Share Insurance and Appendix

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745

Share Insurance and Appendix

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: Currently, the NCUA Rules and Regulations include dividends

accrued and posted to share accounts for any prior accounting period as

principal for determining the amount of share insurance on insured

accounts. To provide equitable treatment, the NCUA Board is amending

the regulations to provide authority for the liquidating agent to

include dividends earned or accrued in the normal course of business

but not posted in the determination of the amount of share insurance on

insured accounts. An outdated reference in the Regulations regarding

time computation is updated.

DATES: The rule is effective on November 27, 1996.

ADDRESSES: National Credit Union Administration, 1775 Duke Street,

Alexandria, Virginia 22314-3428.

FOR FURTHER INFORMATION CONTACT: Jerry L. Courson, Special Assistant to

the President, Asset Management and Assistance Center, National Credit

Union Administration, 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:

Background

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

the payment of share insurance and appeals. Specifically,

Sec. 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.

On July 9, 1996, the NCUA Board issued a Notice of Proposed

Rulemaking, 61 FR 36663 (July 12, 1996), proposing to amend

Sec. 745.200(b) to provide the liquidating agent authority to record

unposted dividends to provide 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 the issue of unposted dividends, the proposed rule

also noted a needed change to the reference in Sec. 745.200(d) to

Sec. 747.119 of the NCUA Rules and Regulations. This is a reference to

the Section in the Regulations on time computation. Section 747.119 no

longer exists and the reference is updated to read Sec. 747.12(a).

The Notice of Proposed Rulemaking included a Request for Comments

seeking public comment on the proposed changes to Part 745 of the NCUA

Rules and Regulations. Five comment letters were received, one from a

federal credit union and four from national and state credit union

leagues. All commenters expressed unqualified support for the proposed

regulation.

Analysis

The final rule is unchanged from the proposed rule that was

published on July 12, 1996.

Immediate Effective Date

Since the rule relieves a restriction in that the liquidating agent

can pay certain unposted dividends without specific NCUA Board action,

the thirty day delay in effective date is not applicable. 5 U.S.C.

553(d)(1).

Regulatory Procedures

Regulatory Flexibility Act

The NCUA Board certifies that this rule will not have a significant

economic impact on a substantial number of small credit unions (those

under $1 million in assets). Accordingly, a Regulatory Flexibility Act

analysis is not required.

Paperwork Reduction Act

The rule does not impose any new paperwork requirements.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. The changes to Sec. 745.200 will apply to

both federal credit unions and federally-insured, state chartered

credit unions. The

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

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 rule will not preempt provisions of state law

or regulation.

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 November

20, 1996.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA amends 12 CFR part 745 as follows:

PART 745--SHARE INSURANCE AND APPENDIX

1. The authority citation for part 745 is revised 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 part. 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. 96-30287 Filed 11-26-96; 8:45 am]

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