Organization and Operation of Federal Credit Unions and Requirements for Insurance

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 741

Organization and Operation of Federal Credit Unions and

Requirements for Insurance

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The Board is amending NCUA's Regulations in order to conform

them to the new NCUA Fiscal and National Credit Union Share Insurance

Fund (NCUSIF) Insurance year. The changes to the fiscal and insurance

years were approved by the NCUA Board on November 15, 1993.

EFFECTIVE DATE: July 29, 1994.

ADDRESSES: National Credit Union Administration, 1775 Duke Street,

Alexandria, Virginia 22314-3428.

FOR FURTHER INFORMATION CONTACT:

Herbert S. Yolles, Controller, Office of the Controller, at the above

address or telephone: (703) 518-6570 or Mary F. Rupp, Staff Attorney,

Office of General Counsel, at the above address or telephone: (703)

518-6553.

SUPPLEMENTARY INFORMATION: The NCUA Board on November 15, 1993, voted

to change NCUA's fiscal year and NCUSIF's insurance year to coincide

with the calendar year, effective January 1, 1995. This change requires

the NCUA to amend its regulations addressing operating fees,

capitalization deposit adjustments and insurance premiums to conform to

the calendar year.

Currently, under Sec. 701.6 of NCUA's Rules and Regulations, an

operating fee is assessed on federal credit unions based on a fiscal

year of October 1 to September 30. This section must be changed to

reflect the change to the calendar year. The change will result in a

transition quarter that begins on October 1, 1994 and ends on December

31, 1994 for which no operating fee would be assessed. Also, the

operating fee assessed as a result of a conversion or merger will now

be based on the calendar year and those sections must be changed to

delete references to the former fiscal year and reflect the new

calendar year. 12 CFR 701.6(b) (2) and (3).

Currently, under Sec. 741.11 of NCUA's Rules and Regulations, any

insurance premium and adjustments in the one percent deposit for all

federally insured credit unions are based on an ``insurance year'' of

July 1 through June 30. 12 CFR 741.11(b)(1). The definition of

``insurance year'' must be amended to reflect the change to the

calendar year. Further, the due dates for the deposit adjustment and

any premium must be changed from January 31 to a date as set by the

NCUA Board in order to coincide with the calendar year. (The Board

anticipates that the due date will be in March of each calendar year.)

12 CFR 741.11 (c), (d) and (g).

Four letters were received in response to the request for comments

in the proposed amendments. Two were from national credit union

organizations, one was from a state credit union organization and one

was from a credit union. The comments were generally favorable.

One commenter expressed concern that the NCUA Board had not

solicited comments prior to converting NCUA's fiscal year and NCUSIF's

insurance year to the calendar year. It requested an explanation of the

accounting implications, the reasoning behind the change and a

timetable for the assessments.

The accounting implications for any credit union accounting for the

fee under full accrual accounting (i.e., amortizing the fee over the

period October 1 through September 30) are that the credit union will

have a one time three month reduction. The NCUA Board believes very

few, if any, credit unions use this method. All other credit unions

will experience a one time cash flow benefit, because the next

assessment will be in March, rather than January.

Some of the more advantageous reasons for the change are to

eliminate the present confusion caused by NCUA's use of three different

operating periods: insurance year, fiscal year and calendar year; in

the unlikely event NCUA assesses another insurance premium, the change

will eliminate the massive accounting confusion experienced the last

time an insurance premium was assessed, because only one accounting

period will be involved; the change will provide for better comparison

of NCUSIF to the other depository insurance funds; the change will make

clearer the calculation of the NCUSIF equity ratio and eliminate the

current seven month lag in collecting the 1% deposit adjustment

payments, and the change will enable NCUA to obtain better information

for budgeting purposes and for pay adjustment decisions because labor

market data and projections from other regulators are not available

until September or October.

NCUA will be setting its budget in mid-October. In November, the

agency will provide federal credit unions a very close estimate of

their operating fee assessment, which may vary only slightly after the

December 31 credit union call reports are reviewed. The operating fee

and capitalization deposit adjustment payments will be due in late

March or early April.

Other budgetary issues were raised by the two national

organizations which are not directly related to the proposed changes

and will be addressed by the agency in another forum.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires the NCUA to prepare an

analysis to describe any significant economic impact any regulation may

have on a potential number of small credit unions (primarily those

under $1 million in assets). The regulation simply repeats the

preexisting requirements of federal credit unions to pay operating fees

and federally insured credit unions to fund their one percent deposit

and pay insurance premiums if assessed, with the only modification

being the dates when these fees and premiums must be paid. Accordingly,

the NCUA Board has determined that a Regulatory Flexibility Analysis is

not required.

Paperwork Reduction Act

These amendments do not change the paperwork requirements.

Executive Order 12612

The section of the final amendment dealing with insurance premiums

applies to all federally insured credit unions. However, it makes no

substantive changes except to change the dates for certain filings and

assessments of fees. The NCUA Board has determined that this amendment

is not likely to have any direct effect on states, on the relationship

between the states, or on the distribution of power and

responsibilities among the various levels of government because

federally insured credit unions are currently required to pay an

insurance premium.

List of Subjects

12 CFR Part 701

Civil rights, Conflicts of interest, Credit, Credit unions, Fair

housing, Insurance, Mortgages, Reporting and recordkeeping

requirements, Signs and symbols, Surety bonds.

12 CFR Part 741

Bank deposit insurance, Credit Unions, Reporting and recordkeeping

requirements.

By the National Credit Union Administration Board on June 23,

1994.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA amends 12 CFR parts 701 and 741 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

1. The authority citation for part 701 continues to read as

follows:

Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,

1761b, 1766, 1767, 1782, 1784, 1787 and 1789. Section 701.6 is also

authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by

15 U.S.C. 1601 et seq., 42 U.S.C. 1861 and 42 U.S.C. 3601-3610.

Section 701.35 is also authorized by 12 U.S.C. 4311-4312.

2. Section 701.6 is amended by revising paragraphs (a), (b) (2) and

(3) to read as follows:

Sec. 701.6 Fees paid by Federal Credit Unions.

(a) Basis for assessment. Each calendar year or as otherwise

directed by the Board, each Federal credit union shall pay to the

Administration for the current National Credit Union Administration

fiscal year (January 1 to December 31) an operating fee in accordance

with a schedule as fixed from time to time by the National Credit Union

Administration Board based on the total assets of each Federal credit

union as of December 31 of the preceding year or as otherwise

determined pursuant to paragraph (b) of this section.

(b) * * *

(1) * * *

(2) Conversions. A state chartered credit union that converts to

Federal charter will pay an operating fee in the year following the

conversion. Federal credit unions converting to state charter will not

receive a refund of the operating fee paid to the Administration in the

year in which the conversion takes place.

(3) Mergers. A continuing Federal credit union that has merged with

another credit union will pay an operating fee in the following year

based on the combined total assets of the merged credit union and the

continuing Federal credit union as of December 31 of the year in which

the merger took place. For purposes of this requirement, a purchase and

assumption transaction wherein the continuing Federal credit union

purchases all or essentially all of the assets of another credit union

shall be deemed a merger. Federal credit unions merging with other

Federal or state credit unions will not receive a refund of the

operating fee paid to the Administration in the year in which the

merger took place.

* * * * *

PART 741--REQUIREMENTS FOR INSURANCE

3. The authority citation for part 741 continues to read as

follows:

Authority: 12 U.S.C. 1757, 1766, and 1781-1790. Section 741.11

is also authorized by 31 U.S.C. 3717.

4. Section 741.11 is amended by revising paragraphs (b)(1), (c),

(d) and (g) to read as follows:

Sec. 741.11 Insurance premium and one per cent deposit.

* * * * *

(b) * * *

* * * * *

(1) ``Insurance year'' means the period from January 1 through

December 31.

* * * * *

(c) One Percent Deposit. Each insured credit union shall maintain

with the NCUSIF during each insurance year a deposit in an amount

equaling one percent of the total of the credit union's insured shares

as of the close of the preceding insurance year. The deposit shall be

adjusted annually on a date to be determined by the NCUA Board.

(d) Premium. Each insured credit union shall pay to the NCUSIF, on

a date to be determined by the NCUA Board, an insurance premium for

that insurance year in an amount equaling one twelfth of one percent of

the credit union's total insured shares as of the close of the

preceding insurance year.

* * * * *

(g) New Charters. A newly-chartered credit union that obtains share

insurance coverage from the NCUSIF during the insurance year in which

it has obtained its charter shall not be required to pay an insurance

premium for that insurance year. The credit union shall fund its one

percent deposit on a date to be determined by the NCUA Board in the

following insurance year, but shall not participate in any distribution

from NCUSIF equity related to the period prior to the credit union's

funding of its deposit.

* * * * *

[FR Doc. 94-15804 Filed 6-28-94; 8:45 am]

BILLING CODE 7535-01-M