Organization and Operations of Federal Credit Unions

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The NCUA Board proposes to amend its regulation dealing with

newly chartered and troubled credit unions that requires prior notice

of the appointment or employment of directors and senior officers. The

proposed amendment clarifies when the notice period commences and when

the new director or senior officer may begin service. This action is in

accordance with section 914 of the Financial Institutions Reform,

Recovery , and Enforcement Act (FIRREA) of 1989.

Additionally, the NCUA Board has adopted a new rating system for

corporate credit unions, the Corporate Risk Information System (CRIS).

The proposed amendment clarifies that the definition of a ``troubled''

corporate credit union will be based on CRIS, or on CAMEL for those

state-chartered corporate credit unions in states that do not adopt

CRIS. Clarification is also added to reflect that corporate credit

unions should submit notices of changes in officials or senior

management to the Director of the Office of Corporate Credit Unions.

DATES: Comments must be received on or before February 3, 1999.

ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail

or hand-deliver comments to: National Credit Union Administration, 1775

Duke Street, Alexandria, Virginia 22314-3428. Fax comments to (703)

518-6319. Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Margaret E. McPartlin, Trial Attorney,

Litigation Division, Office of General Counsel, at the above address or

telephone: (703) 518-6566 or David A. Shetler, Corporate Program

Specialist, Office of Corporate Credit Unions, at the above address or

telephone: (703) 518-6646.

SUPPLEMENTARY INFORMATION:

Background

NCUA has a policy of periodically reviewing its regulations to

``update, clarify and simplify existing regulations and eliminate

redundant and unnecessary provisions.''

IRPS 87-2, Developing and Reviewing Government Regulations. 52 FR

35231 (September 18, 1987). As part of its regulatory review program,

NCUA reviewed Sec. 701.14 of its regulation, 12 CFR 701.14, to

determine whether the language of the regulation was clear and

effective. Section 701.14 of NCUA's Regulations requires that federally

insured credit unions which have been chartered less than two years or

fall within the regulatory definition of a ``troubled credit union,''

file a notice with NCUA prior to adding or replacing a member of the

board of directors or a committee member, or employing or changing the

responsibilities of an individual to a position as a senior executive

officer. As a result of NCUA review and questions from credit unions,

as well as our regional office staff, the Board proposes this amendment

to clarify the language contained in Sec. 701.14(d)(1).

There has been confusion as to when the Regional Director accepts

the notice of a proposed change in an official or senior officer; how

long the Regional Office has to process the notice; and when the

official or senior officer may commence work. The proposed amendment

clarifies the language in Sec. 701.14(d)(1) to provide that the

Regional Director will determine when the notice is complete. The

proposal would provide the Regional Director with up to ten working

days to make this determination. The Regional Director can ask for

additional information if a notice is incomplete. Once the Regional

Director has a complete notice, the credit union will receive written

notification that the complete notice is ready for processing. The

Regional Director then has up to 30 calendar days to issue a decision

approving or disapproving the proposed official or senior officer. If

after the expiration of the 30 days the Regional Director has not

issued written notification of approval or disapproval, the official or

senior officer is considered approved and service may begin.

The NCUA Board has adopted the new CRIS rating system for corporate

credit unions. The proposed amendment clarifies that a CRIS rating of 4

or 5 will be one of the conditions that defines a ``troubled'' federal

corporate credit union. As is the case for all federally insured state

credit unions in the present rule, the rating assigned by the state

supervisor is utilized in determining the definition of a ``troubled''

federally insured, state-chartered corporate credit union. Language is

added to clarify that a 4 or 5 CAMEL composite rating by the state

supervisor will be a condition that defines a ``troubled'' federally

insured, state-chartered corporate credit union, unless that state has

adopted the CRIS system. If the state has not adopted either system,

NCUA will determine and apply a CRIS rating using the corporate credit

union's core exam workpapers.

The existing language of Sec. 701.14 does not indicate that

corporate credit unions should submit notices of changes in officials

or senior management to the Director of the Office of Corporate Credit

Unions (OCCU). Language has been added to the proposed amendment to

clarify that corporate credit unions will submit notices to the

Director of OCCU and that the Director of OCCU will be the NCUA

official that takes action on such notices.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe any significant economic impact any proposed regulation may

have on a substantial number of small entities (primarily 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. Accordingly, the

Board has determined that a Regulatory Flexibility Analysis is not

required.

Paperwork Reduction Act

NCUA has determined that the proposed rule does not increase

paperwork requirements under the

[[Page 59743]]

Paperwork Reduction Act of 1995 and regulations of the Office of

Management and Budget.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. NCUA has determined that the proposed

amendment does not constitute a significant regulatory action for the

purposes of the Executive Order.

List of Subjects in 12 CFR Part 701

Credit unions, Senior executive officials.

By the National Credit Union Administration Board on October 26,

1998.

Becky Baker,

Secretary of the Board.

For the reasons set forth in the preamble, it is proposed that 12

CFR part 701 be amended as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

1. The authority citation for part 701 continues to read as

follows:

Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,

1761b, 1766, 1767, 1782, 1784, 1787, and 1789. Section 701.6 is also

authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by

15 U.S.C. 1601 et seq., 42 U.S.C. 1861 and 42 U.S.C. 3601-3610.

Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

2. Section 701.14 is amended as follows:

a. Revise the introductory text of paragraph (b)(3) and add

paragraph (b)(4).

b. Revise paragraph (c)(2).

c. Amend paragraph (d)(1) by adding two new sentences after the

first sentence and by removing the last three sentences and adding five

sentences.

The revisions and additions to Sec. 701.14 read as follows:

Sec. 701.14 Change in official or senior executive officer in credit

unions that are newly chartered or are in troubled condition.

* * * * *

(b) * * *

(3) Except as provided in paragraph (4) of this section for

corporate credit unions, ``troubled condition'' means any insured

credit union that has one or a combination of the following conditions:

* * * * *

(4) In the case of a corporate credit union, troubled condition

means any insured corporate credit union that has one or a combination

of the following conditions:

(i) Has been assigned:

(A) A 4 or 5 Corporate Risk Information System (CRIS) rating in

either the Financial Risk or Risk Management composites by NCUA for a

federal corporate credit union, or

(B) An equivalent 4 or 5 CAMEL composite rating by the state

supervisor in the case of a federally insured, state-chartered

corporate credit union, or an equivalent 4 or 5 CRIS rating in either

the Financial Risk or Risk Management composites by the state

supervisor in the case of a federally insured, state-chartered

corporate credit union in those states that have adopted the CRIS

system, or

(C) A 4 or 5 CRIS rating in either the Financial Risk or Risk

Management composites by NCUA based on core workpapers received from

the state supervisor in the case of a federally insured, state-

chartered credit union in a state that does not use either the CAMEL or

CRIS systems. In this case, the state supervisor will be notified in

writing by the Director of the Office of Corporate Credit Unions that

the corporate credit union has been designated by NCUA as a troubled

institution;

* * * * *

(c) * * *

(2) The credit union meets the definition of troubled condition as

set forth in paragraph (b) (3) or (4) of this section.

* * * * *

(d) Procedures for notice of proposed change in official or senior

executive officer.--(1) Filing and acceptance. * * * In the case of a

corporate credit union, notice shall be filed with the Director of the

Office of Corporate Credit Unions. Additional references herein to

Regional Director will, for corporate credit unions, mean the Director

of the Office of Corporate Credit Unions. * * * Within ten business

days the Regional Director will review the notice and determine whether

the notice is complete. If the notice is not complete, the Regional

Director can request additional information. The credit union will

receive written notification of the date that the notice is deemed

complete and ready for processing. Within 30 calendar days from the

date a notice is deemed complete, the Regional Director will send a

written notification to the individual and the credit union of

disapproval or approval of the proposed official or employee. If the

Regional Director fails to issue a written notification within 30

calendar days, the individual is considered approved and service may

begin.

* * * * *

[FR Doc. 98-29196 Filed 11-4-98; 8:45 am]

BILLING CODE 7535-01-U