Guidelines for the Supervisory Review Committee

NATIONAL CREDIT UNION ADMINISTRATION

Guidelines for the Supervisory Review Committee

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed Interpretive Ruling and Policy Statement 94-2 (IRPS

94-2).

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SUMMARY: The Riegle Community Development and Regulatory Improvement

Act of 1994 (the Act) requires that NCUA and the federal banking

agencies each establish an appeals process within the Agency to review

material supervisory determinations made with respect to insured

institutions. The NCUA Board proposes that the review process be

carried out by a supervisory review committee consisting of senior

staff members. This proposal sets forth the types of issues that are

eligible for review by the committee as well as the composition,

structure and procedures for the proposed committee. The Board requests

comment on the committee concept as well as all other aspects of the

proposal.

DATES: Comments must be postmarked or received by December 19, 1994.

ADDRESSES: Send written comments to Becky Baker, Secretary to the

Board, National Credit Union Administration, 1775 Duke Street,

Alexandria, VA 22314 or comments via the electronic bulletin board to

Becky Baker at 703-518-6480.

FOR FURTHER INFORMATION CONTACT:

Hattie M. Ulan, Special Counsel to the General Counsel, at the above

address or telephone 703-518-6540.

SUPPLEMENTARY INFORMATION:

Background

The Riegle Community Development and Regulatory Improvement Act of

1994, Public Law 103-325 (the Act) was signed into law on September 23,

1994. Section 309 of the Act requires, among other things, that the

NCUA and the federal banking agencies each establish an independent

appellate process to review material supervisory determinations. The

Act requires that the agencies provide the public with notice and

opportunity to comment on proposed guidelines for the appellate process

within 90 days of the Act's passage. The Act requires further that each

agency's appellate process be established not later than 180 days after

the Act's passage.

The Act defines the terms ``material supervisory determinations''

and ``independent appellate process.'' Material supervisory

determinations are defined to include determinations relating to (1)

examination ratings; (2) adequacy of loan loss reserve provisions; and

(3) loan classifications on loans that are significant to a credit

union. The definition specifically excludes determinations made by NCUA

to appoint a conservator or liquidating agent or a decision made under

Section 212 of the FCU Act (12 U.S.C. 1790a) concerning NCUA approval

of officials of newly chartered or troubled credit unions.

Independent appellate process is defined as a review by an agency

official who does not report, directly or indirectly, to the agency

official who made the determination that is being reviewed. The Act

also requires that the agencies ensure that appeals be heard and

decided expeditiously and that safeguards exist for protecting the

appellant from retaliation by agency examiners.

In order to carry out the requirements of the Act, the NCUA Board

proposes the establishment of a supervisory review committee composed

of several senior NCUA personnel. The Board believes the committee will

provide at least the following benefits for NCUA and credit unions:

Ensure more consistent application of supervisory policy

throughout the Agency.

Enhance the level of fairness and due process afforded to

credit unions and others who are involved in supervisory disputes with

NCUA.

Reduce the number of cases that can only be resolved

through judicial proceedings.

Provide a more comprehensive and accurate record in those

cases that do result in such proceedings.

The Board requests comment on all aspects of this proposal,

including the advisability of meeting the statutory requirements

through the establishment of a committee; whether the process should be

established by policy statement (as proposed here) or regulation; the

types of disputes subject to the committee's jurisdiction; the

composition of the committee's membership; and the procedural workings

of the committee. Certain of these issues are discussed in greater

detail below.

Supervisory Disputes

As noted above, the Act sets forth the material supervisory

determinations subject to the review process. Included are

determinations related to (1) examination ratings; (2) adequacy of loan

loss reserves; and (3) loan classifications on loans that are

significant to the credit union.

The Board understands the reference to ``examination'' rating to

mean a credit union's CAMEL rating. CAMEL is a rating system that

provides a numerical score, from 1 through 5 (with 1 being the highest

score), in each of five key areas of a credit union's management and

financial performance, as well as a composite score. The five rated

areas--capital adequacy, asset quality, management, earnings and

liquidity--provide the basis for the CAMEL acronym.

It should be noted that CAMEL is intended and used mainly as an

internal supervisory tool by NCUA, to assist the agency in determining

how and where to devote its supervisory resources. It is not a public

rating and it does not necessarily reflect the level of service a

credit union provides to its members.

The Board proposes that only a credit union's composite CAMEL

rating be appealable, but requests comment on whether the individual

component ratings (capital, assets, management, earnings and liquidity)

should also be subject to appeal. In either case, the Board proposes

that only ratings of 4 and 5 be subject to appeal. Credit unions with

CAMEL ratings of 4 and 5 are treated differently than those with

ratings of 1, 2, or 3. They are generally under much closer

supervision. They are often subject to letters of understanding and

agreement. All new officials of credit unions with a 4 or 5 CAMEL

rating are subject NCUA approval pursuant to Section 701.14 of the NCUA

Regulations. The Board believes that credit unions subject to these

special supervisory and regulatory procedures are the credit unions

whose examination ratings should be subject to the appeal process.

Comment is requested on whether additional composite ratings should be

subject to the appeal process.

The Board also requests comment on how it should define classified

loans that are ``significant'' to the credit union. Should this be left

to the discretion of the credit union? Should it be determined by the

loan amount as a percentage of reserves? Or is some other definition

more appropriate.

Finally, with respect to disputes subject to review, the Board

proposes to limit the review process to those three categories set

forth in the Act and identified above. The Board requests comment,

however, on any other specific disputes that should be subject to the

committee's review.

Timing of Committee Involvement

The Board proposes that the committee assume jurisdiction over a

supervisory determination only when the credit union establishes that

it has been unsuccessful in attempting to resolve the matter with the

credit union's examiner and the appropriate regional office. The Board

does not intend by this requirement to establish a series of regional

reviews (e.g. Director of Supervision, to Associate Regional Director,

to Regional Director), but only that the credit union demonstrate that

an effort was made to resolve the matter with the regional office and

an official stationed in the regional office has said no.

The Board believes that any earlier involvement by the committee

would be disruptive of the established organizational structure of the

NCUA and the relationships between credit unions and their regional

offices. Also, in order to remain flexible and avoid unnecessary

bureaucracy, the Board would prefer not to establish specific time

frames for resolving issues at the regional level. The Board welcomes

comment on these issues, however, and is committed to both preserving

the regional chain of command and avoiding unnecessary delays.

Committee Composition and Procedures

The committee will be comprised of senior agency staff. The Board

proposes that the committee be comprised of five regular members. The

members of the committee will consist of the Executive Director, the

General Counsel, the Director of the Office of Examination and

Insurance, a specified Regional Director, and one additional senior or

Board staff member. The regional member will be rotated on a periodic

basis (proposed policy is to rotate every two years), and an alternate

Regional Director will be named to consider matters arising in the

regular member's region. The Executive Director will serve as the

chairperson of the committee.

Regular committee meetings will be scheduled four times a year.

Special meetings may be called and regular meetings may be canceled

based on the workload of the committee. Each committee member will have

one vote, the chairperson will only vote in the case of a tie, and a

quorum will be required to conduct business.

All appeals will be submitted in writing. An appeal may be made by

letter, addressed to the Chairman of the Supervisory Review Committee,

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

22314-3428. The appeal need only include the name of the credit union,

the determination being appealed, and the reasons for the appeal.

Appellants will be encouraged, however, to provide as much detail and

supporting documentation as possible, in order to expedite the appeal

process.

Personal appearances will not be a regular part of the process.

Appellants may request personal appearances, but the final decision

will be made by the committee.

NCUA is committed to the Act's mandate that appeals be decided

expeditiously. It is proposed that the following timing requirements

apply. Credit unions must submit their appeal within 30 days of the

regional office's decision. Once a complete package of information is

submitted, the committee will make a determination on the appeal within

90 days.

The committee may request more information from either the

appealing party or the regional office. Committee requests for more

information must be made within 30 days of receipt of the appeal. The

information must be submitted to the committee within 15 days of

receipt of the committee request. The 90 days to make a determination

will not begin to run until the expiration of the time allotted to

submit more information. Although these time requirements should be

sufficient in most cases, they are subject to adjustment by the

committee, either on its own or upon request of the appellant or the

region involved.

Each determination by the committee will be submitted in writing to

the NCUA Board. The Board will review the determination within seven

working days. Board members will each sign indicating whether they

agree with the committee's determination. If a majority of the Board

members agree, the determination will be final and the parties will be

notified. If a majority of the Board members do not agree, the matter

will be considered by the Board on final appeal.

The Board welcomes comment on both the composition and procedural

aspects of the committee.

Miscellaneous Issues

Section 309 of the Act requires that each of the agencies ensure

that safeguards exist for protecting the appellant from retaliation by

agency examiners. The proposal notes that credit unions can seek

redress from alleged retaliation through NCUA's Office of Inspector

General. The Board will expeditiously and firmly address any cases of

retaliation or abuse. The Board requests comment on any other steps it

should take to protect and reassure appellants.

The Act requires that the appellate process be available at insured

institutions that the agency supervises. Accordingly, the supervisory

review process will be open to all federally insured credit unions. The

committee will however, only consider appeals of material supervisory

determinations made by NCUA. the committee will consult with the state

supervisory authority in appropriate cases involving federally insured

state chartered credit unions.

Regulatory Procedures

Regulatory Flexibility Act

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

will not have a significant impact on a substantial number of small

credit unions. The appeal procedure set forth in the proposal applies

equally to all credit unions. The appeal procedure is not mandatory.

Only those credit unions wishing to appeal certain regional decisions

are subject to its provisions. It is not anticipated that small credit

unions will use the appeal procedure any more or less than large credit

unions. Accordingly, the NCUA Board has determined that a Regulatory

Analysis is not required.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. The proposed IRPS will apply to all

federally insured credit unions, as required by the Act. It may have a

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. However, the

Act requires that this process apply to FISCUs.

Paperwork Reduction Act

The proposed IRPS, if adopted, will impose paperwork requirements

on an appealing credit union. The paperwork requirements will be

submitted to the Office of Management and Budget (OMB) for review under

the Paperwork Reduction Act. Written comments on the paperwork

requirements should be forwarded directly to the OMB Desk Officer

indicated below at the following address: OMB Reports Management

Branch, New Executive Office Building, Room 10202, Washington, DC

20530, Attn. Milo Sunderhauf. NCUA will publish a notice in the Federal

Register once OMB action is taken on the submitted requirement.

By the National Credit Union Administration Board on November

10, 1994.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA proposes IRPS 94-2:

Interpretive Ruling and Policy Statement 94-2--Supervisory Review

Committee

Section 309 of the Riegle Community Development and Regulatory

Improvement Act of 1994 requires that NCUA establish an independent

intra-agency appellate process to review material supervisory

determinations. The NCUA Board hereby establishes a supervisory review

committee to implement Section 309.

The committee shall consist of five regular members of NCUA's

senior staff: the Executive Director, the Director of the Office of

Examination and Insurance, the General Counsel, one Regional Director,

and one additional senior staff or Board staff member. An alternate

Regional Director shall be appointed to consider matters arising in the

member Regional Director's region. The term of committee service for

the Regional Director, alternate Regional Director and additional

member is two years. These members may be appointed for additional

terms. All other members will serve permanently.

The Executive Director shall serve as the chairperson of the

committee and shall only vote in the case of a tie. All other members

shall have one vote. At least three members will be present at each

committee meeting. A majority vote is required for action on an appeal.

Regular committee meetings shall be held four times a year. Meetings

via teleconference are acceptable. Regular meetings may be canceled and

special meetings may called by the Executive Director.

Appeals may be made by all federally insured credit unions. The

committee shall hear appeals of material supervisory determinations

made by the NCUA. Such determinations are limited to: (1) composite

CAMEL rating of a 4 or 5; (2) adequacy of loan loss reserve provisions;

and (3) loan classifications on loans that are significant to a credit

union. A determination is appealable only after a decision has been

made by an official of the appropriate NCUA Regional Office.

Appeals shall be submitted in writing to the Chairman of the

committee, within 30 days of the regional office's decision. Appeals

shall be mailed or delivered to Chairman, Supervisory Review Committee,

NCUA, 1775 Duke Street, Alexandria, VA 22314-3428. Appeals may be made

by letter, which shall include the name of the appellant credit union,

the supervisory determination being appealed and the reasons for the

appeal. Appellants are encouraged to submit all information and

supporting documentation relevant to the matter in dispute.

The committee may request additional information from the appellant

and/or the regional office within 30 days of its receipt of the appeal.

The information must be submitted to the committee within 15 days of

receipt of the committee request. The committee shall make a

determination on the appeal within 90 days from the date of the receipt

of an appeal by the committee or of its receipt of any requested

additional information.

The time requirements set forth above are subject to adjustment by

the committee, either on its own or upon request of the appellant or

the region involved.

The committee's determination shall be submitted in writing to the

NCUA Board. Within seven working days, each Board member will sign

indicating whether they agree with the committee's determination. If a

majority of the Board members agree, the determination shall be final

and the parties so notified. If a majority of the Board members do not

agree, the parties will be notified, and the Board will proceed with

the final appeal.

Appellants can seek redress from alleged retaliation through NCUA's

Office of Inspector General.

[FR Doc. 94-28366 Filed 11-16-94; 8:45 am]

BILLING CODE 7535-01-P-M