for technical reasons. NCUA will not 
edit or remove any identifying or contact information from the public 
comments submitted. You may inspect paper copies of comments in NCUA's 
law library at 1775 Duke Street, Alexandria, Virginia 22314-3428, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an email to OGCMail@ncua.gov.

FOR FURTHER INFORMATION CONTACT: Benjamin M. Litchfield, Staff 
Attorney, Office of General Counsel, at (703) 518-6540; or Steve 
Farrar, Supervisory Financial Analyst, Office of Examination and 
Insurance, at (703) 518-6360. You may also contact them at the National 
Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 
22314-3428.

SUPPLEMENTARY INFORMATION: 

I. Background
II. Section-by-Section Analysis
III. Technical and Conforming Amendments
IV. Regulatory Procedures

I. Background

    NCUA is the chartering authority for federal credit unions and the 
federal share insurer for FICUs.\1\ In NCUA's capacity as federal share 
insurer, the Board, among other things, administers the NCUSIF, a 
revolving fund created within the United States Treasury to

[[Page 35706]]

provide federal share insurance coverage to FICU members.\2\
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    \1\ NCUA's authority to charter federal credit unions is 
contained in Title I of the Federal Credit Union Act (12 U.S.C. 
1752-1775), and its various authorities as federal share insurer are 
contained in Title II of the Federal Credit Union Act (12 U.S.C. 
1781-1790e). Title III of the Federal Credit Union Act (12 U.S.C. 
1795-1795k) governs the Board's responsibilities overseeing the NCUA 
Central Liquidity Facility, a federal instrumentality that provides 
liquidity for member credit unions.
    \2\ 12 U.S.C. 1783.
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    The Federal Credit Union Act (FCU Act) requires a FICU to pay and 
maintain an NCUSIF capitalization deposit equal to 1 percent of a 
FICU's insured shares, in part, to capitalize the NCUSIF.\3\ The amount 
of a FICU's required NCUSIF capitalization deposit is adjusted 
periodically to reflect changes in the FICU's insured shares.\4\ For a 
FICU with assets less than $50 million, this adjustment occurs 
annually.\5\ For all other FICUs, this adjustment occurs 
semiannually.\6\ A FICU that terminates federal share insurance 
coverage is entitled to have its NCUSIF capitalization deposit returned 
within a reasonable time.\7\
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    \3\ Id. at 1782(c)(1)(A)(i).
    \4\ Id. at 1782(c)(1)(A)(iii).
    \5\ Id. at 1782(c)(1)(A)(iii)(I).
    \6\ Id. at 1782(c)(1)(A)(iii)(II).
    \7\ Id. at 1782(c)(1)(B)(i). A FICU may terminate federal share 
insurance coverage by converting to or merging into a nonfederally 
insured credit union or a noncredit union financial institution such 
as a mutual savings bank. If permitted under state law, a federally 
insured, state-chartered credit union may also convert to private 
share insurance. See 12 CFR 708b (NCUA's regulation governing 
mergers and conversions to private share insurance). A FICU may also 
terminate federal share insurance coverage through voluntary or 
involuntary liquidation.
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    The FCU Act also requires a FICU to pay a federal share insurance 
premium to the NCUSIF at such times as the Board prescribes but no more 
than twice in any calendar year.\8\ The FCU Act permits the Board to 
assess a federal share insurance premium if the NCUSIF's equity ratio 
is less than 1.3 percent, but only in an amount necessary to restore 
the equity ratio to 1.3 percent.\9\ However, if the Board projects that 
the NCUSIF's equity ratio will fall below 1.2 percent within the next 
six months or if the NCUSIF's equity ratio actually falls below 1.2 
percent at any time, the FCU Act requires the Board to implement a 
restoration plan or charge a premium.\10\
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    \8\ Id. at 1782(c)(2)(A).
    \9\ Id. at 1782(c)(2)(B). The equity ratio is the amount of 
NCUSIF capitalization, including FICU NCUSIF capitalization deposits 
and retained earnings of the NCUSIF (net of direct liabilities of 
the NCUSIF and contingent liabilities for which no provision for 
losses has been made) divided by the aggregate amount of insured 
FICU shares. Id. at 1782(h)(2).
    \10\ Id. at 1782(c)(2)(C), (D).
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    Furthermore, the FCU Act requires the Board to make a proportionate 
distribution from the NCUSIF to FICUs for each year where, at the end 
of the year, the following circumstances are present: (1) The NCUSIF 
has no outstanding loans from the United States Treasury and any 
outstanding interest on those loans has been repaid; (2) the NCUSIF's 
equity ratio exceeds the normal operating level set by the Board; \11\ 
and (3) the NCUSIF's available assets ratio exceeds 1 percent.\12\ 
Where those circumstances are present, the FCU Act requires the Board 
to make the maximum possible distribution that does not reduce the 
NCUSIF's equity ratio below its normal operating level or reduce the 
NCUSIF's available assets ratio below 1 percent.\13\
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    \11\ The NCUSIF equity ratio's normal operating level is between 
1.2 percent and 1.5 percent as specified by the Board. Id. at 
1782(h)(4). The normal operating level is currently 1.3 percent.
    \12\ Id. at 1782(c)(3)(A)(i)-(iii). The available assets ratio 
is the total of cash plus market value of unencumbered investments 
(less direct liabilities and contingent liabilities for which no 
provision for loss has been made) divided by the aggregate amount of 
insured FICU shares. Id. at 1782(h)(1).
    \13\ Id. at 1782(c)(3)(B)(i)-(ii).
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    Section 741.4 of NCUA's regulations implements these 
requirements.\14\ The Board originally adopted this rule on October 17, 
1984.\15\ The provisions of Sec.  741.4 have only been slightly 
modified in the past 33 years since the rule was adopted.\16\ However, 
because the Board is contemplating the possibility of closing the 
Temporary Corporate Credit Union Stabilization Fund (TCCUSF), a 
temporary revolving fund created to address problems in the corporate 
credit union system that arose as part of the Great Recession,\17\ and 
transferring all of its remaining assets to the NCUSIF, the Board has 
reexamined Sec.  741.4 and believes amendments to the rule are 
necessary to provide FICUs with greater fairness, transparency, and 
predictability regarding NCUSIF equity distributions.
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    \14\ 12 CFR 741.4.
    \15\ 49 FR 40561 (Oct. 17, 1984).
    \16\ The most recent substantive amendments addressed how newly 
chartered FICUs and FICUs that terminate federal share insurance are 
affected by any NCUSIF premium or deposit replenishment assessments 
in the same year. See 74 FR 63277 (Dec. 3, 2009).
    \17\ 12 U.S.C. 1790e.
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    The Board specifically proposes to amend Sec.  741.4(e) to adopt a 
method for calculating a FICU's proportionate share of a declared 
NCUSIF equity distribution. The Board has historically determined the 
amount of a FICU's proportionate share based on the FICU's daily NCUSIF 
capitalization deposit balance. The Board recognizes that this method 
is not clearly stated in Sec.  741.4(e) or any formal guidance to the 
credit union industry. Furthermore, the Board has identified flaws in 
this approach that may give an unfair advantage to FICUs with assets 
over $50 million. Accordingly, the Board believes that amending Sec.  
741.4(e) is necessary to provide FICUs with greater fairness, 
transparency, and predictability regarding this calculation.
    The Board also proposes to amend Sec.  741.4(j)(1)(ii) to change 
its current policy of making an NCUSIF equity distribution to a FICU 
that terminates federal share insurance coverage during the calendar 
year applicable to an NCUSIF equity distribution.\18\ The Board has 
historically made such a distribution under these circumstances based 
on the amount of time during that year that the FICU was federally 
insured by NCUA. However, the Board believes that amending Sec.  
741.4(j)(1)(ii) is necessary to promote greater fairness to FICUs that 
remain federally insured by NCUA throughout the entire calendar year.
---------------------------------------------------------------------------

    \18\ This includes a FICU that terminates federal share 
insurance through voluntary or involuntary liquidation.
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    Moreover, the Board proposes to make technical and conforming 
amendments to Sec. Sec.  741.4(b) and (i) to accommodate the proposed 
amendments to Sec. Sec.  741.4(e) and 741.4(j)(1)(ii) and to eliminate 
Appendix A to part 741, which provides examples of partial year NCUSIF 
assessments and distributions under Sec.  741.4, in favor of developing 
more user-friendly and easily updated examples that can be posted on 
NCUA's Web site. Finally, the Board proposes to add temporary Sec.  
741.13 to address any NCUSIF equity distributions related to the 
winding down of the Corporate System Resolution Program, a special 
purpose initiative to stabilize the corporate credit union system 
funded principally through advances from the TCCUSF. Because the 
Corporate System Resolution Program involved a series of corporate 
assessments against FICUs over multiple years and any NCUSIF equity 
distributions related to that program would likely take place over 
multiple years and in varying amounts, the Board believes that any 
NCUSIF equity distributions related to the Corporate System Resolution 
Program should be addressed in a separate, temporary provision of the 
rule. For purposes of this temporary provision, any NCUSIF equity 
distributions declared for calendar years 2017 through 2021 are deemed 
to be ``resulting from the Corporate System Resolution Program.''
    While not part of the specific amendments proposed in this 
rulemaking, the Board is also requesting comments on ways to improve 
the current process for assessing and collecting federal share 
insurance premiums. The Board is interested in providing FICUs with 
greater fairness, transparency, and predictability in this

[[Page 35707]]

regard. The Board intends to address the assessment and collection of 
federal share insurance premiums in a separate rulemaking based, in 
part, on the comments received. One possible improvement the Board is 
considering is to calculate federal share insurance premiums as 
consistently as possible with how the Board proposes to calculate each 
FICU's proportionate share of an NCUSIF equity distribution.
    The Board requests comment on all aspects of this proposed rule on 
or before Tuesday, September 5, 2017.

II. Section-by-Section Analysis

Section 741.4(e) Distribution of NCUSIF Equity

    The Board proposes to amend Sec.  741.4(e) to adopt a method for 
calculating a FICU's proportionate share of an NCUSIF equity 
distribution. NCUA has historically determined the amount of a FICU's 
proportionate share based on the FICU's daily NCUSIF capitalization 
deposit balance. Under this method, NCUA determines a FICU's 
proportionate share of an NCUSIF equity distribution by dividing the 
total dollar amount of the NCUSIF equity distribution by the total 
dollar amount of the NCUSIF capitalization deposits. Expressed as a 
percentage, this quotient represents the distribution (or dividend) 
rate. NCUA then divides the distribution rate by 365 (the number of 
calendar days in a year) to arrive at a daily distribution rate. 
Finally, NCUA applies this dividend rate to a FICU's daily NCUSIF 
capitalization deposit balance to determine that FICU's proportionate 
share.\19\
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    \19\ To address mergers completed during the calendar year 
applicable to the distribution, the NCUSIF equity distribution due 
to a merged FICU based on its independent NCUSIF capitalization 
deposit balance was paid to the continuing credit union.
---------------------------------------------------------------------------

    The principal advantage of this method is that it treats an NCUSIF 
equity distribution similarly to a dividend on an investment such as a 
share certificate. Each FICU's proportionate share is determined based 
on its NCUSIF capitalization deposit which the Board invests in 
interest-bearing government securities and other lawful investments for 
public funds of the United States to generate revenue for the 
NCUSIF.\20\ However, the Board recognizes that this method may give a 
FICU with $50 million or more in assets an unfair advantage over 
smaller FICUs. NCUA adjusts a smaller FICU's NCUSIF capitalization 
deposit annually in April using insured shares reported on the December 
31 Call Report. As a result, for the first 3 months of the calendar 
year applicable to the NCUSIF equity distribution, the daily NCUSIF 
capitalization deposit balance is based on Call Report data that is 
almost two years old. Moreover, for the remainder of the calendar year, 
the daily NCUSIF capitalization deposit balance is based on the 
previous year's Call Report data. As a result, this method not only 
fails to capture insured share growth at a smaller FICU during the 
calendar year, but also fails to capture insured share growth during 
the previous calendar year for a full 3 months until NCUA adjusts the 
NCUSIF capitalization deposit in April.
---------------------------------------------------------------------------

    \20\ 12 U.S.C. 1783(c).
---------------------------------------------------------------------------

    In contrast, this method does capture insured share growth at a 
larger FICU during the calendar year. NCUA adjusts a larger FICU's 
NCUSIF capitalization deposit semiannually in April using insured 
shares reported on the December 31 Call Report and in October using 
insured shares reported on the June 30 Call Report. This means that for 
the last 3 months of the calendar year applicable to the NCUSIF equity 
distribution, the daily NCUSIF capitalization deposit balance is based 
on current Call Report data. As a result, this method will capture 
insured share growth at a larger FICU during the calendar year, giving 
the larger FICU an unfair advantage over smaller FICUs. Recognizing 
this inherent unfairness, the Board proposes to adopt a new method for 
calculating a FICU's proportionate share of an NCUSIF equity 
distribution that is more equitable to smaller FICUs and uses more 
contemporary share insurance activity.
    In determining the appropriate method for calculating a FICU's 
proportionate share, the Board seeks to develop a method that: (1) Is 
based on a FICU's insured shares; (2) uses the most current and 
accurate data readily accessible through a FICU's quarterly Call 
Reports; (3) NCUA can reasonably administer without additional 
regulatory burden on FICUs or administrative burden on the agency; and 
(4) does not give an unfair advantage to one class of FICUs over 
another.
    The Board believes that using a FICU's insured shares (as opposed 
to total assets or some other measure, such as the total number of 
FICUs in the NCUSIF system) is appropriate because a FICU's insured 
share balance directly relates to the operation of the NCUSIF and is a 
factor in calculating the NCUSIF equity ratio and average assets ratio 
which trigger an NCUSIF equity distribution. Furthermore, the Board 
believes that using the most current and accurate data reasonably 
available through a FICU's quarterly Call Reports allows NCUA to easily 
capture the actual proportionate size of each FICU in the NCUSIF system 
without giving an unfair timing advantage to one class of FICUs over 
another. The use of Call Report data also avoids additional regulatory 
burden on FICUs or administrative burden on NCUA.
    Consequently, the Board has considered and rejected a number of 
alternative methods for calculating a FICU's proportionate share, 
including the use of a FICU's total assets or the total number of FICUs 
at the end of the calendar year. The use of a FICU's total assets bears 
no relation to a FICU's insured shares and unfairly advantages larger 
FICUs that can leverage their size to increase total assets at the 
expense of smaller FICUs. Likewise, calculating a FICU's proportionate 
share based on the total number of FICUs in the NCUSIF system has no 
relationship to an individual FICU's insured shares and would unfairly 
advantage smaller FICUs at the expense of larger FICUs. Accordingly, 
the Board has considered and rejected these two approaches, among 
others.
    The Board is considering adopting one of two methods for 
calculating a FICU's proportionate share of an NCUSIF equity 
distribution: (1) The average of the four quarter-end insured share 
balances reported on the FICU's Call Reports during the calendar year 
applicable to an NCUSIF equity distribution, or (2) insured share 
balances reported on the FICU's December 31 Call Report during the 
calendar year applicable to an NCUSIF equity distribution. Of the two 
methods, the Board believes the four quarter average method has more 
advantages, such as accounting for seasonal fluctuations, and has 
therefore proposed corresponding regulatory text for Sec.  741.4 
reflecting the four quarter average method in this notice of proposed 
rulemaking. However, the Board is requesting comment on both methods 
and will consider adopting one over the other based on the 
persuasiveness of the comments.
Four Quarter Average of Insured Shares Method
    As noted above, the Board is considering using the average of 
eligible FICUs' quarter-end insured share balances as reported on their 
quarterly Call Reports for the year applicable to the NCUSIF equity 
distribution.\21\

[[Page 35708]]

Under this proposed method, NCUA would determine a FICU's proportionate 
share of an NCUSIF equity distribution by dividing the dollar amount of 
the total NCUSIF equity distribution by the aggregate average dollar 
amount of insured shares for FICUs eligible for a distribution as 
reported on each quarter-end Call Report for the calendar year 
applicable to the distribution. NCUA would then multiply the 
proportionate share by a FICU's average dollar amount of insured 
shares. The Board would determine a FICU's average dollar amount of 
insured shares by adding the dollar amounts of insured shares reported 
in each of the FICU's quarterly Call Reports for the year applicable to 
the distribution, and then dividing by four.\22\
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    \21\ Under this proposed rule, credit unions that terminate 
NCUSIF insurance during the year applicable to the distribution are 
not eligible to receive a distribution.
    \22\ To address the effect of mergers of NCUSIF insured credit 
unions throughout the calendar year, the Board would combine the 
dollar amounts of insured shares reported separately by merging 
FICUs prior to the consummation of any merger with the dollar 
amounts of insured shares reported separately by the continuing FICU 
when calculating the continuing FICU's average dollar amount of 
insured shares. This accounts for the merger as if it were in effect 
for the entire year given both institutions were NCUSIF insured.
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    The following illustrates the application of the proposed method 
for calculating a FICU's proportionate share of an NCUSIF equity 
distribution. Assume the Board declares an NCUSIF equity distribution 
of $100 million in the form of a dividend. Also assume that the 
aggregate average dollar amount of insured shares for FICUs eligible 
for a distribution for the calendar year is $100 billion. The 
proportionate share of $100 million and $100 billion is 0.001 or 0.1%. 
XYZ Credit Union, a fictitious FICU, reports quarterly insured shares 
of $10 million, $12 million, $11 million, and $12 million, 
respectively. As a result, XYZ Credit Union has an average dollar 
amount of insured shares of $11.25 million (adding $10 million, $12 
million, $11 million, and $12 million together and dividing by 4 equals 
$11.25 million). Multiplying XYZ Credit Union's average dollar amount 
of insured shares by its proportionate share of the dollar amount of 
the NCUSIF equity distribution and the aggregate average dollar amount 
of insured shares for FICUs eligible for a distribution yields a 
proportionate dividend of $11,250 ($11.25 million multiplied by 0.001 
equals $11,250).
    The principal advantage of this method for calculating a FICU's 
proportionate share is that it adjusts for seasonal fluctuations in 
insured share levels. It also removes any incentive to inflate year-end 
insured share levels. Adjusting for seasonal fluctuations in insured 
share levels allows NCUA to make a proportionate distribution based on 
the actual average size of a FICU over the calendar year. In addition, 
this method for calculating a FICU's proportionate share is based on 
publicly available information contained in each FICU's quarterly Call 
Reports. This information is also periodically examined by NCUA and 
state regulators. Furthermore, this method would not increase 
regulatory burden on FICUs because they currently report insured shares 
in their quarterly Call Reports.
    However, this method for calculating a FICU's proportionate share 
poses some disadvantages. First, this method is somewhat more complex 
than simply using year-end insured share balances. For example, NCUA 
has to separately track FICUs that merge during the calendar year to 
combine their insured shares. Consequently, this method could be more 
administratively burdensome for NCUA. Second, this method does not 
correspond exactly to the other calculations required by Sec.  
741.4(e). In particular, both the NCUSIF equity ratio and the available 
assets ratio are, by statute, calculated based on the aggregate amount 
of insured shares in FICUs as of the December 31 Call Report.\23\ The 
Board believes the advantages of this approach to calculating a FICU's 
proportionate share of an NCUSIF equity distribution outweigh the 
disadvantages and requests comment on this proposed calculation method. 
The Board specifically requests comment on whether a longer look-back 
period, such as 18 to 24 months, is appropriate to more accurately 
capture the proportionate size of each FICU. The Board may adjust the 
proposed calendar year look-back period based on the persuasiveness of 
the comments.
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    \23\ 12 U.S.C. 1782(c)(4).
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Year-End Insured Share Balance Method
    Alternatively, the Board is considering using eligible FICUs' year-
end insured share balances as the basis for calculating their 
proportionate share of an NCUSIF equity distribution. Under this 
method, NCUA would determine a FICU's proportionate share by dividing 
the dollar amount of an NCUSIF equity distribution by the aggregate 
amount of insured shares in all FICUs as reported on the December 31 
Call Report for the year applicable to the distribution. That 
proportionate share would then be multiplied by the amount of insured 
shares reported in the FICU's December 31 Call Report for the year 
applicable to the distribution to determine each FICU's proportionate 
share.
    The following illustrates the application of the proposed method 
for calculating a FICU's proportionate share of an NCUSIF equity 
distribution. Assume the Board declares an NCUSIF equity distribution 
of $100 million in the form of a dividend. Also assume that the 
aggregate average dollar amount of insured shares for FICUs eligible 
for a distribution for the calendar year is $100 billion. The 
proportionate share of $100 million and $100 billion is 0.001 or 0.1%. 
XYZ Credit Union, a fictitious FICU, reports insured shares of $11 
million on its December 31 Call Report. Multiplying XYZ Credit Union's 
year-end insured shares for the year applicable to the distribution by 
the proportionate share of the dollar amount of the NCUSIF equity 
distribution and the aggregate average dollar amount of insured shares 
for FICUs eligible for a distribution yields a proportionate NCUSIF 
equity distribution of $11,000 ($11 million multiplied by 0.001 equals 
$11,000).
    This method for calculating a FICU's proportionate share of an 
NCUSIF equity distribution has several advantages. First, NCUA would 
not need to create a special rule regarding mergers because all merger 
activity for the calendar year would be captured in the continuing 
FICU's December 31 Call Report. Second, NCUA would not need to create a 
special rule regarding terminations of federal share insurance because 
a FICU that terminates federal share insurance coverage during the 
calendar year would not file a December 31 Call Report. Third, NCUA 
currently uses this method when calculating: (1) The proportionate 
share of an NCUSIF equity distribution paid to a financial institution 
that converts to federal share insurance during the calendar year from 
private share insurance or through conversion to a credit union from a 
bank; \24\ (2) the NCUSIF equity ratio; \25\ (3) the available assets 
ratio; \26\ and (4) the dollar amount of any federal share insurance 
premiums.\27\
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    \24\ 12 CFR 741.4(i)(1)(v).
    \25\ 12 U.S.C. 1782(h)(2); 12 CFR 741.4(b).
    \26\ Id. at 1782(h)(1); Id. at 741.4(b).
    \27\ Id. at 1782(c)(2)(A); Id. at 741.4(d).
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    However, this method for calculating a FICU's proportionate share 
does not account for seasonal fluctuations in share levels. As a 
result, a FICU that experiences a drop off in the amount of insured 
shares in the fourth quarter would receive a smaller NCUSIF equity 
distribution even though that FICU maintained a higher amount of 
insured shares over the calendar year.

[[Page 35709]]

Accordingly, this approach may not accurately reflect the actual 
proportionate share of each FICU in the NCUSIF system. Furthermore, the 
Board is concerned that this approach may create an incentive for some 
FICUs to increase insured shares at the end of the reporting year in an 
attempt to receive a larger NCUSIF equity distribution. Any such 
attempts to receive a larger NCUSIF equity distribution could lead to 
inequities, and in extreme cases, potential safety and soundness 
issues. Additionally, significant increases in insured shares at year-
end would lower the NCUSIF's equity ratio, all else being equal, and 
potentially lower the amount available for distribution.
    The Board requests comment on this proposed calculation method. 
Particularly, the Board requests comment on how this proposed 
calculation method could be improved to address the Board's concerns 
regarding seasonal fluctuations, any attempts to increase a FICU's 
year-end insured share balance, and any other relevant aspects of this 
approach.

Section 741.4(j) Conversion From, or Termination of, Federal Share 
Insurance

    The Board proposes to amend Sec.  741.4(j)(1)(ii) to prohibit 
NCUSIF equity distributions to FICUs that terminate federal share 
insurance coverage during the calendar year.\28\ Currently, if a FICU 
terminates federal share insurance coverage during the calendar year 
that FICU is entitled to receive a NCUSIF equity distribution based on 
the FICU's insured shares as of the last day of the most recently ended 
reporting period reduced by the number of months remaining in the 
calendar year after the FICU terminates coverage.\29\
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    \28\ Id. at 741.4(j)(1)(ii).
    \29\ The calculation methodology set out in Sec.  
741.4(j)(1)(ii) specifically requires the Board to multiply the 
amount of insured shares outstanding by the ``modified premium/
distribution ratio.'' The ``modified premium/distribution ratio'' is 
the amount of full months in the calendar year preceding the 
termination of federal share insurance coverage divided by 12. See 
12 CFR 741.4(b).
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    The Board adopted the current calculation methodology in 2010 to 
simplify the manner in which an NCUSIF equity distribution is made to a 
FICU that terminates federal share insurance.\30\ The Board reasoned 
that this simplification was appropriate ``particularly since the 
contribution of a departing credit union to future distributions 
diminishes with the passage of time.'' \31\ While the Board has 
historically attempted to recognize the contribution of a departing 
credit union, the Board believes that prohibiting NCUSIF equity 
distributions to FICUs that terminate federal share insurance coverage 
is a more fair and reasonable approach than the Board's current policy.
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    \30\ 74 FR 36618 (July 24, 2009) (proposed rule).
    \31\ Id.
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    The Board favors this approach because it is more equitable to 
FICUs that remain federally insured by NCUA throughout the calendar 
year and consistent with the assessment of federal share insurance 
premiums. A FICU that terminates federal share insurance coverage 
before the assessment of a premium is not required to pay that 
premium.\32\ Because that FICU is not required to bear the risk of 
federal share insurance coverage (i.e., an assessment of a federal 
share insurance premium or an increase in the FICU's required NCUISF 
capitalization deposit), the Board believes it would be inherently 
unfair to FICUs that remain federally insured by NCUA to allow a FICU 
that terminates coverage to receive the rewards of federal share 
insurance coverage (i.e., an NCUSIF equity distribution).
---------------------------------------------------------------------------

    \32\ See 12 CFR 741.4(j)(1)(iii) (a FICU that terminates federal 
share insurance coverage is only required to pay a federal share 
insurance premium if it is assessed on or before the date of the 
termination of coverage).
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    The Board also favors this approach because it parallels general 
corporate practice regarding shareholder equity distributions. A 
corporate shareholder that sells stock before a distribution is 
declared generally forfeits the right to an equity distribution from 
the corporation.\33\ This clear, bright-line rule ensures that a 
corporation is able to ascertain the exact number of individuals who 
should receive an equity distribution without significant litigation 
risk from former shareholders or previously unknown claimants. 
Likewise, adopting a clear, bright-line rule for an NCUSIF equity 
distribution allows the Board to reasonably ascertain the FICUs to 
which it must make distributions. Furthermore, this approach allocates 
the risk of forfeiting an NCUSIF equity distribution directly to the 
entity in the best position to avoid that risk, namely the FICU 
terminating federal share insurance coverage. The Board believes that a 
FICU considering the economic advisability of terminating federal share 
insurance coverage is in the best position to avoid forfeiting an 
NCUSIF equity distribution because the Board publishes quarterly 
reports on the condition of the NCUSIF that provide ample opportunity 
to determine whether an NCUSIF equity distribution is likely for that 
calendar year. Because of this advanced notice, the Board believes that 
the responsibility should fall on the FICU to make an independent 
business decision whether the benefits of receiving the NCUSIF equity 
distribution outweigh the benefits terminating federal share insurance 
coverage.
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    \33\ See e.g. Limbaugh v. Merrill Lynch, Pierce, Fenner & Smith, 
Inc., 732 F.2d 859, 861 (11th Cir. 1984) (``[w]hen stock is sold 
prior to the ex-dividend date, the right to a dividend goes with the 
stock to the purchaser, rather than staying with the seller.'').
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    While the Board believes that the proposed change to Sec.  
741.4(j)(1)(ii) presents a more equitable and reasonable approach for 
handling NCUSIF equity distributions to a former FICU than the Board's 
current policy, the Board recognizes that this is not the only 
available approach. Accordingly, the Board requests comment on this 
aspect of the proposed rule and may make modifications to this approach 
depending on the persuasiveness of the comments.
    The Board requests specific comments on how to address a FICU that 
terminates federal share insurance coverage through liquidation. One 
approach that the Board is considering is to continue to make NCUSIF 
equity distributions to a liquidated FICU until the closure of its 
liquidation estate. In other words, the Board would interpret the 
termination date for federal share insurance coverage to be the date 
the liquidation estate officially closes. However, the Board recognizes 
that this approach may be problematic, especially if the liquidation 
estate remains open for several years, because it could result in the 
liquidation estate receiving an NCUSIF equity distribution while also 
imposing costs on the NCUSIF. As a result, the Board is also 
considering treating the termination date as the date the FICU enters 
liquidation. Accordingly, the Board requests comment on the appropriate 
treatment of liquidation estates under proposed Sec.  741.4(j)(1)(ii).

Section 741.13 NCUSIF Equity Distributions Related to the Corporate 
System Resolution Program

    The Board proposes to adopt a temporary provision to govern any 
NCUSIF equity distributions resulting from the Corporate System 
Resolution Program. For purposes of this temporary provision, any 
NCUSIF equity distributions declared for calendar years 2017 through 
2021 are deemed to be ``resulting from the Corporate System Resolution 
Program.'' The Board created the Corporate System Resolution Program to 
respond to increased administrative costs resulting from the

[[Page 35710]]

conservatorship and liquidation of corporate credit unions following 
the Great Recession. As part of the Corporate System Resolution 
Program, the Board repackaged portfolios of asset-backed securities and 
corporate bonds (legacy assets) into NCUA Guaranteed Notes (NGNs) and 
funded the securitization of these assets through corporate assessments 
and borrowing against a line of credit at the U.S. Treasury.
    Improved performance of legacy assets and NCUA's legal recoveries 
in its capacity as liquidating agent for the corporate credit unions 
has resulted in the TCCUSF maintaining a net position of positive $1.6 
billion as of March 2017. It is now possible for remaining NGNs to be 
funded solely from the NCUSIF without inordinate risk, meaning that the 
purposes of the TCCUSF and the Corporate System Resolution Program have 
been fulfilled. Accordingly, the Board is considering closing the 
TCCUSF and winding down the Corporate System Resolution Program and 
will be publishing a notice in the Federal Register soliciting comment 
in that regard.
    Closing the TCCUSF and winding down the Corporate System Resolution 
Program will require NCUA to transfer all remaining funds, property, or 
other assets remaining in the TCCUSF to the NCUSIF, which could trigger 
a significant NCUSIF equity distribution.\34\ Winding down of the 
Corporate System Resolution Program could also trigger future NCUSIF 
equity distributions as the NGNs mature. Given the potential size and 
complexity of these transactions, the Board believes that Sec.  741.4 
is ill-suited to address these potential NCUSIF equity distributions. 
As a result, the Board proposes to adopt a temporary provision to 
NCUA's share insurance requirements rule to govern an NCUSIF equity 
distribution resulting from the Corporate System Resolution Program.
    The Board believes that any NCUSIF equity distribution related to 
the Corporate System Resolution Program should first go towards 
repaying those FICUs that paid special premiums, generally referred to 
as corporate assessments, rather than taking the form of a general 
proportionate distribution to current FICUs under Sec.  741.4. 
Accordingly, the Board is considering making any NCUSIF equity 
distributions related to the Corporate System Resolution Program in the 
form of a series of NCUSIF equity distributions repaying any corporate 
assessments against FICUs on either a first-in, first-out (FIFO) or a 
last-in, first-out (LIFO) basis.
---------------------------------------------------------------------------

    \34\ 12 U.S.C. 1790e(h). NCUA does not have the legal authority 
to make distributions directly from the TCCUSF.
---------------------------------------------------------------------------

    Any payments paid to a FICU that has merged into another FICU would 
be paid to the continuing FICU. Moreover, any payments owed to a 
liquidated FICU with an open liquidation estate or a closed liquidation 
estate still within its applicable look-back period would be made to 
the liquidation estate and distributed ratably to the FICU's creditors 
in accordance with part 709 of NCUA's rules. Given the payment priority 
set out in part 709, the Board anticipates that a majority of these 
creditors would be members with uninsured share balances rather than 
general creditors of the liquidation estate. Because any NCUSIF equity 
distribution related to the Corporate System Resolution Program would 
go first towards repaying FICUs that paid corporate assessments, a FICU 
that has not paid a corporate assessment would not be entitled to 
receive an NCUSIF equity distribution related to the Corporate System 
Resolution Program unless all such corporate assessments are first 
repaid in full. Additionally, a FICU that terminates federal share 
insurance coverage before the payment date for an NCUSIF equity 
distribution related to the Corporate System Resolution Program would 
not be entitled to a distribution for the reasons stated above in the 
discussion of proposed changes to Sec.  741.4(j)(1)(ii).
NCUSIF Equity Distribution on First-In, First-Out Basis
    Under a FIFO approach, the Board would make an NCUSIF equity 
distribution to each FICU up to the total dollar amount of corporate 
assessments paid by that FICU during the relevant assessment period 
beginning with the first assessment period in 2009. For example, assume 
the Board has declared four corporate assessments in the amounts of 
$100 million in 2009, $250 million in 2010, $550 million in 2011, and 
$700 million in 2012. Also assume that XYZ Credit Union, a fictitious 
FICU, has paid corporate assessments of $1 million, $2.5 million, $5.5 
million, and $7 million, respectively. Furthermore, assume that on June 
30, 2018, the Board closes the TCCUSF and declares an NCUSIF equity 
distribution of $500 million. Under the proposed FIFO method, XYZ 
Credit Union would receive $3.5 million ($1 million for 2009 plus $2.5 
million for 2010 equals $3.5 million) representing the total dollar 
amount of corporate assessments paid by XYZ Credit Union for calendar 
years 2009 and 2010.
    Because there are not enough funds to fully repay the $550 million 
corporate assessment for 2011, XYZ Credit Union receives a distribution 
of remaining funds based on its pro rata share of the corporate 
assessment ($5.5 million divided by $550 million equals .01 or 1 
percent). In this case, only $150 million remains after repaying the 
first and second corporate assessments (Subtracting $100 million and 
$250 million from $500 million equals $150 million, which is less than 
$550 million). As a result, XYZ Credit Union receives a distribution 
for that period of $1.5 million ($150 million multiplied by .01 equals 
$1.5 million). As a result, XYZ Credit Union receives a total NCUSIF 
equity distribution of $5 million ($3.5 million plus $1.5 million 
equals $5 million) from the $500 million distribution declared on June 
30, 2018.
NCUSIF Equity Distribution on Last-In, First-Out Basis
    Under a LIFO approach, the Board would make an NCUSIF equity 
distribution to each FICU up to the total dollar amount of premiums 
paid by that FICU during the relevant assessment period beginning with 
the last assessment period. For example, assume the Board has declared 
four corporate assessments in the amounts of $100 million in 2009, $250 
million in 2010, $550 million in 2011, and $700 million in 2012. Also 
assume that XYZ Credit Union, a fictitious FICU, has paid corporate 
assessments of $1 million, $2.5 million, $5.5 million, and $7 million, 
respectively. Furthermore, assume that on June 30, 2018, the Board 
closes the TCCUSF and declares a NCUSIF equity distribution of $500 
million. Because there are not enough funds to fully repay the $700 
million corporate assessment for 2012, XYZ Credit Union receives a 
distribution based on its pro rata share of the corporate assessment 
($7 million divided by $700 million equals .01 or 1 percent). As a 
result, under the proposed LIFO method, XYZ Credit Union would receive 
$5 million ($500 million multiplied by .01 equals $5 million).
    Of the two methods, the Board favors the LIFO method because it 
ensures that FICUs receive NCUSIF equity distributions for their most 
recent corporate assessments first, with smaller assessments that took 
place at the start of the Corporate System Resolution Program being 
repaid over time as the NGNs mature. Therefore, the Board is proposing 
corresponding regulatory text for Sec.  741.13 reflecting the LIFO 
approach in this notice of proposed rulemaking. However, the Board is

[[Page 35711]]

requesting comment on both methods, as well as whether the four quarter 
average of insured shares method or the year-end insured share balance 
method discussed above should apply to NCUSIF equity distributions 
relating to the Corporate System Resolution Program.
    Additionally, the Board requests comment on whether the FCU Act 
permits the FIFO and LIFO methods. The FCU Act requires the Board to 
``effect a pro rata distribution to insured credit unions after each 
calendar year if, as of the end of the calendar year,'' the NCUSIF's 
equity ratio exceeds its normal operating level and the available 
assets ratio exceeds 1 percent.\35\ The Board believes that the 
statutory text is sufficiently ambiguous to permit the Board to adopt 
either a FIFO or LIFO method for determining the payment priority of 
each series of NCUSIF equity distributions provided that each FICU 
receives a pro rata distribution based on the amount of funds available 
for the relevant assessment period. However, the Board recognizes that 
this is not the only interpretation of this provision and requests 
comment in that regard.
    Furthermore, the Board requests comment on whether a FICU's 
liquidation estate should receive an NCUSIF equity distribution related 
to the Corporate System Resolution Program. The Board's preferred 
approach is to make NCUSIF equity distributions to liquidation estates 
that remain open or were recently closed and are still within the 
relevant look-back period where it is possible to reopen the estate and 
make additional distributions to creditors. As noted above in the 
discussion of Sec.  741.4(j)(1)(ii), however, the treatment of 
liquidation estates can be problematic, especially for liquidation 
estates that remain open for several years. Accordingly, the Board 
requests comment on the appropriate treatment of liquidation estates 
under proposed Sec.  741.13.
---------------------------------------------------------------------------

    \35\ 12 U.S.C. 1782(c)(3)(A).
---------------------------------------------------------------------------

III. Technical and Conforming Amendments

Section 741.4(b) Definitions

    The Board proposes to make a technical correction to the definition 
of the ``available assets ratio.'' Section 741.4(b) defines the 
``available assets ratio'' as the ratio of the total of cash plus 
market value of unencumbered investments less direct liabilities and 
contingent liabilities for which no provision for loss has been made 
(numerator) to the aggregate amount of insured shares in all FICUs 
(denominator).\36\ The mathematical formula immediately following this 
definition, however, compares the numerator to the ``aggregate amount 
of all insured shares from the final reporting period of the calendar 
year.'' \37\ This discrepancy is a prior inadvertent drafting error 
that the Board proposes to fix by amending the qualifier to read ``as 
reported on the calendar year-end Call Report'' in both the definition 
and the mathematical formula.
---------------------------------------------------------------------------

    \36\ 12 CFR 741.4(b).
    \37\ Id.
---------------------------------------------------------------------------

    This proposed change is purely technical in nature and does not 
change the legal effect of Sec.  741.4. The available assets ratio is 
used to determine whether the Board is required to make an NCUSIF 
equity distribution for a given calendar year.\38\ When making that 
determination, the FCU Act requires NCUA to calculate the aggregate 
amount of insured shares in all FICUs using information from December 
31 Call Reports.\39\ This requirement is also codified in Sec.  
741.4(e) which generally addresses an NCUSIF equity distribution.\40\ 
Accordingly, both the written definition in Sec.  741.4(b) and the 
mathematical formula are correct. However, the Board recognizes that, 
if uncorrected, the discrepancy in language could cause some confusion. 
Therefore, amending the definition of ``available assets ratio'' is 
appropriate to provide FICUs with greater clarity.
---------------------------------------------------------------------------

    \38\ 12 U.S.C. 1782(c)(3)(A)(iii).
    \39\ 12 U.S.C. 1782(c)(3)(C).
    \40\ 12 CFR 741.4(e).
---------------------------------------------------------------------------

Section 741.4(i) Conversion to Federal Insurance

    The Board proposes to make conforming amendments to Sec. Sec.  
741.4(i)(1)(v) and 741.4(i)(2)(iii) depending on the method chosen for 
calculating a FICU's proportionate share of an NCUSIF equity 
distribution. Section 741.4(i)(1)(v) addresses an NCUSIF equity 
distribution to a financial institution that converts to federal share 
insurance coverage during the calendar year.\41\ If there is an NCUSIF 
equity distribution applicable to the calendar year in which a 
financial institution converts to federal share insurance, the newly 
insured credit union is entitled to receive an NCUSIF equity 
distribution based on the amount of insured shares as of the end of the 
calendar year multiplied by the financial institution's premium/
distribution ratio. The premium/distribution ratio is calculated by 
dividing the number of full remaining months in the calendar year 
following the date of the financial institution's conversion to federal 
share insurance by 12.\42\
---------------------------------------------------------------------------

    \41\ 12 CFR 741.4(i)(1)(v).
    \42\ Id. at 741.4(b).
---------------------------------------------------------------------------

    Section 741.4(i)(2)(iii) addresses an NCUSIF equity distribution to 
a FICU that merges with a financial institution that is not federally 
insured by NCUA where the FICU is the surviving entity.\43\ If the 
Board declares a NCUSIF equity distribution for the calendar year in 
which such a merger takes place, the continuing FICU is entitled to 
receive an NCUSIF equity distribution based on its insured shares as of 
the end of the year of the merger. Depending on the method chosen to 
calculate a FICU's proportionate share of an NCUSIF equity 
distribution, the Board will make one of the following conforming 
amendments to Sec. Sec.  741.4(i)(1)(v) and 741.4(i)(2)(iii).
---------------------------------------------------------------------------

    \43\ 12 CFR 741.4(i)(2)(iii).
---------------------------------------------------------------------------

Four Quarter Average of Insured Shares
    If the Board choses to calculate a FICU's proportionate share of an 
NCUSIF equity distribution based on a FICU's average insured shares, 
the Board would amend Sec. Sec.  741.4(i)(1)(v) and 741.4(i)(2)(iii) by 
removing the calculation methods set out in those paragraphs and 
replacing them with cross-references to amended Sec.  741.4(e). Amended 
Sec.  741.4(e) would include a provision stating that a financial 
institution converting to federal share insurance during the calendar 
year applicable to an NCUSIF equity distribution would be treated as 
not having any insured shares for the quarterly periods that it is not 
federally insured by NCUA. The Board would apply the same approach to 
mergers where the merging institution is not federally insured by NCUA. 
While this method is different from NCUA's current practice, the 
difference is mathematically insignificant and promotes greater 
uniformity throughout Sec.  741.4 by harmonizing the calculation 
methods under Sec. Sec.  741.4(e) and 741.4(i).
Year-end Insured Share Balance
    If the Board chooses to calculate a FICU's proportionate share of 
an NCUSIF equity distribution based on a FICU's year-end insured 
shares, the Board would not amend Sec. Sec.  741.4(i)(1)(v) or 
741.4(i)(2)(iii) because the rule presently calculates a converting 
financial institution's proportionate share of an NCUSIF equity 
distribution using year end insured shares reported in the December 31 
Call Report times

[[Page 35712]]

the institution's premium/distribution ratio, which adjusts the FICU's 
share of the distribution for the proportion of the year it was 
federally insured by NCUA.

Appendix A to Part 741 Examples of Partial-Year NCUSIF Assessment and 
Distribution Calculations under Sec.  741.4

    The Board also proposes to remove Appendix A to part 741 and 
replace it with examples and frequently asked questions published on 
NCUA's public Web site.\44\ Appendix A provides examples of partial-
year NCUSIF assessment and distribution calculations under various 
different factual scenarios. While the Board recognizes that examples 
of how NCUA makes these calculations may be useful to FICUs, including 
those examples in an appendix to part 741 makes it difficult for NCUA 
to update, amend, or revise the examples to provide FICUs with 
additional clarity. Accordingly, the Board believes that removing 
Appendix A and replacing it with information on the Web site is 
appropriate to provide FICUs with more clear, relevant, and timely 
examples regarding the calculation of partial-year NCUSIF assessments 
and distributions.
---------------------------------------------------------------------------

    \44\ 12 CFR 741, App. A.
---------------------------------------------------------------------------

IV. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a regulation may have on a 
substantial number of small entities (primarily those under $100 
million in assets).\45\ This rule clarifies existing requirements and 
will not impose any new regulatory requirements. Consequently, the rule 
will not have a significant economic impact on a substantial number of 
small credit unions. Accordingly, a regulatory flexibility analysis is 
not required.
---------------------------------------------------------------------------

    \45\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency creates a new information collection requirement or 
amends an existing information collection requirement.\46\ For the 
purposes of the PRA, an information collection requirement may take the 
form of a reporting, recordkeeping, or third-party disclosure 
requirement. The proposed rule does not contain a new information 
collection requirement or amend an existing information collection 
requirement that requires approval by OMB under the Paperwork Reduction 
Act (44 U.S.C. Chap. 35).
---------------------------------------------------------------------------

    \46\ 44 U.S.C. 3507(d); 5 CFR 1320.
---------------------------------------------------------------------------

Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this rule will not affect family well-
being within the meaning of Sec.  654 of the Treasury and General 
Government Appropriations Act, 1999.\47\
---------------------------------------------------------------------------

    \47\ Public Law 105-277, 654, 112 Stat. 2681, 2681-581 (1998).
---------------------------------------------------------------------------

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests.\48\ 
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. The rule will not have substantial direct 
effects on the states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
therefore determined that this rule does not constitute a policy that 
has federalism implications for purposes of the executive order.
---------------------------------------------------------------------------

    \48\ 64 FR 43255 (Aug. 4, 1999).
---------------------------------------------------------------------------

List of Subjects



12 CFR Part 741

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on July 20, 
2017.
Gerard Poliquin,
Secretary of the Board.
    For the reasons discussed above, the Board proposes to amend 12 CFR 
part 741 as follows:

PART 741--REQUIREMENTS FOR INSURANCE

0
1. The authority citation for part 741 continues to read as follows:

    Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31 
U.S.C. 3717.

0
2. Amend Sec.  741.4 by:
0
a. In paragraph (b) revising the definition of ``Available assets 
ration;''
0
b. Revising paragraph (e);
0
c. Revising paragraphs (i)(1)(v) and (i)(2)(iii) and (j)(1)(ii).
    The revisions to read as follows:


Sec.  741.4  Insurance premium and one percent deposit.

* * * * *
    (b) * * *
    Available assets ratio means the ratio of:
    (i) The amount determined by subtracting all liabilities of the 
NCUSIF, including contingent liabilities for which no provision for 
losses have been made, from the sum of cash and the market value of 
unencumbered investments authorized under section 203 of the Federal 
Credit Union Act (12 U.S.C. 1783(c)), to:
    (ii) The aggregate amount of the insured shares in all insured 
credit unions as reported on the calendar year-end Call Report.
    (iii) Shown as an abbreviated mathematical formula, the available 
assets ratio is:
[GRAPHIC] [TIFF OMITTED] TP01AU17.012

* * * * *
    (e) NCUSIF equity distribution. If, at the end of the calendar 
year, the NCUSIF's equity ratio exceeds its normal operating level and 
its available

[[Page 35713]]

assets ratio exceeds 1 percent, the NCUA Board will make a 
proportionate NCUSIF equity distribution to federally insured credit 
unions. Newly chartered federally insured credit unions and credit 
unions that convert from or terminate federal share insurance during 
the calendar year for which the NCUSIF equity distribution is declared 
shall not be eligible for that distribution.
    (1) Amount of NCUSIF equity distribution. A NCUSIF equity 
distribution shall be the maximum amount possible that does not reduce 
the NCUSIF's equity ratio below its normal operating level or the 
available assets ratio below 1 percent.
    (2) Form of NCUSIF equity distribution. A NCUSIF equity 
distribution shall be in a form determined by the NCUA Board including 
a waiver of insurance premiums, a rebate of insurance premiums, 
dividends, or any combination thereof.
    (3) Timing of NCUSIF equity distribution. A NCUSIF equity 
distribution shall occur within a reasonable time after the close of 
the calendar year for which the NCUSIF equity distribution is declared 
but no later than June 30th.
    (4) Calculation of ratios and proportionate NCUSIF equity 
distribution. For purposes of this paragraph, the NCUA Board shall 
determine the equity ratio, available assets ratio, and a federally 
insured credit union's proportionate NCUSIF equity distribution as 
follows:
    (i) Equity ratio and available assets ratio. When calculating the 
equity ratio and available assets ratio, the aggregate amount of 
insured shares in all federally insured credit unions shall be 
determined based on the insured shares reported on the calendar year-
end Call Report for which the NCUSIF equity distribution is declared.
    (ii) Proportionate NCUSIF equity distribution. A federally insured 
credit union's proportionate NCUSIF equity distribution shall be 
determined by dividing the dollar amount of the declared NCUSIF equity 
distribution by the aggregate average amount of insured shares in all 
federally insured credit unions eligible to receive the distribution 
and then multiplying by a federally insured credit union's average 
amount of insured shares over the calendar year for which the NCUSIF 
equity distribution is declared.
    (A) Average amount of insured shares. An eligible federally insured 
credit union's average amount of insured shares over a given calendar 
year shall be determined by dividing the sum of the insured shares 
reported in each of its quarterly Call Reports (including the separate 
Call Reports of any credit unions that have merged into the federally 
insured credit union) by 4. A financial institution that converts to 
federal share insurance or merges into a federally insured credit union 
during the calendar year will be treated as not having insured shares 
for periods where it was not federally insured by NCUA.
    (B) Aggregate average amount of insured shares. The aggregate 
average amount of insured shares over a given calendar year shall be 
determined by adding together the aggregate amount of insured shares in 
all federally insured credit unions (less any insured shares reported 
in any quarterly Call Report by a credit union that converts from or 
terminated federal share insurance during the calendar year for which 
the NCUSIF equity distribution is declared).
    (C) Mathematical formulas. Shown as an abbreviated series of 
mathematical formulas, a federally insured credit union's proportionate 
NCUSIF equity distribution is calculated as follows:
[GRAPHIC] [TIFF OMITTED] TP01AU17.013

Where:

i = the ith federally insured credit union in the series.
N = the total number of all federally insured credit unions as of 
December 31 of the calendar year for which the NCUSIF equity 
distribution is declared.
n = the nth federally insured credit union in the series.
q = the qth quarterly Call Report in the series.
* * * * *
    (i) Conversion to federal insurance.
    (1) * * *
    (v) If the NCUSIF declares a distribution in the year following 
conversion based on the NCUSIF's equity at the end of the year of 
conversion, receive a distribution according to paragraph (e) of this 
section. With regard to distributions declared in the calendar year of 
conversion but based on the NCUSIF's equity from the end of the 
preceding year, the converting institution will receive no 
distribution.
    (2) * * *
    (iii) If the NCUSIF declares a distribution in the year following 
the merger, receive a distribution according to paragraph (e) of this 
section. With regard to distributions declared in the calendar year of 
the merger but based on the NCUSIF's equity from the end of the 
preceding year, the continuing credit

[[Page 35714]]

union will receive a distribution based on its average insured shares 
as of the end of the preceding year.
    (j) Conversion from, or termination of, Federal share insurance.
    (1) * * *
    (ii) Forfeit any distribution of NCUSIF equity for the calendar 
year in which the conversion or merger is completed; and
* * * * *
0
3. Remove Appendix A to part 741 and redesignate Appendix B and 
Appendix C as Appendix A and Appendix B, respectively.
0
4. Effective until December 31, 2022, add Sec.  741.13 to read as 
follows:


Sec.  741.13  NCUSIF equity distributions related to Corporate System 
Resolution Program.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    (1) Assessment means a special premium assessed by the Board as 
part of the Corporate System Resolution Program.
    (2) Assessment period means the relevant calendar year, or portion 
of a calendar year, for which the Board has charged an assessment.
    (3) Available assets ratio has the same meaning as used in Sec.  
741.4 of this chapter.
    (4) Corporate credit union has the same meaning as used in Sec.  
704.2 of this chapter.
    (5) Corporate System Resolution Program refers to a special program 
established by the NCUA Board to stabilize the corporate credit union 
system.
    (6) Board means the NCUA Board.
    (7) Federally insured credit union means a credit union that 
remains federally insured under Title II of the Federal Credit Union 
Act as of the end of the calendar year applicable to an NCUSIF equity 
distribution. This includes an open liquidation estate for a liquidated 
credit union that would have been considered a federally insured credit 
union but for its liquidation. A closed liquidation estate is 
considered an open liquidation estate for purposes of this section if 
the liquidation estate is still within any applicable look back period.
    (8) National Credit Union Share Insurance Fund or NCUSIF refers to 
a revolving fund established by Congress within the U.S. Treasury to 
provide federal share insurance coverage to federally insured credit 
union members and to offset NCUA's administrative expenses associated 
with the conservatorship and liquidation of federally insured credit 
unions.
    (9) NCUSIF equity distribution means the payment of funds from the 
NCUSIF pursuant to Sec.  202 of the Federal Credit Union Act (12 U.S.C. 
1782).
    (10) NCUSIF equity ratio has the same meaning as used in Sec.  
741.4 of this chapter.
    (11) Normal operating level has the same meaning as used in Sec.  
741.4 of this chapter.
    (b) NCUSIF equity distributions related to Corporate System 
Resolution Program. Notwithstanding Sec.  741.4 of this chapter, the 
following procedures shall apply to any NCUSIF equity distribution 
related to the Corporate System Resolution Program declared for 
calendar years 2017 through 2021:
    (1) Amount of NCUSIF equity distribution. An NCUSIF equity 
distribution related to the Corporate System Resolution Program shall 
be the maximum amount possible that does not reduce the NCUSIF equity 
ratio below its normal operating level or the NCUSIF's available assets 
ratio below 1 percent.
    (2) Timing of NCUSIF equity distribution. An NCUSIF equity 
distribution related to the Corporate System Resolution Program shall 
occur within a reasonable time after funds become available for 
distribution.
    (3) Form of NCUSIF equity distribution. An NCUSIF equity 
distribution related to the Corporate System Resolution Program shall 
take the form of a rebate of assessments. If all assessments for all 
assessment periods have been repaid to all federally insured credit 
unions, an NCUSIF equity distribution may take any form as prescribed 
in Sec.  741.4 of this chapter.
    (4) Payment of NCUSIF equity distribution. Beginning with the last 
assessment period, an NCUSIF equity distribution related to the 
Corporate System Resolution Program shall be paid to all federally 
insured credit unions up to the total dollar amount paid by that 
federally insured credit union for that assessment period subject to 
the following:
    (i) Insufficient funds. If the total dollar amount of an NCUSIF 
equity distribution related to the Corporate System Resolution Program 
is insufficient to repay all federally insured credit unions the total 
dollar amount paid by that federally insured credit union for that 
assessment period, each federally insured credit union shall receive a 
proportionate share of the NCUSIF equity distribution based on the 
percentage of the total assessment for the assessment period 
attributable to that federally insured credit union. Any subsequent 
NCUSIF equity distribution shall be calculated in the same manner until 
all assessments for the relevant assessment period have been repaid.
    (ii) Excess funds. If the total dollar amount of an NCUSIF equity 
distribution related to the Corporate System Resolution Program exceeds 
the total dollar amount necessary to repay all assessments for all 
remaining assessment periods, each federally insured credit union shall 
receive a proportionate share of the NCUSIF equity distribution, after 
all remaining assessments have been paid, according to Sec.  741.4 of 
this chapter.
    (c) Effective date. This provision shall expire and no longer be 
applicable after December 31, 2022.

[FR Doc. 2017-15687 Filed 7-31-17; 8:45 am]
 BILLING CODE 7535-01-P