Corporate Credit Unions

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 704

Corporate Credit Unions

agency: National Credit Union Administration (NCUA).

action: Notice of proposed rulemaking.

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summary: NCUA is proposing to amend its regulations governing corporate

credit unions to reduce the close ties between many corporate credit

unions and credit union trade associations. NCUA is concerned that

these ties create unavoidable conflicts of interest for corporate

credit unions.

dates: Comments must be postmarked or posted on NCUA's electronic

bulletin board by October 24, 1994.

addresses: Send comments to Becky Baker, Secretary to the Board,

National Credit Union Administration, 1775 Duke Street, Alexandria, VA

22314-3428.

for further information contact: H. Allen Carver, Director, Office of

Corporate Credit Unions, (703) 518-6640, or Robert M. Fenner, General

Counsel, (703) 518-6540, at the above address.

SUPPLEMENTARY INFORMATION:

A. Background

On April 12, 1994, the NCUA Board issued an advance notice of

proposed rulemaking (ANPR) regarding the relationship between corporate

credit unions and state leagues and trade associations. 59 FR 18503,

April 19, 1994. The ANPR noted that approximately half of the corporate

credit unions are closely tied to state leagues, through integrated

boards or management relationships. In the case of U.S. Central Credit

Union, six of nine board seats are allotted to trade association

representatives: three to the Credit Union National Association (CUNA),

two to the Association of Credit Union League Executives, and one to

the Kansas Credit Union Association. In addition, U.S. Central's CEO

reports to the CEO of CUNA.

The ANPR noted that in 1992 NCUA acted to reduce the ties between

corporate credit unions and trade associations by amending Part 704 to

require either that three directors not be officers, directors, or

employees of an affiliated organization, such as a state league, or

that the corporate credit union conduct open and independent elections.

The regulation was also amended to require recusal for matters

involving personal pecuniary interest and, when the amount in question

exceeds 5% of the corporate credit union's capital, matters involving

the pecuniary interest of an entity in which an official is interested.

Although the new regulations have resulted in greater independence

for corporate credit unions, the leagues and trade associations still

have considerable influence in some institutions. The ANPR stated that

NCUA was considering taking additional steps to reduce that influence

because of the following factors: (1) the increased scrutiny of

financial institutions resulting from the savings and loan disaster;

(2) the asset growth within the credit union system; (3) the fact that

conflicts or the appearance of conflicts caused by the relationships

between corporate credit unions and trade associations could threaten

the survival of a strong and independent credit union system; and (4)

the concerns surrounding U.S. Central's investment in the Banco Espanol

de Credito [Banesto], which was taken over by the Spanish central bank

because of problems in its commercial loan portfolio.

The ANPR requested comment on whether Part 704 should be amended to

require that the board of directors of a corporate credit union be

independently elected by its members, with the condition that a

majority of the board seats be held by representatives of member credit

unions, that all or a majority of the corporate credit union board be

comprised of representatives who do not also serve on the board of a

league or trade association, and that management of a corporate credit

union report solely to the board of the corporate credit union. The

ANPR also asked for comment on whether classes of directors at U.S.

Central should be established, whether the election of an

organizational member representative to a position in a corporate

credit union should be considered the election of the individual or the

organization, and whether the recusal provision should be strengthened.

The ANPR noted that the proposed changes, if implemented, would affect

all corporate credit unions that are federally insured or accept

deposits from federal credit unions.

The ANPR was issued as part of the Board's overall plan regarding

the corporate credit union system. The Board will request comment on

possible changes to other sections of the corporate credit union

regulation in the near future.

B. Comments

NCUA received 400 comments letters in response to the ANPR, 333

from natural person credit unions,\1\ 25 from corporate credit unions,

21 from state credit union leagues, 2 from state credit union

associations, 2 from state credit union ``systems'' (consisting of a

league, corporate credit union, and a service organization), 3 from

national credit union trade associations, 3 from banking trade

associations, 3 from state credit union regulators, 5 from individuals,

2 from NCUA staff, and 1 from a law firm on behalf of several state

leagues and corporate credit unions. The natural person credit union

commenters came from 39 states, but they were not evenly distributed

among those states. Credit unions located in only 6 states accounted

for 48% of the 333 comments. Credit unions located in 12 states

accounted for 75% of those comments. The states with the highest number

of natural person credit union commenters were: Missouri (37), Colorado

(33), South Carolina (23), Virginia (23), New York (22), California

(20), Georgia (18), Kansas (18), Louisiana (18), Texas (14), Iowa (12),

and Illinois (11).

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\1\Multiple letters from members or employees of the same credit

union were considered part of the credit union's comments and were

not counted separately.

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Of the 400 commenters, 115 expressed general support for the

proposed changes, 278 expressed general opposition, and 7 commented not

on the proposed changes but on a tangential issue. For a comment to be

considered generally supportive, the commenter had to be in favor of a

requirement that all or a majority of the board be comprised of

representatives who do not serve on the board of the state league or

league service organization. Almost universally, commenters who were in

favor of this proposed change were in favor of all of the changes. In

contrast, many commenters who were considered to be generally opposed

to the proposed changes did not support the elimination of integrated

boards but did support the proposals to require, for example, that

elections be independent or that management report to the board of the

corporate.

Of the 333 natural person credit union commenters, 98 generally

supported the proposed changes, 230 generally opposed them, and 5 did

not comment directly on them. Commenters from states with large numbers

of commenters tended to be united in their opinions, usually in

opposition to the proposed changes. For example, 36 of Missouri's 37

credit union commenters were opposed to the proposed changes, as were

32 of Colorado's 33, all of South Carolina's 23, 17 of Georgia's,

Kansas's, and Louisiana's 18, 10 of Iowa's 12, and 9 of Illinois's 11.

Of the 25 corporate credit unions that commented, 8 supported the

proposed changes, and 17 were opposed to them. All of the 21 state

leagues that commented were opposed to the changes, as were the 2 state

credit union ``systems.'' The three national banking trade associations

supported the changes, as did one of the national credit union trade

associations. A second credit union trade association was opposed to

the changes, and the third commented on a tangential issue.

Most of the commenters who were opposed to the proposed changes

took the position, ``if it ain't broke, don't fix it.'' They argued

that the ANPR had provided no discussion of specific problems resulting

from conflicts of interest. The commenters stated that the structure of

corporate credit unions is not a safety and soundness issue and should

not be regulated by NCUA.

The commenters who were in favor of the proposed changes expressed

concern about the potential for disaster to the credit union system if

a loss should result from a conflict of interest in a corporate credit

union. They acknowledged the role of the leagues and trade associations

in establishing the corporate credit unions, but stated that it was

time for corporate credit unions to stand on their own.

The Board has determined to request comment on specific proposed

changes. The Board remains concerned that the ties between corporate

credit unions and trade associations may threaten the safety and

soundness of the entire credit union system. Those ties have, in the

past, led to corporate credit union resources being used to fund trade

association expenses, questionable or preferential loans to trade

associations and affiliates, and other transactions with trade

associations that were not in the corporate credit union's best

interest. Commenters did not dispute the existence of past abuses.

Those who addressed the issue suggested, instead, that the potential

for further abuses was properly addressed by NCUA's 1992 amendments.

Issues currently under review in specific cases, however, raise

continuing concerns with respect to the potential for abuses. These

issues include the propriety of amounts paid by corporate credit unions

to trade associations for support and management services and the

fairness and objectivity of business transactions between corporate

credit unions and related trade associations.

The Board acknowledges that trade association involvement with

corporate credit unions may have been appropriate when the corporate

credit union system was in its infancy. At that time, asset levels were

low, credit unions generally operated conservatively, and economic

conditions were more relaxed. The problems that arose were serious but

small enough to be handled ``within the family.''

In the last decade, however, the corporate credit union system has

matured, managing billions of dollars and providing increasingly

sophisticated services. Furthermore, economic conditions have changed,

requiring corporate credit unions to act aggressively to remain

competitive. Corporate credit unions have changed the way they do

business just in the past few months; instead of strictly matching

assets against liabilities, some have begun speculating on interest

rates--and losing.

The independent committee which studied the corporate credit union

system for six months also noted these changes. In its July 1994

report, the committee found that corporate credit unions were assuming

more risk in their investment practices than in the past, their

activities in general were becoming more complex, and their credit

analysis procedures had not kept pace with the increased volume of

funds flowing into the system.

As the activities of corporate credit unions have changed, the

Board believes that the administration of those activities must change.

The stakes are higher than they were in the past and the margin for

error narrower. If a problem arises today, it is likely to be much more

severe than in the past and to be corrected by the marketplace rather

than within the credit union community. The Board is not willing to

wait until there is a catastrophic loss to take action.

The Board believes that the credit union movement of today requires

absolute assurance that all corporate credit unions are directed and

managed by experienced individuals who are dedicated solely to the

success of their institutions. These individuals must be able to

understand the financial marketplace and the appropriate role of their

institutions in that marketplace. The independent committee agreed,

recommending that corporate credit unions: 1) develop improved

procedures to monitor and evaluate interest-rate and credit risk; 2)

ensure that management personnel understand investment products as well

as do the individuals who market such products to corporate credit

unions; and 3) retain outside advisors who report directly to the board

regarding activity involving derivative instruments, if they use such

instruments.

The Board believes that these recommendations cannot be implemented

successfully when a corporate credit union is too closely tied to a

trade association. The interests of each entity are too often in

conflict. The independent committee agreed, stating that ``the

integrated structure may hinder the prudent management of [a] corporate

[credit union].'' In response, the committee recommended that all

corporate credit unions, including U.S. Central, be stand-alone

institutions, independent of leagues and trade associations.

C. Section-by-Section Analysis

Section 704.2 Definitions

The Board has determined to replace the term ``affiliated

organization'' in Section 704.12 with the term ``credit union-related

organization.'' The Board believes that this term is clearer and easier

to apply. ``Credit union-related organization'' is defined in new

paragraph (e) in Section 704.12 to be a credit union league or trade

association, an affiliate of a credit union league or trade

association, or a entity operated or controlled by a credit union

league, trade association, or affiliate. Since the term ``affiliated

organizations'' is no longer used in Part 704, the proposed rule

deletes the first paragraph of Section 704.2

The Board is aware that in some states, credit unions are not

permitted to join the corporate credit union unless they belong to the

state league. The Board believes that this practice reflects and helps

perpetuate the excessive influence of trade associations in the

operations of some corporate credit unions. The Board believes,

further, that a credit union should be able to obtain financial

services from a corporate credit union without having to support a

league's educational, lobbying, and other activities. The proposed rule

amends the definition of ``corporate credit union,'' adding the

requirement that a corporate credit union may not condition a credit

union's eligibility to join the corporate credit union on that credit

union's membership in any other organization.

Section 704.12(a) Board Representation

The ANPR asked for comment on whether the board of directors of a

corporate credit union should be independently elected by its members,

with the condition that a majority of the board seats be held by

representatives of member credit unions. It also asked whether all of a

majority of the corporate credit union board should be comprised of

representatives who do not also serve on the board of the state league

or league service organization.

As noted earlier, virtually all the commenters who supported the

proposed changes agreed that elections should be independent. This view

was also shared by a number of commenters who generally opposed the

proposed changes. There was little direct opposition the idea of

independent elections.

The Board believes that the time has come to give the voting

members of a corporate credit union control over who serves on its

board. The members should have the opportunity to nominate and elect

candidates independent of those selected by the nominating committee.

Rather than using the terms ``open'' and ``independent,'' which are

unclear, the proposed rule requires that elections be conducted by mail

ballot, with procedures for nominations by petition. The Board notes

that election procedures generally are set forth in the bylaws and

proposes to amend the standard corporate federal credit union bylaws,

issued by the Board in 1983, to provide for mail balloting and

nominations by petition. State-chartered corporate credit unions would

be required to adopt the federal bylaws governing elections. The

proposed bylaws, which are set forth later in this document, are based

on standard bylaw amendments that have been successfully used by

natural person federal credit unions for a number of years. While the

proposed bylaws are self-explanatory, the following chart may be

helpful in tracking the timing of the key steps in the nomination and

balloting procedures.

Time Table for Nomination/Election Procedure in Accordance With Proposed

Standard Bylaw

Board of directors appoints At least 120 days prior to annual

nominating committee. meeting.

Nominating committee files At least 90 days prior to annual

nominations with recording officer. meeting.

Recording officer notifies members At least 75 days prior to annual

in writing of persons nominated by meeting.

nominating committee and of

procedures to be followed to

nominate someone by petition.

Period for receiving nominations by At least 30 days from above notice.

petition.

Nominations by petition to be filed At least 40 days prior to annual

with recording officer. meeting.

Recording officer mails ballots to At least 30 days prior to annual

all members. meeting.

Ballots to be received by tellers At least 5 days prior to annual

of election. meeting.

There was stronger opposition to the proposals to require that a

majority of seats be held by representatives of member credit unions

and that a majority be held by representatives who do not also serve on

the board of the state league or league service organization. The

commenters argued that the members of each corporate should be allowed

to structure the board as they see fit. They argued that NCUA

regulation in this area would violate the credit union principle of

democracy. Some commenters stated that the field of qualified

candidates in some states was too narrow to support separate boards for

the league and the corporate credit union. The commenters who supported

the proposal stated that it was impossible for an individual to

represent credit union members adequately on the board of a corporate

credit union while also serving on the board of a league.

The Board is not persuaded by the objections to the proposed

changes, believing that corporate credit unions should be controlled by

the credit unions they were chartered to serve. The Board also believes

that, even in states with fewer credit unions, there are sufficient

qualified candidates to support separate boards for the league and the

corporate credit union. Accordingly, the proposed rule requires that at

least a majority of a corporate credit union's directors be individuals

who represent member credit unions and who are not officers, directors,

or employees of a credit union-related organization. Recognizing the

power the chair of an organization has, the proposed rule requires that

the individual serving as chair of the board of directors be included

in that majority. The proposed rule also provides, for purposes of

meeting the required majority, that no individual from a member credit

union can serve as a director of a corporate credit union if another

individual from that member credit union serves as an officer,

director, or employee of a credit union-related organization.

To illustrate, assume a hypothetical corporate credit union (HCCC)

with a five-member board. Under proposed Section 704.12(a)(1), at least

three board members of HCCC must be individuals who represent member

credit unions of HCCC (credit unions A, B, and C). The three directors

could not also serve, for example, as directors of a state league, a

national trade association, or a CUSO operated by a league because

those entities are ``credit union-related organizations'' as defined in

new Section 701.12(e). They could, however, serve as directors of a

CUSO operated or controlled by HCCC member credit unions. Under Section

704.12(a)(3), a representative of credit union B could not serve as a

director of HCCC if another individual from credit union B is serving

as an officer, director, agent, or employee of a league or other credit

union-related organization.

The ANPR asked whether classes of directors should be established

at U.S. Central in order to ensure representation by natural person

credit unions and others broadly representative of the public interest.

The commenters generally were not in favor of establishing classes of

directors at U.S. Central; several noted that the credit union has

classes of directors now. Many commenters who were opposed to

prohibiting interlocking boards for corporates in general were in favor

of some action to reduce trade association influence at U.S. Central.

At this time, the Board is not convinced that it is necessary to

establish classes of directors in order to ensure broader

representation at U.S. Central. The Board believes that compliance with

the requirements set forth in proposed Section 704.12(a) will be

sufficient. Further comment, however, is welcome on this issue.

Also, while not proposed at this time, the Board requests comment

on whether there should be a requirement that all of the directors of a

corporate credit union be individuals who are not officers, directors,

or employees of a credit-union related organization.

Section 704.12(b) Representatives of Organizational Members

An ``organizational member'' of a corporate credit union is a

member that is not a natural person, such as credit union or service

organization. The ANPR asked whether the election of an organizational

member representative to a position in a corporate credit union should

be considered the election of the individual or the organization. The

vast majority of commenters who supported the proposed changes stated

that it should be considered the election of the individual, with

vacancies being filled by the board of directors of the corporate

credit union according to the bylaws of the corporate credit union.

Most of these commenters stated, however, that since it is the

organization that is the member, if the individual leaves that

organization, he or she should be removed from the corporate credit

union board. They stated, furthermore, that an organization should be

able to remove its representative if it chooses to, although it does

not have the right to replace that individual with someone else. The

commenters who were opposed to the proposed changes stated that this

was a matter that should be left to each corporate credit union to

determine.

An organizational member's representative is elected to the

corporate credit union board based on his or her unique qualifications.

The Board believes that permitting the organization to replace that

representative with someone else would compromise the integrity of the

election process. Therefore, the proposed rule provides that if an

individual ceases to be the representative of an organization for any

reason, including, but not limited to, death, departure from the

organization, or withdrawal of designation by the organization, his or

her seat is declared vacant and is filled by the corporate credit union

board in accordance with the bylaws. In filling the seat, the

requirements of proposed Section 704.12(a) would have to be maintained.

The Board notes that the term ``member credit union or affiliated

non-credit union member'' in present Section 704.12(b) has bee replaced

in proposed Section 704.12(b)(1) by the term ``organizational member.''

As noted above, an ``organizational member'' is a member that is not a

natural person. In addition to being clearer, the term is more

comprehensive than ``member credit union or affiliated non-credit union

member,'' as it includes non-credit union members who may not be

affiliated with credit unions.

Section 704.12(c) Recusal Provision

The ANPR asked whether the regulations should inquire recusal for

all matters involving the pecuniary interest of an organization in

which a corporate official is interested, rather than just matters

where the amount in question exceeds 5% of the corporate's capital.

Most of the commenters who supported the proposed changes favored a

stronger recusal provision, as did a few of the commenters who were

opposed to the changes. Some of the latter suggested that rather that

eliminating the threshold amount entirely, NCUA should consider

lowering it. Most of the commenters who were opposed to the changes

stated that the current regulation was appropriate, although a few said

it was too broad and that simply disclosing conflicts should be

sufficient.

The Board believes that a healthy and independent credit union

movement depends, in part, on preventing even the appearance of

conflicts of interest. The Board further believes that a strong recusal

provision is necessary to achieve this goal. In light of the increased

scrutiny of financial institutions, there is no justification for

allowing individuals who are interested in a matter from deliberating

upon or deciding that matter, no matter how small. Further, given the

proposed changes in board representation requirements, full recusal

does not present the same practical problems as does the present rule.

Therefore, the proposed rule does not contain a threshold below which

matters can be considered by an interested individual.

Under the recusal provision, an individual who is interested in a

matter may not discuss the matter with anyone in the credit union at

any time. He or she may not provide an opinion on the matter and must

leave the room or area where the matter is being discussed. Of course,

he or she may not vote on the matter.

The proposed rule provides a definition of ``interested,''

substitutes ``entity'' for ``corporation, partnership, or

association,'' and clarifies that the recusal provision does not apply

to general policy making regarding dividends, loan rates, and fees for

services. It also deletes paragraph (c)(5), as no longer necessary.

Section 704.12(d) Administration

The ANPR asked whether the management of a corporate credit union

should be required to report solely to its board. Again, most of the

commenters who supported the proposed changes favored the proposal, as

did some who were opposed to them. Most of those who were opposed said

that the issue should be determined by each corporate credit union.

Some of those who were opposed commented on the statement in the ANPR

that the practice of the manager of one entity reporting to another

entity violates fundamental principles of general corporate law. These

commenters argued that the statement was incorrect, stating that the

board of a corporation may delegate all or a portion of its management

functions. The Board notes that the commenters may have misunderstood

the statement, which was meant simply to affirm the principle that the

board of a corporation is ultimately responsible for the actions of the

corporation.

The Board believes it is essential that corporate credit unions

adhere to this principle of board responsibility. To that end, the

proposed rule sets forth the authority of the board and management of a

corporate credit union and requires that management report solely to

the board. The Board wishes to stress, again, that this requirement is

meant simply to make it clear that the board is ultimately responsible

for the operation of the corporate credit union. To further ensure that

a corporate credit union is controlled by its board and not by another

entity, the proposed rule provides that no management official or other

employee of a corporate credit union may be employed by or serve as an

official of any credit union-related organization.

Section 704.12(e) Credit Union-Related Organization

As previously explained, the proposed rule defines ``credit union-

related organization'' to be a credit union league or trade

association, an affiliate of a credit union league or trade

association, or an entity operated or controlled by a credit union

league, trade association, or affiliate.

D. Applicability to State-Chartered Corporate Credit Unions

The ANPR noted that Part 704 applies to all federally insured

corporate credit unions and that non-federally insured corporate credit

unions must agree to comply with it as a condition of receiving funds

from natural person federal credit unions. Several commenters objected

to applying the proposed changes to state-chartered corporate credit

unions, stating that it was a violation of state rights and outside

NCUA's authority.

The Board rejects these arguments, noting that NCUA has the

statutory authority: 1) to regulate federally insured corporate credit

unions to protect the NCUSIF; and 2) to establish investment standards

(set forth in Part 703), based on safety and soundness, for natural

person federal credit unions.

E. Effective Date

The Board is considering a delayed effective date of up to one

year, in order to give corporate credit unions ample time to comply

with any new regulations.

F. Regulatory Procedures

Regulatory Flexibility Act

The NCUA Board certifies that the proposed rule, if made final,

will not have a significant economic impact on small credit unions

(those under $1 million in assets). The rule applies only to corporate

credit unions, all of which have assets well in excess of $1 million.

Accordingly, the NCUA Board has determined that a Regulatory

Flexibility Analysis is not required.

Paperwork Reduction Act

The proposed rule does not impose any paperwork requirements.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. It states, ``Federal action limiting the

policy-making discretion of the states should be taken only where

constitutional authority for the action is clear and certain, and the

national activity is necessitated by the presence of a problem of

national scope.'' There is no question of NCUA's constitutional

authority to regulate federally insured corporate credit unions to

protect the NCUSIF. The risk of loss to federally insured credit unions

and the NCUSIF caused by actions of corporate credit unions are

concerns of national scope. The proposed rule will help establish that

NCUA has the proper tools to ensure the safety and soundness of

corporate credit unions.

The rule applies to all federally insured corporate credit unions,

including those that are state-chartered. State-chartered corporate

credit unions enjoy the same benefits provided by the NCUSIF as do

federally chartered corporate credit unions. The benefits are provided

through a federal system, the responsibility for which lies with the

NCUA Board. The Board believes that those who benefit from the system

should bear its burdens equally. The rule also applies, indirectly, to

non federally insured state-chartered corporate credit unions, which,

pursuant to 12 CFR Part 703, must comply with the rule in order to

receive funds from federally chartered credit unions. The proposed rule

does not impose additional costs or burdens on the states or affect the

states' ability to discharge traditional state government functions.

The Board had determined, pursuant to Executive Order 12612, that

the proposed rule may have an occasional direct effect on the states,

on the relationship between the national government and the states, or

on the distribution of power and responsibilities among the various

levels of government. Further, the proposed amendments may supersede

provisions of state law or regulation concerning federally insured

state-chartered corporate credit unions.

List of Subjects in 12 CFR Part 704

Credit unions, Reporting and record keeping requirements.

By the National Credit Union Administration Board on September

16, 1994.

Becky Baker,

Secretary of the Board.

For the reasons set forth in the preamble, 12 CFR part 704 is

proposed to be amended as follows:

PART 704--CORPORATE CREDIT UNIONS

1. The authority citation for part 704 continues to read as

follows:

Authority: 12 U.S.C. 1762, 1766(a), 1781, and 1789.

2. Section 704.2 is amended by removing the definition of

Affiliated organization and revising the definition of Corporate credit

union to read as follows:

Sec. 704.2 Definitions.

* * * * *

``Corporate credit union'' means a credit union that:

(1) Is operated primarily for the purpose of serving other credit

unions;

(2) Is designated by the National Credit Union Administration as a

corporate credit union;

(3) Limits natural person members to the minimum required by state

or federal law to charter and operate the credit union; and

(4) Does not condition the eligibility of any credit union to

become a member on that credit union's membership in any other

organization.

* * * * *

3. Section 704.12 is amended by revising paragraphs (a), (b),

(c)(1), (c)(2), and (c)(4), removing paragraph (c)(5), and adding

paragraphs (d) and (e), to read as follows:

Sec. 704.12 Representation.

(a) Board representation. The board shall be determined as

stipulated in the standard corporate federal credit union bylaws,

provided that:

(1) At least a majority of directors, including the chair of the

board, are individuals who represent member credit unions and are not

officers, directors, agents, or employees of a credit union-related

organization;

(2) Elections are conducted by mail ballot, with procedures for

nominations by petition; and

(3) For purposes of meeting the majority representation requirement

of paragraph (a)(1) of this section, no individual from a member credit

union can serve as a director if another individual from that credit

union serves as an officer, director, agent, or employee of a credit

union-related organization.

(b) Representatives of organizational members. (1) An

organizational member of a corporate credit union may appoint one of

its members or officials as a representative to the corporate credit

union. The representative shall be empowered to attend membership

meetings, to vote, and to stand for election on behalf of the member.

No individual may serve as the representative of more than one

organizational member in the same corporate credit union.

(2) Any vacancy on the board of a corporate credit union caused by

a representative being unable to complete his or her term shall be

filled by the board of the corporate credit union according to the

bylaws.

(c) Recusal provision. (1) No director, committee member, officer,

agent, or employee of a corporate credit union shall in any manner,

directly or indirectly, participate in the deliberation upon or the

determination of any question affecting his or her pecuniary interest

or the pecuniary interest of any entity (other than the corporate

credit union) in which he or she is interested, except if the matter

involves general policy regarding setting dividend or loan rates or

fees for services.

(2) An individual is ``interested'' in an entity if he or she:

(i) Serves as a director, officer, agent, or employee of the

entity;

(ii) Has a business, ownership, or deposit relationship with the

entity; or

(iii) Has a business, financial, or familial relationship with an

individual who has a pecuniary interest in the entity.

(3) * * *

(4) In the event of the disqualification of any committee member by

operation of paragraphs (c) (1) or (2) of this section, the remaining

qualified committee members, if constituting a quorum with the

disqualified committee members, may exercise, by majority vote, all the

powers of the committee with respect to the matter under consideration.

Where all of the committee members are disqualified, the matter shall

be decided by the board of directors.

(d) Administration. (1) A corporate credit union shall be under the

direction and control of its board of directors. While the board may

delegate the performance of administrative duties, the board is not

relieved of its responsibility for their performance. The board may

employ a management official who shall have such authority and such

powers as delegated by the board to conduct business from day to day.

Such management official must answer solely to the board of the

corporate credit union.

(2) No management official, agent, or employee of a corporate

credit union may be a management official, agent, or employee of a

credit union-related organization.

(e) Credit union-related organization. A ``credit union-related

organization'' means:

(1) A credit union league;

(2) A credit union trade association;

(3) An affiliate of a credit union league or trade association; or

(4) An entity operated or controlled by a credit union league,

credit union trade association, or affiliate of a credit union league

or trade association.

Appendix to the Proposed Rule

[Note: The following material will not appear in the Code of

Federal Regulations.]

The document entitled ``Corporate Federal Credit Union Bylaws'' is

proposed to be amended by revising Article IV, Section 2, and Article

V, Sections 1 and 2, and adding Sections 4 and 5 to Article V, to read

as follows:

Article IV. Meetings of Members

* * * * *

Section 2. At least 75 days before the date of any annual meeting

or 10 days before the date of any special meeting of the members, the

recording officer shall cause written notice to be mailed to each

member at the address that appears on the records of this credit union.

Such notice shall state the date, time, and location of the meeting and

such other information as the board of directors shall determine

consistent with these bylaws. The written notice for the annual meeting

shall advise the members of the deadlines for elections. Any meeting of

the members, whether annual or special, may be held without prior

notice, at any time or place, if all members entitled to vote and who

are not present at such meeting shall, in writing, waive notice

thereof, before, during, or after such meeting.

* * * * *

Article V. Elections

Section 1. At least 120 days prior to each annual meeting the board

of directors shall appoint a nominating committee of not fewer than

three from among the members. It shall be the duty of the nominating

committee to nominate at least one eligible candidate for each vacancy,

including any unexpired-term vacancy, for which elections are being

held, and to determine that the candidates nominated are agreeable to

the placing of their names in nomination and will accept office if

elected. The nominating committee shall file its nominations with the

recording officer at least 90 days prior to the annual meeting, and the

recording officer shall notify in writing all members eligible to vote

at least 75 days prior to the annual meeting that nominations for

vacancies may also be made by petition signed by 5 percent of the

members with a minimum of 5 and a maximum of 100.

The written notice shall indicate that the election will not be

conducted by ballot and there will be no nominations from the floor

when there is only one nominee for each position to be filled. A brief

statement of qualifications and biographical data in such form as shall

be approved by the board of directors will be included for each nominee

submitted by the nominating committee with the written notice to all

eligible members. Each nominee by petition shall submit a similar

statement of qualifications and biographical data with the petition.

The written notice shall state the closing date for receiving

nominations by petition. The period for receiving nominations by

petition shall, in all cases, extend at least 30 days from the date the

petition requirement and the list of nominating committee nominees are

mailed to all members. To be effective, such nominations shall be

accompanied by a signed certificate from the nominee or nominees

stating that they are agreeable to nomination and will serve if elected

to office. Such nominations shall be filed with the recording officer

at least 40 days prior to the annual meeting.

In carrying out their responsibilities, the nominating committee

and board of directors must ensure that the requirements of 12 CFR

704.12(a) are satisfied.

Section 2. All elections shall be determined by plurality vote and

shall be by mail ballot except where there is only one nominee for each

position to be filled. Nominations shall not be made from the floor

unless sufficient nominations have not been made by the nominating

committee or by petition to provide for one nominee for each position

to be filled or circumstances prevent the candidacy of the one nominee

for a position to be filled. Only those positions without a nominee

shall be subject to nominations from the floor. In the event

nominations from the floor, when permitted herein, result in more than

one nominee for a position to be filled, and when nominations have been

closed, tellers shall be appointed by the board of directors, ballots

shall be distributed, the vote shall be taken and tallied by the

tellers, and the results announced. When only one member is nominated

for each position to be filled, the chair may take a voice vote or

declare each nominee elected by general consent or acclamation at the

annual meeting.

* * * * *

Section 4. Except as provided in Section 2 of this article, all

elections shall be by mail ballot, subject to the following conditions:

(a) The tellers of election shall be appointed by the board of

directors;

(b) Sufficient nominations having been made by the nominating

committee or by petition to provide more than one nominee for any

position to be filled, the recording officer shall, at least 30 days

prior to the annual meeting, cause printed ballots to be mailed to all

members eligible to vote;

(c) The recording officer shall cause the following materials to be

mailed to each eligible voter:

(1) One ballot, clearly identified as such, on which the names of

the candidates for the board of directors and the candidates for other

separately identified offices or committees shall have been printed in

order as determined by the draw of lots. The name of each candidate

shall be followed by a brief statement of qualifications and

biographical data in such form as shall be approved by the board of

directors;

(2) One envelope clearly marked with instructions that the

completed ballot shall be placed therein and the envelope sealed;

(3) One identification form to be completed so as to include the

name, address, signature, and credit union account number of the voter;

(4) One mailing envelope in which the voter, pursuant to

instructions provided, shall insert the sealed ballot envelope and the

identification form, and which shall have been postage prepaid and pre

addressed for return to the tellers of election;

(5) When properly designed, one form can be printed that represents

a combined ballot/identification form, and postage prepaid and pre

addressed return envelope;

(d) It shall be the duty of the tellers of election to verify, or

cause to be verified, the name and account number of the credit union

appearing on the identification form; to place the verified

identification form and the sealed ballot envelope in separate places

of safekeeping pending the count of the vote; and, in the case of a

questionable or challenged identification form, to retain the

identification form and sealed ballot envelope together until the

verification or challenge has been resolved;

(e) Ballots mailed to the tellers of election must be received by

the tellers no later than midnight 5 days prior to the date of the

annual meeting;

(f) Voting shall be closed at the midnight deadline specified in

subsection (e) hereof and the vote shall be tallied by the tellers of

election. The result shall be verified at the annual meeting, and the

board of directors shall make public the result of the vote at the

annual meeting.

[FR Doc. 94-23545 Filed 9-22-94; 8:45 am]

BILLING CODE 7536-01-M