# Corporate Credit Unions

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URL: https://www.frixlaw.com/law-library/documents/fr%3A94-23545

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** September 23, 1994

## Text

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.
---------------------------------------------------------------------------

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-23545. Public record. Not legal advice.