[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Rules and Regulations]
[Pages 71526-71528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29547]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 704

RIN 3133-AD58


Corporate Credit Unions, Technical Corrections

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: NCUA is issuing technical corrections to its corporate credit 
union rule, published in the Federal Register of October 20, 2010. The 
amendments: Correct the definition of collateralized debt obligation 
(CDO) in Sec.  704.2; correct the list of investments exempt from the 
single obligor limits and credit rating requirements in Sec.  704.6; 
and correct a date contained in Model Form H of Appendix A to part 704.

DATES: Effective on January 18, 2011. Comments must be received by 
December 27, 2010.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    NCUA Web site: http://www.ncua.gov/Resources/RegulationsOpinionsLaws/ProposedRegulations.aspx. Follow the 
instructions for submitting comments.
    E-mail: Address to <a href="/cdn-cgi/l/email-protection#deacbbb9bdb1b3b3bbb0aaad9eb0bdabbff0b9b1a8"><span class="__cf_email__" data-cfemail="2c5e494b4f4341414942585f6c424f594d024b435a">[email protected]</span></a>. Include [Your name] 
Comments on ``Interim Final Rulemaking for Part 704--Corporate Credit 
Unions'' in the e-mail subject line.
    Fax: (703) 518-6319. Use the subject line described above for e-
mail.
    Mail: Address to Mary Rupp, Secretary of the Board, National Credit 
Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-
3428.
    Hand Delivery/Courier: Same as mail address.
    Public Inspection: All public comments are available on the 
agency's Web site at http://www.ncua.gov/Resources/RegulationsOpinionsLaws/ProposedRegulations.aspx as submitted, except 
as may not be possible for technical reasons. Public comments will not 
be edited to remove any identifying or contact information. Paper 
copies of comments may be inspected in NCUA's law library at 1775 Duke 
Street, Alexandria, Virginia 22314, by appointment weekdays between 9 
a.m. and 3 p.m. To make an appointment, call (703) 518-6546 or send an 
e-mail to <a href="/cdn-cgi/l/email-protection#09464e4a4468606549676a7c68276e667f"><span class="__cf_email__" data-cfemail="8ec1c9cdc3efe7e2cee0edfbefa0e9e1f8">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Staff Attorney, 
Office of General Counsel, at the address above or telephone (703) 518-
6540; or David Shetler, Deputy Director, Office of Corporate Credit 
Unions, at the address above or telephone (703) 518-6640.

SUPPLEMENTARY INFORMATION

A. Background

    The NCUA published a final rule in the Federal Register of October 
20, 2010, at 75 FR 64786, containing extensive revisions to its 
corporate credit union rule, 12 CFR part 704. The

[[Page 71527]]

final revisions require three technical corrections. The following 
corrections reflect the intent of the original revisions as described 
in the preamble to the October 20, 2010 rulemaking.

B. Corrections

Section 704.2 Definition of ``collateralized debt obligation''

    The final revisions to part 704 prohibited corporate credit unions 
(corporates) from purchasing certain overly complex or leveraged 
investments, including collateralized debt obligations (CDOs). 75 FR 
64786, 64793 (October 20, 2010). These prohibitions were intended to 
protect the corporates from the potential for excessive investment 
losses. 74 FR 65210, 65237 (December 9, 2009) (preamble to proposed 
part 704 revisions). The proposed (and final) definition of CDO, 
however, was overly broad, in that it inadvertently included particular 
investments that did not--when subject to the other credit risk and 
asset liability management limitations of part 704--present the risk of 
excessive losses.
    This interim final rule amends the CDO definition to ensure the 
following are not prohibited: Commercial mortgage backed securities; 
securities collateralized by Agency mortgage-backed securities (Agency 
MBS); and securities that are fully guaranteed as to principal and 
interest by the United States Government and its agencies and 
government sponsored enterprises.
    The final rulemaking published October 20, 2010, revises Sec.  
704.2 twice. The first Sec.  704.2 revision is effective January 18, 
2011, and the second revision is effective October 20, 2011. This 
technical correction to the definition of ``collateralized debt 
obligation'' must be included in both revisions. Accordingly, the rule 
text below has two separate instructions for the CDO definition.

Paragraph 704.6(b) Exemptions to Sec.  704.6

    Section 704.6 generally requires corporate investments meet certain 
single obligor concentration limits, sector concentration limits, and 
credit rating requirements. Paragraph 704.6(b) exempts certain 
investments, including investments generally issued by or guaranteed by 
the U.S. Government or its agencies or sponsored enterprises, from the 
requirements of Sec.  704.6. As stated in the preamble to the recent 
corporate rule revisions, however, the Board did not intend for this 
exemption to apply to agency MBS in the context of sector limits. 75 FR 
64786, 64806 (Oct. 20, 2010) (discussing paragraph 704.6(d)(1)(i)). As 
drafted, however, not only the sector limits apply to agency MBS, but 
the other requirements, including single obligor limits and credit 
rating requirements, inadvertently apply to agency MBS. This correction 
clarifies the list of exemptions in Sec.  704.6(b) to make clear that 
Agency MBS are subject to the sector concentration limits in 704.6(d) 
but not the other requirements of Sec.  704.6.

Appendix A, Model Form H

    The rule as published included an incorrect date instruction on 
Model Form H in Appendix A. Id. at 64851. Model Form H included 
introductory text indicating that the form was for use before October 
20, 2011. In fact, because Model Form H deals with perpetual 
contributed capital, the form should be used only on and after October 
20, 2011. The correction replaces the phrase ``before'' with the phrase 
``on or after.''

C. Interim Final Rule

    NCUA is issuing this rulemaking as an interim final rule effective 
as of January 18, 2011, which is the date the relevant provisions of 
the previous corporate rulemaking will take effect. The Administrative 
Procedure Act (APA), 5 U.S.C. 553, generally requires that before a 
rulemaking can be finalized it must first be published as a notice of 
proposed rulemaking with the opportunity for public comment, unless the 
agency for good cause finds that notice and public comment are 
impracticable, unnecessary, or contrary to the public interest. In this 
regard, NCUA believes good cause exists for issuing these clarifying 
amendments as an interim final rule, in order to coordinate with the 
effective date of the recent final revisions as well as eliminate as 
soon as possible any confusion resulting from preamble language that is 
inconsistent with, or makes ambiguous, the associated regulatory text. 
To that extent, NCUA believes issuing this rulemaking as an interim 
final rule is in the public interest. NCUA does not anticipate comments 
on these changes and so is allowing only a 30-day comment period.

D. 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 (those under $10 million 
in assets). The interim final rule applies only to corporate credit 
unions, all of which have assets well in excess of $10 million. 
Accordingly, the interim final rule will not have a significant 
economic impact on a substantial number of small credit unions and, 
therefore, a regulatory flexibility analysis is not required.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 
1996, Public Law 104-121, provides generally for congressional review 
of agency rules. A reporting requirement is triggered in instances 
where NCUA issues a final rule as defined by Section 551 of the 
Administrative Procedures Act, 5 U.S.C. 551. While NCUA views these 
clarifying amendments as minor, the formal determination by the Office 
of Information and Regulatory Affairs is pending.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden. 44 U.S.C. 3507(d); 5 CFR part 
1320. For purposes of the PRA, a paperwork burden may take the form of 
either a reporting or a recordkeeping requirement, both referred to as 
information collections. These technical corrections do not impose any 
new paperwork burden.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on State and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order.
    The interim final rule would not have substantial direct effects on 
the states, on the connection between the national government and the 
states, or on the distribution of power and responsibilities among the 
various levels of government. NCUA has determined that this rule does 
not constitute a policy that has federalism implications for purposes 
of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this interim final rule will not 
affect family well-being within the meaning of section 654 of the 
Treasury and General

[[Page 71528]]

Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998).

List of Subjects in 12 CFR Part 704

    Credit unions, Corporate credit unions, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on November 
18, 2010.
Mary F. Rupp,
Secretary of the Board.

0
For the reasons stated in the preamble, the National Credit Union 
Administration amends 12 CFR part 704 as set forth below:

PART 704--CORPORATE CREDIT UNIONS

0
1. The authority citation for part 704 continues to read as follows:

    Authority: 12 U.S.C. 1762, 1766(a), 1772a, 1781, 1789, and 
1795e.


0
2. Revise the definition of ``collateralized debt obligation'' in Sec.  
704.2 to read as follows:


Sec.  704.2  Definitions.

* * * * *
    Collateralized debt obligation (CDO) means a debt security 
collateralized by mortgage-backed securities, other asset-backed 
securities, or corporate obligations in the form of nonmortgage loans 
or debt. For purposes of part 704, the term CDO does not include:
    (1) Senior tranches of Re-REMIC's consisting of senior mortgage-and 
asset-backed securities;
    (2) Any security that is fully guaranteed as to principal and 
interest by the U.S. Government or its agencies or its sponsored 
enterprises; or
    (3) Any security collateralized by other securities where all the 
underlying securities are fully guaranteed as to principal and interest 
by the U.S. Government or its agencies or its sponsored enterprises.
* * * * *

0
3. Effective October 20, 2011, revise the definition of 
``collateralized debt obligation'' in Sec.  704.2 to read as follows:


Sec.  704.2  Definitions.

* * * * *
    Collateralized debt obligation (CDO) means a debt security 
collateralized by mortgage-backed securities, other asset-backed 
securities, or corporate obligations in the form of nonmortgage loans 
or debt. For purposes of Part 704, the term CDO does not include:
    (1) Senior tranches of Re-REMIC's consisting of senior mortgage-and 
asset-backed securities;
    (2) Any security that is fully guaranteed as to principal and 
interest by the U.S. Government or its agencies or its sponsored 
enterprises; or
    (3) Any security collateralized by other securities where all the 
underlying securities are fully guaranteed as to principal and interest 
by the U.S. Government or its agencies or its sponsored enterprises.
* * * * *

0
4. Revise paragraph (b) in Sec.  704.6 to read as follows:


Sec.  704.6  Credit risk management.

* * * * *
    (b) Exemption. The limitations and requirements of this section do 
not apply to certain assets, whether or not considered investments 
under this part, including fixed assets, individual loans and loan 
participation interests, investments in CUSOs, investments that are 
issued or fully guaranteed as to principal and interest by the U.S. 
government or its agencies or its sponsored enterprises (but not 
exempting, for purposes of paragraph (d) of this section, mortgage 
backed securities), investments that are fully insured or guaranteed 
(including accumulated dividends and interest) by the NCUSIF or the 
Federal Deposit Insurance Corporation, and settlement funds in 
federally insured depository institutions.
* * * * *

0
5. Revise the introductory note in Model Form H, Appendix A, to read as 
follows:

Appendix A to Part 704--Capital Prioritization and Model Forms

* * * * *
Model Form H

    Note: This form is for use on or after October 20, 2011 in the 
circumstances where the credit union has determined that it will 
give newly issued capital priority over older capital as described 
in Part I of this Appendix. Also, capital previously issued under 
the nomenclature ``paid-in capital'' is considered perpetual 
contributed capital.

* * * * *
[FR Doc. 2010-29547 Filed 11-23-10; 8:45 am]
BILLING CODE 7535-01-P


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