#### § 704.18 Fidelity bond coverage.

(a) *Scope.* This section provides the fidelity bond requirements for employees and officials in corporate credit unions.

(b) *Review of bond coverage.*

(1) The board of directors of each corporate credit union shall, at least annually, carefully review the bond coverage in force to determine its adequacy in relation to risk exposure and to the minimum requirements in this section.

(2) The board of directors of each corporate credit union must review all applications for purchase or renewal of its fidelity bond coverage. After review, the credit union's board must pass a resolution approving the purchase or renewal of fidelity bond coverage and delegate one member of the board, who is not an employee of the credit union, to sign the purchase or renewal agreement and all attachments; provided, however, that no board members may be a signatory on consecutive purchase or renewal agreements for the same fidelity bond coverage policy.

(c) *Minimum coverage; approved forms.*

(1) The fidelity bond coverage must be purchased from a company holding a certificate of authority from the Secretary of the Treasury.

(2) Fidelity bonds must provide coverage for the fraud and dishonesty of all employees, directors, officers, and supervisory and credit committee members.

(3) The NCUA Board must approve all bond forms before a corporate credit union may use them. Corporate credit unions may not use any bond form that has been amended since the time the NCUA Board approved the form or any rider, endorsement, renewal, or other document that limits coverage of approved bond forms without receiving approval from the NCUA Board. Approval on all bond forms expires 10 years after the date the NCUA Board approved or reapproved use of the bond form unless otherwise determined by the NCUA Board; provided, however, that any bond forms approved before 2019 will expire on January 1, 2029, unless otherwise determined by the NCUA Board. The NCUA reserves the right to review a bond form at any point after its approval.

(4) Fidelity bonds must include an option for the liquidating agent to purchase coverage in the event of an involuntary liquidation that extends the discovery period for a covered loss for at least one year after liquidation. In the case of a voluntary liquidation, fidelity bonds must remain in effect, or provide that the discovery period is extended, for at least four months after the final distribution of assets.

(5) Notwithstanding the foregoing, all bonds must include a provision, in a form approved by the NCUA Board, requiring written notification by surety to NCUA:

(i) When the fidelity bond of a credit union is terminated in its entirety;

(ii) When fidelity bond coverage is terminated, by issuance of a written notice, on an employee, director, officer, supervisory or credit committee member; or

(iii) When a deductible is increased above permissible limits. Said notification shall be sent to NCUA and shall include a brief statement of cause for termination or increase.

(d) *Minimum coverage amounts.*

(1) The minimum amount of bond coverage will be computed based on the corporate credit union's daily average net assets for the preceding calendar year. The following table lists the minimum requirements:

| Daily average net assets | Minimum bond (million) |
| --- | --- |
| Less than $50 million | $1.0 |
| $50-$99 million | 2.0 |
| $100-$499 million | 4.0 |
| $500-$999 million | 6.0 |
| $1.0-$1.999 billion | 8.0 |
| $2.0-$4.999 billion | 10.0 |
| $5.0-$9.999 billion | 15.0 |
| $10.0-$24.999 billion | 20.0 |
| $25.0 billion plus | 25.0 |

(2) It is the duty of the board of directors of each corporate credit union to provide adequate protection to meet its unique circumstances by obtaining, when necessary, bond coverage in excess of the minimums in the table in [paragraph (d)(1)](/on/2024-09-19/title-12/section-704.18#p-704.18(d)(1)) of this section.

(e) *Deductibles.*

(1) The maximum amount of deductibles allowed are based on the corporate credit union's leverage ratio. The following table sets out the maximum deductibles, except that in each category the maximum deductible shall be $5 million:

| Leverage ratio | Maximum deductible |
| --- | --- |
| Less than 1.0 percent | 7.5 percent of Tier 1 capital. |
| 1.0-1.74 percent | 10.0 percent of Tier 1 capital. |
| 1.75-2.24 percent | 12.0 percent of Tier 1 capital. |
| Greater than 2.25 percent | 15.0 percent of Tier 1 capital. |

(2) A deductible may be applied separately to one or more insuring clauses in a blanket bond. Deductibles in excess of those showing in this section must have the written approval of NCUA at least 30 calendar days prior to the effective date of the deductibles.

(f) *Additional coverage.* NCUA may require additional coverage for any corporate credit union when, in the opinion of NCUA, current coverage is insufficient. The board of directors of the corporate credit union must obtain additional coverage within 30 calendar days after the date of written notice from NCUA.

[[62 FR 12938](https://www.federalregister.gov/citation/62-FR-12938), Mar. 19, 1997, as amended at [67 FR 65657](https://www.federalregister.gov/citation/67-FR-65657), Oct. 25, 2002; [76 FR 79533](https://www.federalregister.gov/citation/76-FR-79533), Dec. 22, 2011; [80 FR 25939](https://www.federalregister.gov/citation/80-FR-25939), May 6, 2015; [84 FR 35524](https://www.federalregister.gov/citation/84-FR-35524), July 24, 2019]