Share Insurance and Appendix

SUMMARY: The proposed rule will amend regulations on the payment of

share insurance and appeals to provide authority for the liquidating

agent to pay dividends earned or accrued, but not posted to share

accounts. Also, the proposed rule will amend those regulations to

reference other regulations on the construction of time limits when

computing time.

DATES: Comments must be postmarked or posted on the NCUA electronic

bulletin board by September 10, 1996.

ADDRESSES: Send comments to Becky Baker, Secretary of the Board,

National Credit Union Administration Board, 1775 Duke Street,

Alexandria, Virginia 22314-3428.

FOR FURTHER INFORMATION CONTACT:

Jerry L. Courson, Special Assistant to the President, National Credit

Union Administration, Asset Liquidation Management Center, 4807

Spicewood Springs Road, Suite 5100, Austin, Texas 78759 or telephone

(512) 795-0999 or Allan H. Meltzer, Associate General Counsel, National

Credit Union Administration, Office of General Counsel, 1775 Duke

Street, Alexandria, Virginia 22314-3428 or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Request for Comments

The NCUA Board seeks comments on the proposed changes to Part 745

of the NCUA Rules and Regulations.

Background

Subpart B of Part 745 of the NCUA Rules and Regulations deals with

the payment of share insurance and appeals. Specifically, Section

745.200(b) provides that in determining the amount of share insurance,

no dividends shall be paid on shares if sufficient undivided and

current earnings are not available for such purpose. However, dividends

accrued and posted to share accounts for prior accounting periods are

considered as principal (regardless of earnings).

In a small number of liquidations, it has been necessary to

reconstruct and correct the credit union records. In these liquidation

cases, the reconstruction process disclosed situations where dividends

were posted to some member accounts and not posted to other member

accounts. Under the current regulation, to properly reconstruct these

accounts and the dividends that were miscalculated or omitted, the

liquidating agent obtained authority from the NCUA Board.

Since the current rule was adopted in 1990, only a small number of

the 352 credit unions placed into involuntary liquidation have involved

dividend issues. In most cases, the records are updated and dividends

are posted before liquidation. Based on the current volume, if all

cases involving unposted dividends were referred to the NCUA Board, the

workload would be excessive. However, the workload of the liquidating

agent would increase, because it would be necessary to audit or review

each member account twice, and the additional workload would result in

a delay in actual payment to the members.

The liquidation process would be more efficient if a rule is

adopted that permits recording unposted dividends. This option also

provides for a more equitable treatment of all members. The proposed

rule provides discretion for the liquidating agent to correct share

accounts by recording dividend payments that were not posted or were

incorrectly posted by credit union personnel due to fraud,

embezzlement, or accounting errors. Under the proposed rule, dividends

not earned in the normal course of business, would not be included in

the determination of insured shares. In addition, the proposed rule

provides flexibility in dealing with sufficient earnings. Under the

current regulation, dividend payments cannot be considered as principal

for insurance purposes if sufficient earnings were not available. The

proposed rule is silent on sufficient earnings, but a credit union's

earnings could be a factor used by the liquidating agent in determining

insured shares.

Under the proposed rule, decisions on unposted dividends can be

made without specific NCUA Board action.

In addition to amending the rule to deal with unposted dividends,

the proposed rule making also amends Section 745.200(d) to reference

Section 747.12(a) of the NCUA Rules and Regulations when computing

time. The current regulation references Section 747.119, and this

section no longer exists.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe the significant economic impact any proposed regulation may

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

under $1 million in assets). This proposal deals with the payment of

share insurance and does not directly impact operating credit unions.

It does not add any additional requirements or burden. The proposal

could provide an additional level of confidence for the credit union

member. Accordingly, the NCUA Board has determined and certifies under

the authority granted in 5 U.S.C. 605(b) that the proposed rule, if

adopted, will not have a significant economic impact on a substantial

number of small credit unions and that a Regulatory Flexibility Act

analysis is not required.

Paperwork Reduction Act

The proposed rule does not impose any new paperwork requirements.

Executive Order 12612

The proposed changes to Section 745.200 will apply to both federal

credit unions and federally-insured, state chartered credit unions. The

NCUA Board, pursuant to Executive Order 12612, has determined that the

proposed amendment will not have substantial 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 rule will not

preempt provisions of state law or regulation.

[[Page 36664]]

List of Subjects in 12 CFR Part 745

Administrative practice and procedure, Bank deposit insurance,

Claims, Credit unions.

By the National Credit Union Administration Board on July 9,

1996.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA proposes to amend its regulation as follows:

PART 745--SHARE INSURANCE AND APPENDIX

1. The authority citation for part 745 continues to read as

follows:

Authority: 12 U.S.C. 1766, 1781, 1789.

2. Section 745.200 is amended by revising paragraphs (b) and (d) to

read as follows:

Sec. 745.200 General.

* * * * *

(b) Amount of insurance. The amount of insurance on an insured

account shall be determined in accordance with the provisions of

subpart A of this part and the Federal Credit Union Act. For the

purpose of determining insurance coverage, dividends earned in the

ordinary course of business and posted to share accounts for any prior

accounting or dividend period shall be deemed to be principal under

this rule. Dividends earned or accrued in the ordinary course of

business, but not posted to share accounts, may be paid at the

discretion of the liquidating agent. In making such determination, the

liquidating agent will take into consideration whether the failure to

post dividends earned or accrued was due to the fraud, embezzlement or

accounting errors of credit union personnel. The liquidating agent may

require an accountholder to submit documentation supporting any claim

for unposted dividends not otherwise evidenced in the credit union

records. However, in no event will dividend amounts be considered as

principal for insurance purposes pursuant to this section if not

consistent with the amounts paid on similar classes of shares.

* * * * *

(d) Computing time. In computing any period of time prescribed by

this subpart, the provisions of Sec. 747.12(a) shall apply.

[FR Doc. 96-17783 Filed 7-11-96; 8:45 am]

BILLING CODE 7535-01-M