This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

70319

Vol. 65, No. 226

Wednesday, November 22, 2000

NATIONAL CREDIT UNION

ADMINISTRATION

12 CFR Part 704

Corporate Credit Unions

AGENCY: National Credit Union

Administration (NCUA).

ACTION: Advance notice of proposed

rulemaking.

SUMMARY: NCUA requests public

comment on revisions to the rule

governing corporate credit unions

(corporates). As part of its regulatory

review process and in conjunction with

a prior advance notice of proposed

rulemaking, NCUA has identified

provisions for further clarification or

revision. Comments from interested

parties on these issues will assist NCUA

in its regulatory review process.

DATES: Comments must be received on

or before February 20, 2001.

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. You may fax comments to

(703) 518-6319. Please send comments

by one method only.

FOR FURTHER INFORMATION CONTACT:

Robert F. Schafer, Director, Office of

Corporate Credit Unions, at the above

address or telephone (703) 518–6640; or

Mary Rupp, Staff Attorney, Office of

General Counsel, at the above address or

telephone (703) 518–6540.

SUPPLEMENTARY INFORMATION:

A. Background

On July 28, 1999, NCUA issued an

advance notice of proposed rulemaking

that requested comment on several

issues the Board identified as areas of

the corporate rule it was interested in

clarifying or revising. 64 FR 40787 (July

28, 1999). In addition, the Board

welcomed comment on other sections of

part 704 not addressed in the advanced

notice. Id. As a result of those

comments, the Board has identified

additional areas of part 704 it is

interested in revising or clarifying.

Before issuing a proposed rule, the

Board believes it would be helpful to

receive additional comment and

guidance on those issues not identified

in the July 28, 1999, advance notice.

The Board again welcomes comment on

other sections of part 704 not addressed

in its advance notice. Upon receipt of

comments to this advance notice, the

Board plans to issue a proposed rule

that incorporates the comments to both

this advance notice and the July 28,

1999, advance notice.

B. Specific Areas for Review

As explained more fully below, the

Board is seeking comment on the

following issues: capital; credit

concentration; asset liability

management; aggregate investment by

federal credit unions in paid-in capital

and membership capital in corporate

credit unions; and corporate credit

union service organizations.

Capital

Based on previous comments, the

Board is considering eliminating the

distinction between capital and the

components of capital that are available

for determining credit concentration

limits. The following questions on

capital relate either directly or

indirectly to this proposed change.

1. Would a Change of Our Capital

Definitions So That They Are Analogous

to Those Used by Other Financial

Regulators Provide Benefits to Corporate

Credit Unions and Their Members?

Currently, capital includes reserves

and undivided earnings (RUDE), paid-in

capital (PIC) and membership capital

(MC), but for purposes of establishing

credit concentration limits, MC is not

included in capital. 12 CFR 704.2 and

704.6. Thus, corporate credit unions

have two capital measurements: one

that includes all capital; and one that

includes only specific components of

capital for credit concentration limits.

NCUA is considering changes that

would result in one measure of capital.

These changes, for the purpose of credit

concentration limits, would permit a

portion or possibly all PIC and MC

(under certain conditions) to be

included. Overall, NCUA believes these

changes would result in corporates

having more capital for purposes of

credit concentration limits.

Generally, a corporate’s capital

includes PIC with a stated maturity date

(term PIC) that is reduced monthly from

five years to three years of maturity and

all MC. Comparable components of a

bank’s total risk-based capital are scaled

down by 20 percent per year within 5

years of maturity. The result of this

difference is that banks may have a

more restrictive measure of total riskbased capital.

The Board is considering amending

the definition of reserve ratio to include

only PIC that would qualify as capital

under Generally Accepted Accounting

Principles (GAAP), that is, noncumulative dividend, perpetual

maturity PIC. Existing PIC, for example,

term PIC, could be ‘‘grandfathered’’ into

the reserve ratio computation, subject to

a reduction for term PIC of 20 percent

per year for each year within 5 years of

maturity. Thus, term PIC would be fully

amortized when there was a remaining

maturity of less than 1 year, rather than

the 3-year remaining maturity provision

of the current rule.

Similarly, the Board is considering

revising the definition of capital ratio,

so that, MC and PIC not qualifying as

capital under GAAP would be subject to

a reduction of 20 percent per year as

illustrated in the second chart below.

70320 Federal Register / Vol. 65, No. 226 / Wednesday, November 22, 2000 / Proposed Rules

ILLUSTRATIVE CHANGES TO CAPITAL DEFINITIONS

Current provision Current definition Illustrative change to definition Analogous provision of depository

institution regulators

RUDE ............................................. Retained earnings ........................ None ............................................. Undivided profits and capital reserves.

Reserve ratio ................................. Sum of RUDE and PIC divided by

DANA.

Sum of RUDE and PIC qualifying

as GAAP capital divided by

DANA.

Core (Tier 1) capital ratio.

Capital ............................................ Sum of RUDE, PIC, and MC ........ Sum of RUDE, eligible PIC, and

eligible MC.

Total capital (risk based).

Abbreviations used in table: DANA = moving daily average net assets; GAAP = generally accepted accounting principles; MC = membership

capital; PIC = paid in capital; and RUDE = reserves and undivided earnings.

ILLUSTRATIVE REDUCTION OF MC AND TERM PIC

Shorter of remaining maturity or any minimum withdrawal notice period

Reduction in

MC or PIC

(percent)

Percentage

of MC or

PIC eligible

as capital

5 or more years ............................................................................................................................................................... 0 100

4 to less than 5 years ...................................................................................................................................................... 20 80

3 to less than 4 years ...................................................................................................................................................... 40 60

2 to less than 3 years ...................................................................................................................................................... 60 40

1 to less than 2 years ...................................................................................................................................................... 80 20

Less than 1 year .............................................................................................................................................................. 100 0

NCUA’s intent is to retain the current

capital ratio requirement of at least 4

percent. Although the proposed change

to the definition of capital ratio would

result in a reduction in eligible capital,

it would increase capital used for credit

and concentration limits. For example,

only 60 percent of MC with a 3-year

notice would be eligible for inclusion in

the capital ratio. This change would not

affect the level of MC counted as capital

if a corporate credit union replaced

existing MC with newly issued MC

having a minimum notice period and a

term of 5 years. In addition, NCUA’s

intent is to remove the current

restriction that eligible PIC not exceed

RUDE. 12 CFR 704.2.

2. Should the Rule Require That the

Measure for Adjusted Balance MC

Accounts Be Based on a 12-Month

Average, Rather Than a Measure Based

on a Particular Point in Time? Further,

Is There a Need for Adjusted Balance

MC Accounts?

Currently, the rule provides that an

adjusted balance MC account may be

adjusted in relation to a measure and

gives as an example one percent of a

member credit union’s assets. 12 CFR

704.2. Depending on the measure used,

there is the potential for dramatic

increases or decreases in the adjusted

balance MC account. To avoid this

result, the Board is considering

requiring that the adjustment be based

on a percentage of the measure’s average

balance for the preceding 12 months.

If adjusted balance MC accounts are

included in capital for credit

concentration and interest rate risk

limits, the Board is concerned that these

accounts may lack the appropriate

degree of permanency. The current

definition of MC does not restrict the

measure used to adjust the MC balance.

It gives one percent of a member credit

union’s assets as an example. Rather

than using assets, a corporate may use

the dollar amount that a natural person

member credit union has invested in the

corporate as the basis for calculating

adjusted balance MC accounts. In that

case, a member could receive all of its

MC account simply by withdrawing its

investments.

3. Should There Be a Minimum RUDE

Ratio (Defined as RUDE Divided by

DANA) of 2 Percent for All Corporate

Credit Unions?

The Board believes a minimum RUDE

ratio requirement would ensure stability

of corporate credit union capital.

Further, it would ensure a minimum

component of the corporate’s capital is

not also reflected in the net worth of

member credit unions.

4. Should There Be a Credit-Risk

Weighted Capital Requirement?

NCUA believes corporates have

capital in relation to risk that is

comparable to the (risked-based) total

capital of other financial institutions,

but, because of current definitions and

lack of a required measurement, this

comparability may not be evident. 12

CFR part 3, Appendix A.

NCUA is considering a credit-risk

weighted capital requirement for

corporate credit unions. While corporate

credit unions must comply with

stringent interest rate risk regulations,

corporate credit unions are not currently

subject to credit-risk weighted capital

requirements. Some corporates have

expressed an interest in reinstituting

this requirement because it would

provide a risk-based capital ratio that is

comparable to that used by other

financial institutions.

Credit Concentration

1. Should Credit Concentration Limits

Be Set as a Percentage of Capital?

Currently, credit concentration limits

are based on percentages of RUDE and

PIC, rather than a broader measure such

as capital. As part of its changes to the

capital requirements, the Board is

considering changing this requirement,

so that credit concentration limits are

based on a percentage of capital. This

change would enable the Board to use

a uniform measure of capital for all

purposes.

2. Should Credit Concentration Limits

Vary Depending Upon the Credit Rating

of an Investment, for Example, the

Lower the Credit Rating, the More

Restrictive the Credit Concentration

Limit?

In conjunction with the previously

discussed changes to capital, NCUA is

considering lowering the minimum

Federal Register / Vol. 65, No. 226 / Wednesday, November 22, 2000 / Proposed Rules 70321

credit rating requirements for

investments to permit corporates to be

more competitive with other depository

institutions that are permitted to invest

in the full range of investment grade

securities. NCUA recognizes the

increased quality of corporates’ credit

analysis skills and improved capital

levels. The effect of lowering the

minimum credit rating requirements

would be to allow additional

permissible investments. As illustrated

in the table below, the requirements are

linked to the corporate’s level of

expanded authority.

Example Minimum Credit Rating

Requirements

MINIMUM CREDIT RATINGS FOR LONG-TERM AND SHORT-TERM INVESTMENTS

[Stated in terms of Standard & Poor’s Ratings or Equivalents]

Base and base plus Part I expanded authority Part II expanded authority

Long-term Investments .................. No lower than AA– ....................... No lower than A– .......................... No lower than BBB (flat).

Short-term Investments .................. No lower than A–1 ........................ No lower than A–2, with a minimum long-term debt rating of

the obligor of A–.

No lower than A–2, with a minimum long-term debt rating of

the obligor of BBB (flat).

With the contemplated inclusion of

eligible MC as part of the capital base

for credit concentration limits and the

permissibility of lower rated

investments, the current credit

concentration limits are too high. NCUA

is considering reducing the existing

percentages and reorganizing the limits

into the categories of long-term and

short-term investments, as illustrated in

the tables below.

Example Credit Concentration Limits

LONG-TERM INVESTMENT CREDIT CONCENTRATION LIMITS

[As percentage of capital]

Limits by Obligor

Long-term investments:

Credit Rating .................................................... AAA¥ and higher .... AA¥ and higher ...... A¥ and higher ........ BBB (flat) and higher.

Concentration Limits ........................................ 25% ......................... 20% ......................... 15% ......................... 10%.

SHORT-TERM INVESTMENT CREDIT CONCENTRATION LIMITS

[As percentage of capital]

Limits by Obligor

Short-term investments:

Credit Rating ............................................................... A–1 ................................... A–2, with a minimum longterm rating of the obligor

of A¥.

A–2, with a minimum longterm rating of the obligor

of BBB (flat).

Concentration Limits ................................................... 25% .................................. 15% .................................. 10%.

Repurchase Transaction Concentration Limits ........... 50% .................................. 30% .................................. 20%.

3. NCUA Seeks Comment on

Establishing a Limit for the Aggregate

Credit Exposure to a Single Obligor That

Has Issued Debt Obligations Across

Multiple Rating Categories. The

Proposed Limits Are Listed in the Two

Tables Above

4. Should Corporate Credit Unions Be

Exempt From Credit Concentration

Limits When Investing in Other

Corporate Credit Unions?

Exemptions to the current credit

concentration limits only apply to

investments in a wholesale corporate

credit union. NCUA believes extension

of these exemptions to all corporate

credit unions will facilitate more

efficient movement of liquidity

throughout the system.

5. Should There Be a De Minimis

Exemption From Credit Concentration

Limits and, if so, What Amount?

NCUA is considering a de minimis

exemption from credit concentration

limits (such as $5 million) to permit

smaller corporate credit unions to

execute institutional block size

transactions, such as Fed Funds.

Asset Liability Management

1. NCUA Seeks Comment on Changing

the Definition of Net Economic Value

(NEV)

NEV means the fair value of assets

minus the fair value of liabilities. 12

CFR 704.2. Currently, the definition of

NEV treats MC as a liability for purposes

of the NEV calculation. NCUA intends

to change the definition of NEV to

exclude eligible MC and eligible PIC

(including grandfathered PIC) from

liabilities. The proposed definitions of

eligible MC and eligible PIC are

reflected in the chart entitled Illustrative

Reduction of MC and Term PIC. In turn,

noneligible MC and noneligible PIC are

treated as liabilities for purposes of the

NEV calculation. This change would

tend to increase the reported base case

NEV ratio.

2. NCUA Seeks Comment on Increasing

the Minimum NEV Ratio to 2 Percent

In conjunction with the proposed

change to the definition of NEV, NCUA

proposes increasing the minimum NEV

ratio to 2 percent. Section 704.8(d)(1)(ii)

requires a NEV ratio of 1 percent. 12

CFR 704.8(d)(1)(ii). By increasing the

base case NEV through inclusion of

eligible MCs, larger dollar amounts

could be exposed to interest rate risk.

70322 Federal Register / Vol. 65, No. 226 / Wednesday, November 22, 2000 / Proposed Rules

Under the current rule, for example,

if a corporate credit union has base-plus

expanded authority and a base case NEV

ratio of 1.40 percent, the rule permits

the NEV ratio to decline 25 percent.

This would be a decline of 35 basis

points. Under the proposal, with the

inclusion of eligible MC, the corporate

credit union would have a base case

NEV ratio of 2.40 percent and the

permissible decline would increase to

60 basis points. This decline is large in

relation to the low level of base case

NEV. By increasing the minimum NEV

ratio from 1 percent to 2 percent, the

decline would be limited to no more

than 40 basis points.

Example of Including Eligible MCs and

Increasing Minimum NEV Ratio

IMPACT OF CHANGE TO MINIMUM NEV RATIO ON HYPOTHETICAL CORPORATE CREDIT UNION

Current rule Including eligible MCs in

NEV

Including eligible MCs in

NEV and increasing minimum NEV ratio to 2%

Base case NEV ratio .......................................................... 1.4% ................................. 2.4% ................................. 2.4%.

Permitted decline (25 percent of base case) ..................... 35 basis points ................. 60 basis points ................. Limited to 40 basis points

by minimum NEV ratio.

Resulting NEV ratio (not less than minimum NEV ratio) ... 1.05% ............................... 1.8% ................................. 2%.

Minimum NEV ratio ............................................................ 1% .................................... 1% .................................... 2%.

3. Should the Minimum NEV Ratio That

Triggers Monthly Interest Rate

Sensitivity Analysis Testing Be

Increased?

Section 704.8(d)(1)(i) currently

increases the requirement for testing

from quarterly to monthly when the

base case NEV ratio falls below 2

percent. The Board is considering

raising it to 3 percent because, when the

measured minimum NEV ratio is low, it

is reasonable to monitor interest rate

sensitivity more frequently. The

contemplated changes to the NEV

definition may increase the level of both

the base case NEV and the minimum

NEV.

Aggregate Investment by Federal Credit

Unions in PIC and MC in Corporate

Credit Unions

1. NCUA seeks comment on whether

the Board should amend § 703.100(c) to

increase the limit on the aggregate

purchase of member PIC and MC in one

corporate credit union from one percent

to two percent. In conjunction with this

change, the Board is considering adding

a new provision that imposes a four

percent limit on the aggregate purchase

of member PIC and MC in all corporate

credit unions.

Corporate Credit Union Service

Organizations (CUSOs)

1. NCUA seeks comment on the

definition of a corporate CUSO.

Currently, the rule defines a corporate

CUSO as an entity that is ‘‘at least partly

owned by a corporate credit union’’ but

does not specify a minimum ownership

requirement. 12 CFR 704.11(a)(1). The

Board believes that the definition of a

corporate CUSO should be amended to

ensure that there is a significant

ownership interest by corporate credit

unions. The Board is considering

amending the definition to require that

a CUSO be considered a corporate

CUSO only if any corporate credit union

owns a minimum 25 percent interest or

the aggregate interest by all corporate

credit unions exceeds 50 percent.

By the National Credit Union

Administration Board on November 16, 2000.

Becky Baker,

Secretary of the Board.

[FR Doc. 00–29837 Filed 11–21–00; 8:45 am]

BILLING CODE 7535–01–U

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Airspace Docket No. 00–AEA–12]

Amendment to Class E Airspace;

Culpepper, VA

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document proposes to

establish Class E airspace at Culpepper,

VA. A helicopter Point in Space

approach, has been developed for

Culpepper Memorial Hospital,

Culpepper, VA. Controlled airspace

extending upward from 700 feet to 1200

feet Above Ground Level (AGL) is

needed to contain aircraft executing the

approach. This action proposes to

establish Class E airspace to include the

Point in Space approach to Culpepper

Memorial Hospital Heliport. The area

would be depicted on aeronautical

charts for pilot reference.

DATES: Comments must be received on

or before December 22, 2000.

ADDRESSES: Send comments on the

proposal in triplicate to: Manager,

Airspace Branch, AEA–520, Docket No.

00–AEA–12, F.A.A. Eastern Region, 1

Aviation Plaza, Jamaica, NY 11434–

4809.

The official docket may be examined

in the Office of the Regional Counsel,

AEA–7, F.A.A. Eastern Region, 1

Aviation Plaza, Jamaica, NY 11434–

4809.

An informal docket may also be

examined during normal business hours

in the Airspace Branch, AEA–520,

F.A.A. Eastern Region, 1 Aviation Plaza,

Jamaica, NY 11434–4809.

FOR FURTHER INFORMATION CONTACT: Mr.

Francis T. Jordan, Jr., Airspace

Specialist, Airspace Branch, AEA–520,

F.A.A. Eastern Region, 1 Aviation Plaza,

Jamaica, NY, 11434–4809; telephone:

(718) 553–4521.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested parties are invited to

participate in this proposed rulemaking

by submitting such written data, views,

or arguments as they may desire.

Comments that provide the factual basis

supporting the views and suggestions

presented are particularly helpful in

developing reasoned regulatory

decisions on the proposal. Comments

are specifically invited on the overall

regulatory, economic, environmental,

and energy-related aspects of the

proposal. Communications should

identify the airspace docket number and

be submitted in triplicate to the address

listed above. Commenters wishing the

FAA to acknowledge receipt of their

comments on this notice must submit

with those comments a self-addressed,

stamped postcard on which the

following statement is made:

‘‘Comments to Airspace Docket No. 00–

AEA–12’’. The postcard will be date/

time stamped and returned to the

commenter. All communications

received on or before the closing date

for comments will be considered before