6004 Federal Register / Vol. 74, No. 22 / Wednesday, February 4, 2009 / Proposed Rules 

be placed on the wage schedule for the 

Stockton wage area on the first day of 

the first applicable pay period beginning 

on or after 30 days following 

publication of the final regulations. 

Regulatory Flexibility Act 

I certify that these regulations would 

not have a significant economic impact 

on a substantial number of small entities 

because they would affect only Federal 

agencies and employees. 

List of Subjects in 5 CFR Part 532 

Administrative practice and 

procedure, Freedom of information, 

Government employees, Reporting and 

recordkeeping requirements, Wages. 

U.S. Office of Personnel Management. 

Kathie Ann Whipple, 

Acting Director. 

Accordingly, the U.S. Office of 

Personnel Management is proposing to 

amend 5 CFR part 532 as follows: 

PART 532—PREVAILING RATE 

SYSTEMS 

1. The authority citation for part 532 

continues to read as follows: 

Authority: 5 U.S.C. 5343, 5346; § 532.707 

also issued under 5 U.S.C. 552. 

2. In appendix C to subpart B, the 

wage area listing for the State of 

California is amended by revising the 

listings for Fresno and Stockton, to read 

as follows: 

Appendix C to Subpart B of Part 532— 

Appropriated Fund Wage and Survey 

Areas 

* * * * * 

CALIFORNIA 

Fresno 

Survey Area 

California: 

Fresno 

Kings 

Tulare 

Area of Application. Survey area plus: 

California: 

Kern (Does not include China Lake 

Naval Weapons Center, Edwards Air 

Force Base, and portions occupied 

by Federal activities in Boron (City).) 

Madera (Does not include Devils 

Postpile National Monument and Yosemite National Park portions.) 

*****

Stockton 

Survey Area 

California: 

San Joaquin 

Area of Application. Survey area plus: 

California: 

Calaveras 

Madera (Only includes Yosemite National Park portion.) 

Mariposa 

Merced 

Stanislaus 

Tuolumne 

*****

[FR Doc. E9–2392 Filed 2–3–09; 8:45 am] 

BILLING CODE 6325–39–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 704 

RIN 3133–AD58 

Corporate Credit Unions 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Advance notice of proposed 

rulemaking and request for comment 

(ANPR). 

SUMMARY: In the light of current 

economic circumstances affecting the 

U.S. economy and, in particular, the 

financial sector, NCUA is evaluating 

and reconsidering the role corporate 

credit unions currently play in the 

credit union system, including 

corporates’ membership structure, size, 

and types of services they offer. NCUA 

is also considering whether to amend its 

regulation governing corporate credit 

unions to clarify or revise current 

provisions, including those related to: 

Capital; permissible investments; 

management of credit risk and liquidity; 

and corporate governance. NCUA seeks 

comment on these issues and any others 

commenters think NCUA should 

consider. 

DATES: Comments must be received on 

or before April 6, 2009. 

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/RegulationsOpinions

Laws/proposed_regs/proposed_

regs.html. Follow the instructions for 

submitting comments. 

• E-mail: Address to 

regcomments@ncua.gov. Include ‘‘[Your 

name]—Comments on Advanced Notice 

of Proposed Rulemaking for Part 704’’ 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/ 

RegulationsOpinionsLaws/comments 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) 518–6540 or 

send an e-mail to OGCMail@ncua.gov. 

FOR FURTHER INFORMATION CONTACT: Ross 

Kendall, Trial Attorney, Office of 

General Counsel, at the above address or 

telephone: (703) 518–6540, or David 

Shetler, Senior Corporate Program 

Specialist, at the above address or 

telephone (703) 518–6640. 

SUPPLEMENTARY INFORMATION: 

A. Background 

The Federal Credit Union Act (Act) 

authorizes natural person federal credit 

unions (FCUs) to invest in shares or 

deposits of any central credit union 

(corporate credit union). 12 U.S.C. 

1757(7)(G). A corporate credit union is 

an organization, chartered under the Act 

or under applicable state law as a credit 

union that receives shares from and 

provides loan and other services 

primarily to other credit unions. 12 CFR 

704.2. Historically, corporate credit 

unions have fulfilled an important role 

in the credit union industry and have 

provided credit unions with payment 

and clearing services, including access 

to wire transfer facilities and automated 

clearing house transactions. Corporate 

credit unions have also provided 

investment services, enabling smaller 

credit unions to achieve economies of 

scale and access to greater market 

returns otherwise unavailable to them. 

Corporate credit unions have been an 

important source of liquidity for credit 

unions through short and medium term 

credit facilities, and have served as 

agents on behalf of NCUA’s Central 

Liquidity Facility (CLF) in connection 

with loans funded by the CLF. 

Corporate credit unions have also 

provided other operational services, 

such as coin and currency services and 

safekeeping of investments. 

There are currently twenty-eight 

corporate credit unions serving the 

nation’s approximately 7,900 credit 

unions. As with all credit unions, 

corporate credit unions are organized as 

cooperatives, owned by their members 

and responsive to their needs, enabling 

Federal Register / Vol. 74, No. 22 / Wednesday, February 4, 2009 / Proposed Rules 6005 

members to receive access to necessary 

products and services at affordable 

rates. They provide a level of expertise 

and market presence that would be 

unavailable to most of their members if 

required to rely solely on their own 

resources. 

B. Current Economic Climate and 

Remedial Measures Taken 

Over the last year, many corporate 

credit unions have experienced a 

dramatic reduction in the value of their 

investment portfolios. These reductions, 

coupled with, in some cases, the virtual 

freeze-up of the market for trading in 

certain types of investment securities, 

have undermined the stability of the 

corporate credit union system. 

Simultaneously with the issuance of 

this Advance Notice of Proposed 

Rulemaking, which is designed to 

identify issues that may have 

contributed to the current state of affairs 

and to solicit comment and ideas on 

how to address them as the industry 

moves ahead, the NCUA Board has 

taken several actions with a more 

immediate, remedial impact, designed 

to stabilize the industry and maintain 

confidence in the corporate system. 

These actions include the following: 

• An infusion of $1 billion in capital 

into U.S. Central Federal Credit Union, 

the corporate system’s wholesale credit 

union, by the National Credit Union 

Share Insurance Fund (NCUSIF); and 

• A temporary NCUSIF guarantee of 

all member shares, for any corporate 

credit union that decides to participate 

in a voluntary guarantee program 

offered by NCUA. 

The Board believes these 

extraordinary measures, which are 

mandated by the exigent economic 

conditions affecting the country, will 

help stabilize the corporate credit union 

system and enable credit unions return 

to their primary mandate, which is to 

provide affordable financial services to 

their members. The Board believes that 

identifying and addressing the issues 

discussed in this ANPR will help 

continue to assure stability and 

confidence in the corporate credit union 

system in the future. 

C. Issues for Consideration 

Notwithstanding the successful role 

that corporates have played in the credit 

union sector, events of recent months 

have highlighted several areas in which 

re-evaluation is appropriate and 

necessary. As set out more fully below, 

these include some fundamental aspects 

concerning the structure, role and 

services offered by corporate credit 

unions to the credit union industry. 

1. The Role of Corporates in the Credit 

Union System 

Recent events have highlighted 

structural vulnerabilities in the 

corporate credit union system. NCUA is 

considering whether comprehensive 

changes to the structure of the corporate 

system are warranted. Possible 

approaches the agency is considering 

include eliminating the second or 

wholesale tier from the corporate 

system, modifying the level of required 

capital, isolating payment services from 

the risks associated with other lines of 

business, determining which product 

and service offerings are appropriate for 

corporates, requiring a restructure of 

corporate boards, and tightening or 

eliminating the expanded investment 

authority that is currently available to 

corporates. 

Payment system. Some of the 

questions and issues arising in this 

context, on which the Board is seeking 

comment, include matters such as 

whether payment system services 

should be isolated from other services to 

separate the risks. If so, what is the best 

structure for isolating these services 

from other business risks? Specific 

comment is solicited concerning 

whether, for example, it would be better 

to establish a charter for corporate credit 

unions whereby a corporate’s authority 

is strictly limited to operating a 

payment system, with no authority to 

engage in other services, such as term or 

structured investments. Additionally, a 

separate charter may be available for 

corporate credit unions that want to 

engage in providing investment 

services. Another alternative would be 

for NCUA to establish distinct capital 

requirements for payment systems risk 

and the risks of other corporate services. 

NCUA could also require that a legal 

and operational firewall be established 

between payment system services and 

other services. In connection with this 

topic, comment is also sought on the 

question of whether there is sufficient 

earnings potential in offering payment 

systems to support a limited business 

model that is restricted to payment 

systems services only. 

Liquidity and liquidity management. 

Historically, the primary role of 

corporate credit unions has been to 

provide and ensure liquidity. Corporate 

investments were made with an eye 

towards ensuring funds would be 

available to meet members’ short-term 

liquidity needs. Recent events 

underscore the need to assure a 

corporate properly considers its 

investment position relative to its cash 

flow needs. The Board recognizes and 

understands that providing liquidity for 

the credit union system is one of the 

principal purposes of the corporate 

credit union network. One question for 

consideration and comment is whether 

liquidity ought to be considered a core 

service of the corporate system, and if 

so, what steps should be taken, and by 

whom, to preserve and strengthen 

corporates’ ability to offer that service? 

For example, should NCUA consider 

limiting a corporate’s ability to offer 

other specific types of products and 

services in order to preserve and defend 

the liquidity function? What specific 

types of products and services should 

corporates be authorized to provide? 

NCUA is considering additional cash 

flow measuring requirements to assist 

corporates in achieving and maintaining 

proper liquidity management. In this 

respect, comment is specifically 

solicited on the question of whether 

NCUA should add aggregate cash flow 

duration limitations to Part 704. If so, 

commenters are invited to describe how 

this requirement should be structured, 

and also to identify how such 

limitations would benefit liquidity 

management. Finally, comment is 

solicited on the question of what cash 

flow duration limits would be 

appropriate for corporate credit unions, 

particularly in an evolving interest rate 

market with previously unseen credit 

risk spreads. 

Field of Membership Issues. NCUA 

also seeks comment on whether and 

how to restructure the corporate credit 

union system. For example, despite its 

intention of fostering competition, 

NCUA’s decision to allow corporates to 

have national fields of membership 

(FOMs) may have resulted in 

significant, and unforeseen, risk taking. 

For example, corporates have competed 

with each other to offer higher rates, and 

have done so through the accretion of 

credit and marketability risks. To 

address this development, should the 

agency return to defined FOMs, for 

example, state or regional FOMs? 

Expanded Investment Authority. At 

present, Part 704 provides for an option 

by which corporates meeting certain 

criteria can qualify for expanded 

investment authority. For example, a 

corporate meeting the criteria set out 

under Part One of the expanded 

authority is allowed to purchase 

investments with relatively lower credit 

ratings than otherwise permissible 

under the rule. NCUA seeks comment, 

first, as to whether the need for 

expanded authorities continues to exist. 

If so, should NCUA modify the 

procedures and qualifications, such as 

higher capital standards, by which 

corporates currently qualify for 

expanded authorities? If so, what should 

6006 Federal Register / Vol. 74, No. 22 / Wednesday, February 4, 2009 / Proposed Rules 

the new standards be? Should NCUA 

reduce the expanded authorities 

available? If so, which ones? 

Alternatively, should any of the limits 

in existing expanded authorities be 

reduced or increased? If so, which ones? 

Once granted, should NCUA require 

periodic requalification for expanded 

authorities? If so, what should be the 

timeframe? 

Structure; two-tiered system. Over 

time, the corporate system has evolved 

into two tiers: a retail network of 

corporates that provide products and 

services to natural person credit unions, 

and a single, wholesale corporate that 

exclusively services the retail 

corporates. NCUA solicits comment 

about whether the two-tier corporate 

system in its current form meets the 

needs of credit unions. Specifically, 

NCUA seeks input from commenters 

about whether there is a continuing 

need for a wholesale corporate credit 

union. If so, what should be its primary 

role? Should there be a differentiation in 

powers and authorities between retail 

and wholesale corporates? In 

considering these issues, commenters 

are specifically asked to consider 

whether the current configuration 

results in the inappropriate transfer of 

risk from the retail corporates to the 

wholesale corporate. Commenters 

should also address whether, assuming 

the two-tiered system is retained, capital 

requirements and risk measurement 

criteria (e.g., NEV volatility), as well as 

the range of permissible investments, for 

the wholesale corporate credit union 

should be different from those 

requirements that apply to a retail 

corporate credit union. 

2. Corporate Capital 

NCUA is considering revising various 

definitions and standards for 

determining appropriate capital 

requirements for corporate credit 

unions. For example, the agency could 

establish a new required capital ratio 

consisting only of core capital excluding 

membership capital accounts as a 

component of regulatory capital; the 

agency could also determine to increase 

the required capital ratio to more than 

four percent. The agency could also 

establish a new ratio based on riskweighted asset classifications, which 

could include some form of membership 

capital. These changes would bring the 

corporate capital requirements more 

into line with standards applied by 

other federal financial regulators, such 

as the Comptroller of the Currency and 

the Federal Deposit Insurance 

Corporation (recognizing, however, that 

there are other accounting differences 

that apply with respect to the 

calculation of regulatory capital for 

banks). Another issue under 

consideration is whether to require a 

certain level of contributed capital from 

any natural person credit union seeking 

either membership or services from a 

corporate. 

Core capital. The Board is considering 

several issues relating to the agency’s 

approach to core capital (i.e., the 

traditional ‘‘tier one capital’’ definition 

as used by the several federal financial 

institution regulators). Under the 

current rule, core capital is defined as 

retained earnings plus paid-in capital. 

12 CFR 704.2. Comment is invited 

concerning whether NCUA should 

establish a new capital ratio that 

corporates must meet consisting only of 

core capital, and if so, what would be 

the appropriate level to require. 

Commenters should offer their view 

concerning what actions are necessary 

to enable corporates to attain a sufficient 

core capital ratio as described above, as 

well as their thought about what would 

be an appropriate time frame for 

corporates to attain sufficient capital. 

The Board invites comment also on the 

question of what is the appropriate 

method to measure core capital given 

the significant fluctuation in corporate 

assets that occur. Commenters are 

invited to offer their view on the correct 

degree of emphasis that ought to be 

placed on generating core capital 

through undivided earnings. Finally, 

NCUA Is considering whether to require 

that a corporate limit its services only to 

members maintaining contributed core 

capital with the corporate. Commenters 

are invited to react to that idea, and to 

offer any other suggestions or comments 

relative to the issue of core capital for 

corporates. 

Membership capital. The Board is also 

considering several issues involving 

membership capital. 12 CFR 704.3(b). 

Issues under consideration and for 

which comment is sought include 

whether NCUA should continue to 

allow membership capital in its current 

configuration, or should the agency 

eliminate or modify certain features, 

such as the adjustment feature, so that 

membership capital meets the 

traditionally accepted definition of tier 

two capital. Other questions include 

whether to tie adjusted balance 

requirements, as set out currently in 

§ 704.3(b)(8), only to assets, as well as 

whether to impose limits on the 

frequency of adjustments. The agency is 

considering whether to require that any 

attempted reduction in membership 

capital based on downward adjustment 

automatically result in the account 

being placed on notice, within the 

meaning of current § 704.3(b)(3), so that 

only a delayed payout after the threeyear notice expires is permissible. 

Comment is also sought on whether to 

require that any withdrawal of 

membership capital be conditioned on 

the corporate’s ability to meet all 

applicable capital requirements 

following withdrawal. Comment is 

invited on all these issues and on any 

revisions NCUA should consider for the 

definition and operation of membership 

capital. 

Risk-based capital and contributed 

capital requirements. Comment is 

solicited with respect to the following 

issues pertaining to risk-based capital 

and contributed capital requirements. 

Should NCUA consider risk-based 

capital for corporates consistent with 

that currently required of other federally 

regulated financial institutions? What 

regulatory and statutory changes, if any, 

would be required to effectuate such a 

change? Should a natural person credit 

union be required to maintain a 

contributed capital account with its 

corporate as a prerequisite to obtaining 

services from the corporate? Should 

contributed capital be calculated as a 

function of share balances maintained 

with the corporate? What about using 

asset size? 

3. Permissible Investments 

NCUA is considering whether the 

corporate investment authorities should 

be constrained or restricted. Presently, 

corporates have the authority to 

purchase and hold investments that 

would not be permissible for natural 

person FCU members under Part 703 

(or, in some cases, outside of what is 

authorized for a state chartered credit 

union). This increases a corporate 

member’s exposure to these risks 

commensurate with their level of 

investment in the corporate. Questions 

on which comment is solicited in this 

context include whether NCUA should 

limit corporate credit union investment 

authorities to those allowed for natural 

person credit unions. NCUA is also 

considering whether to prohibit certain 

categories of, or specific, investments, 

for example: collateralized debt 

obligations (CDOs), net interest margin 

securities (NIMs), and subprime and 

Alt-A asset-backed securities. Comment 

is solicited on that issue, as well as on 

whether NCUA should modify existing 

permissibility or prohibitions for 

investments. 

4. Credit Risk Management 

The reliability of credit ratings for 

investments has become more 

questionable in light of events in the 

financial industry and the current 

absence of regulatory oversight for 

Federal Register / Vol. 74, No. 22 / Wednesday, February 4, 2009 / Proposed Rules 6007 

rating organizations. Consequently, 

NCUA is considering curbing the extent 

to which a corporate may rely on credit 

ratings provided by Nationally 

Recognized Statistical Rating 

Organizations (NRSROs). Comment is 

requested on whether NCUA should 

require more than one rating for an 

investment, or require that the lowest 

rating meet the minimum rating 

requirements of Part 704. NCUA also 

solicits comment on whether to require 

additional stress modeling tools in the 

regulation to enhance credit risk 

management. 

Several specific aspects of this issue 

are under consideration, for which 

comment is solicited, including whether 

Part 704 should be revised to lessen the 

reliance on NRSRO ratings. Commenters 

are invited to identify any other changes 

they believe may be prudent to help 

assure adequate management of credit 

risk. In this respect, commenters should 

consider whether Part 704 should be 

revised to provide specific 

concentration limits, including sector 

and obligor limits. If so, what specific 

limits would be appropriate for 

corporate credit unions? Comments are 

also solicited on the question of whether 

corporates should be required to obtain 

independent evaluations of credit risk 

in their investment portfolios. If so, 

what would be appropriate standards 

for these contractors? Another issue 

under consideration is whether 

corporates should be required to test 

sensitivities to credit spread widening, 

and if so, what standards should apply 

to that effort. 

5. Asset Liability Management 

In a previous version of its corporate 

rule, NCUA required corporate credit 

unions to perform net interest income 

modeling and stress testing. Because 

one of the problems leading to the 

current market dislocation is a widening 

of credit spreads, the agency is 

considering re-instating this 

requirement. Alternatively, the agency 

may consider some form of mandatory 

modeling and testing of credit spread 

increases. Comment is solicited on 

whether NCUA should require 

corporates to use monitoring tools to 

identify these types of trends, including 

specifically comments about tangible 

benefits, if any, that would flow from 

these types of modeling requirements. 

6. Corporate Governance 

The sophistication and far-reaching 

impact of corporate activities requires a 

governing board with appropriate 

knowledge and expertise. NCUA is 

considering minimum standards for 

directors that would require a director 

possess an appropriate level of 

experience and independence. The 

agency is also considering term limits, 

allowing compensation for corporate 

directors, and requiring greater 

transparency for executive 

compensation. Comment is sought on 

all these issues. 

In addition, commenters are invited to 

respond to the question of whether or 

not the current structure of retail and 

wholesale corporate credit union boards 

is appropriate given the corporate 

business model. Should NCUA establish 

more stringent minimum qualifications 

and training requirements for 

individuals serving as corporate credit 

union directors? If so, what should the 

minimum qualifications be? NCUA is 

also considering whether to establish a 

category of ‘‘outside director,’’ i.e., 

persons who are not officers of that 

corporate, officers of member natural 

person credit unions, and/or individuals 

from entirely outside the credit union 

industry. Commenters should offer their 

view on whether that approach is wise, 

and, if so whether NCUA should require 

that corporates select some minimum 

number of outside directors for their 

boards. Should a wholesale corporate 

credit union be required to have some 

directors from natural person credit 

unions? Comment is sought on whether 

NCUA should impose term limits on 

corporate directors, and, if so, what the 

maximum term should be. Comment is 

also sought on whether corporate 

directors should be compensated, and, if 

so, whether such compensation should 

be limited to outside directors only. 

Another issue under consideration, for 

which reaction from commenters is 

sought, is whether NCUA should allow 

members of corporate credit unions 

greater access to salary and benefit 

information for senior management. 

Request for Comments 

The NCUA Board invites comment on 

any of the issues discussed above 

including specifically if NCUA’s 

regulations should be amended to 

address the issues discussed in this 

ANPR. NCUA also welcomes comment 

on any other relevant issues pertaining 

to corporate credit unions that have not 

been addressed in this ANPR. 

By the National Credit Union 

Administration Board on January 28, 2009. 

Mary F. Rupp, 

Secretary of the Board. 

[FR Doc. E9–2292 Filed 2–3–09; 8:45 am] 

BILLING CODE 7535–01–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR 2550 

RIN 1210–AB13 

Investment Advice—Participants and 

Beneficiaries 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Notice of proposed extension of 

effective date and applicability date; 

request for public comments on legal 

and policy questions relating to the final 

rule. 

SUMMARY: Consistent with the 

memorandum of January 20, 2009, from 

the Assistant to the President and Chief 

of Staff, entitled ‘‘Regulatory Review,’’ 

this document proposes to extend for 60 

days the effective and applicability 

dates of final rules under the Employee 

Retirement Income Security Act, and 

parallel provisions of the Internal 

Revenue Code of 1986, relating to the 

provision of investment advice to 

participants and beneficiaries in 

individual account plans, such as 401(k) 

plans, and beneficiaries of individual 

retirement accounts (and certain similar 

plans). These rules were published in 

the Federal Register on January 21, 

2009. Extending the effective date 

would allow the Department of Labor to 

evaluate comments on questions of law 

and policy concerning the rules. Thus, 

this document also seeks comments 

generally on the rules and on the merits 

of rescinding, modifying or retaining the 

rules. 

DATES: Comments on the proposal to 

extend the effective and applicability 

date should be submitted to the 

Department on or before February 18, 

2009. Comments on the provisions of 29 

CFR 2550.408g–1 and 2550.408g–2 

should be submitted to the Department 

on or before March 6, 2009. 

FOR FURTHER INFORMATION CONTACT: Fred 

Wong, Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration (EBSA), (202) 

693–8500. This is not a toll-free number. 

ADDRESSES: To facilitate the receipt and 

processing of comment letters, EBSA 

encourages interested persons to submit 

their comments electronically by e-mail 

to e-ORI@dol.gov (enter into subject 

line: Investment Advice Final Rule) or 

by using the Federal eRulemaking portal 

at http://www.regulations.gov. Persons 

submitting comments electronically are 

encouraged not to submit paper copies. 

Persons interested in submitting paper