Requirements for Insurance; National Credit Union Share Insurance Fund Equity Distributions, 35705-35714 [2017-15687]
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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
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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
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: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• NCUA Web site: https://
www.ncua.gov/Legal/Regs/Pages/
SUMMARY:
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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 https://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
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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.
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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).
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(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.
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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.
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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
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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).
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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
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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
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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.
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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
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U.S.C. 1782(c)(4).
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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
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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.
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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
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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.’’).
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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
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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.
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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.
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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
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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).
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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
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42 Id.
43 12
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at 741.4(b).
CFR 741.4(i)(2)(iii).
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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
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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).
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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
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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.
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17:34 Jul 31, 2017
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E:\FR\FM\01AUP1.SGM
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EP01AU17.013
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
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(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
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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 https://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]
=======================================================================
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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: https://www.regulations.gov.
Follow the instructions for submitting comments.
NCUA Web site: https://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 https://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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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).
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\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.
---------------------------------------------------------------------------
\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.
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\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.
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\35\ 12 U.S.C. 1782(c)(3)(A).
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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.
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\36\ 12 CFR 741.4(b).
\37\ Id.
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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.
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\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).
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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\
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\41\ 12 CFR 741.4(i)(1)(v).
\42\ Id. at 741.4(b).
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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).
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\43\ 12 CFR 741.4(i)(2)(iii).
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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.
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\44\ 12 CFR 741, App. A.
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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.
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\45\ 5 U.S.C. 603(a).
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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).
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\46\ 44 U.S.C. 3507(d); 5 CFR 1320.
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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\
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\47\ Public Law 105-277, 654, 112 Stat. 2681, 2681-581 (1998).
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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.
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\48\ 64 FR 43255 (Aug. 4, 1999).
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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