Mergers of Federally-Insured Credit Unions; Voluntary Termination or Conversion of Insured Status

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708b

Mergers of Federally-Insured Credit Unions; Voluntary Termination

or Conversion of Insured Status

AGENCY: National Credit Union Administration (``NCUA'').

ACTION: Notice of proposed rulemaking.

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SUMMARY: The NCUA Board propose to amend the disclosure forms in NCUA's

regulations relating to mergers and voluntary termination or conversion

of insured status in mergers of federally-insured credit unions. The

amendments inform the members that, if their credit union converts to

nonfederal insurance, the private insurance fund insuring their

accounts is not backed by the full faith and credit of the United

States government. It also informs the members that, if their credit

union terminates insurance, their shares, excluding those covered for

one year, are no longer insured by the federal government or any other

entity.

DATES: Comments must be received on or before February 2, 1998.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the

Board. Mail or hand-deliver comments to: National Credit Union

Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Fax

comments to (703) 518-6319. E-mail comments to [email protected].

Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Mary F. Rupp, Staff Attorney, Office

of General Counsel, at the above address or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

The Federal Deposit Insurance Act, 12 U.S.C. 1811 et seq., requires

credit unions that are not federally insured to advise their members on

``all periodic statements of account, on each signature card, and on

each passbook, certificate or deposit, or similar instrument evidencing

a deposit a notice that the institution is not federally insured, and

that if the institution fails, the Federal government does not

guarantee that depositors will get back their money.'' 12 U.S.C.

1831t(b)(1). Clearly, a member of a credit union being asked to vote on

a proposal that would replace federal insurance with private insurance

is entitled to a similar disclosure. Currently, NCUA's regulations do

not require disclosure of this information.

Proposal

Sections 708(b).301 (a)(1) and (b)(1) contain the form notices that

are sent to the members if a credit union is seeking to terminate

federal insurance. The proposal would amend the notices by clarifying

to the members that if the credit union fails, their shares are no

longer insured by the federal government or any other entity.

Sections 708b.302(a)(1), (a)(2), (b)(1) and (b)(2) contain the form

notices and ballots that are sent to the members if a credit union is

seeking to convert from federal to nonfederal insurance. The proposal

would add a sentence to the notice and ballot explaining that the

insurance provided by the NCUA is backed by the full faith and credit

of the United States government and that the private insurance the

member will receive if the credit union converts is not backed by the

United States government.

The Board believes this information must be disclosed in order for

the member to make an informed vote on the proposed transaction.

Disclosure of this information is consistent with the disclosure

requirements Congress imposes on credit unions lacking federal

insurance.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires the NCUA to prepare an

analysis to describe any significant economic effect any regulation may

have on a substantial number of small credit unions, meaning those

under $1 million in assets. The NCUA Board has determined and certifies

that the proposed rule if adopted will not have a significant economic

impact on a substantial number of small credit unions. The reasons for

this determination are that the proposed rule requires the addition of

two sentences to the disclosure form used by credit unions converting

to nonfederal insurance. The addition of these two sentences will not

increase the costs of the conversion and therefore will not create a

financial burden. Accordingly, the NCUA Board has determined that a

Regulatory Flexibility Analysis is not required.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

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

federally insured credit unions. The proposed amendments are not

designed or intended to interfere with the state regulation of state-

chartered institutions. However, the Board is modeling this proposal on

federal legislation that specifically applies to state-chartered credit

unions. The NCUA Board has determined that the proposed amendments are

not likely to have any direct effect on states, the relationship

between the states, or the distribution of power and responsibilities

among the various levels of government.

Paperwork Reduction Act

The proposed amendment requires the credit union to provide to its

members information that is provided by NCUA in the proposal. The

Paperwork Reduction Act does not apply to disclosures that are

directives for a person to disclose information completely supplied by

the agency. 5 CFR 1320.3(c)(2).

[[Page 64188]]

List of Subjects in 12 CFR Part 708b

Bank deposit insurance, Credit unions, Reporting and recordkeeping

requirements.

By the National Credit Union Administration Board on November

24, 1997.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA proposes to amend 12 CFR part 708b as follows:

PART 708b--MERGERS OF FEDERALLY-INSURED CREDIT UNIONS; VOLUNTARY

TERMINATION OR CONVERSION OF INSURED STATUS

1. The authority citation for part 708b continues to read as

follows:

Authority: 12 U.S.C. 1766, 1785, 1786, 1789.

2. In Sec. 708b.301, paragraph (a)(1) is amended by revising the

second paragraph of the Notice of Proposal to Terminate Federal

Insurance and paragraph (b)(1) is amended by revising the third

paragraph of the Notice of Proposal to Merge and Terminate Federal

Insurance to read as follows:

Sec. 708b.301 Termination of insurance.

(a) * * *

(1) Notice of Proposal to Terminate Federal Insurance

* * * * *

If approved, any deposits made by you after the date of

termination, either new deposits or additions to existing accounts,

will not be insured by the NCUA or any other entity. In the event

the credit union fails, these deposits are not insured by the

federal government. No provision has been made for alternative

insurance, therefore, these deposits will be uninsured.

* * * * *

(b) * * *

(1) Notice of Proposal to Merge and Terminate Federal Insurance

* * * * *

Any deposits made by you after the effective date of the merger,

either new deposits or additions to existing accounts, will not be

insured by the NCUA or any other entity. In the event the credit

union fails, these deposits are not insured by the federal

government. No provision has been made for alternative insurance,

therefore, these deposits will be uninsured. Accounts in the merging

Credit Union on the date of the merger, up to a maximum of $100,000

for each member, will continue to be insured, as provided in the

Federal Credit Union Act, for one (1) year after the close of

business on the date of the merger, but any withdrawals after the

close of business on that date will reduce the insurance coverage by

the amount of the withdrawal.

* * * * *

3. In Sec. 708b.302, paragraph (a)(1) is amended by adding two

sentences at the end of the second paragraph of the Notice of Proposal

to Convert to Nonfederally-Insured Status, paragraph (a)(2) is amended

by adding a sentence at the end of the second paragraph of the ballot,

paragraph (b)(1) is amended by adding two sentences at the end of the

second paragraph of the Notice of Proposal to Merge and Convert to

Nonfederally-Insured Status and paragraph (b)(2) is amended by adding a

sentence at the end of the second paragraph of the ballot to read as

follows:

Sec. 708b.302 Conversion of insurance.

(a) * * *

(1) Notice of Proposal to Convert to Nonfederally-Insured Status

* * * * *

* * * The insurance provided by the National Credit Union

Administration, an independent agency of the United States, is

backed by the full faith and credit of the United States government.

The private insurance you will receive from ____________________ is

not guaranteed by the federal or any state government.

(2) * * * The private insurance provided by ____________________

is not backed by the full faith and credit of the United States

government as is the federal insurance provided by the National

Credit Union Administration.

* * * * *

(b) * * *

(1) Notice of Proposal to Merge and Convert to Nonfederally-Insured

Status

* * * * *

* * * The insurance provided by the National Credit Union

Administration, an independent agency of the United States, is

backed by the full faith and credit of the United States government.

The private insurance you will receive from ____________________ is

not guaranteed by the federal or any state government.

(2) * * * The private insurance provided by ____________________

is not backed by the full faith and credit of the United States

government as is the federal insurance provided by the National

Credit Union Administration.

* * * * *

[FR Doc. 97-31502 Filed 12-3-97; 8:45 am]

BILLING CODE 7535-01-P