[Federal Register Volume 87, Number 42 (Thursday, March 3, 2022)]
[Proposed Rules]
[Pages 11996-12000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03846]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 700, 701, 702, 708a, 708b, 750 and 790

[NCUA-2022-0008]
RIN 3133-AF41


Asset Threshold for Determining the Appropriate Supervisory 
Office

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The NCUA Board (Board) is proposing to amend its regulations 
to revise the $10 billion asset threshold used for assigning 
supervision of consumer federally insured credit unions (FICUs) to the 
Office of National Examinations and Supervision (ONES). The proposed 
rule would only apply to FICUs whose assets are $10 billion or more 
(covered credit unions). The proposed rule would provide that covered 
credit unions with less than $15 billion in total assets (tier I 
covered credit unions) not currently supervised by ONES will be 
supervised by the appropriate NCUA Regional Office. Tier I covered 
credit unions currently supervised by ONES and covered credit unions 
with $15 billion and more in total assets (tier II and tier III covered 
credit unions) would continue to be supervised by ONES. The proposed 
rule would not alter any regulatory requirements for covered credit 
unions.

DATES: Comments must be received by May 2, 2022.

ADDRESSES: You may submit written comments, identified by RIN 3133-
AF41, by any of the following methods (please send comments by one 
method only):
    <bullet> Federal eRulemaking Portal: https://www.regulations.gov. 
The docket

[[Page 11997]]

number for this direct final rule is NCUA-2022-0008. Follow the 
instructions for submitting comments.
    <bullet> Fax: (703) 518-6319. Include ``[Your Name]--Comments on 
Asset Threshold for Determining the Appropriate Supervisory Office'' in 
the transmittal.
    <bullet> Mail: Address to Melane Conyers-Ausbrooks, Secretary of 
the Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.
    <bullet> Hand Delivery/Courier: Same as mail address.
    Public inspection: You may view all public comments on the Federal 
eRulemaking Portal at https://www.regulations.gov, as submitted, except 
for those we cannot post for technical reasons. The NCUA will not edit 
or remove any identifying or contact information from the public 
comments submitted. Due to social distancing measures in effect, the 
usual opportunity to inspect paper copies of comments in the NCUA's law 
library is not currently available. After social distancing measures 
are relaxed, visitors may make an appointment to review paper copies by 
calling (703) 518-6540 or emailing <a href="/cdn-cgi/l/email-protection#a7e8e0e4eac6cecbe7c9c4d2c689c0c8d1"><span class="__cf_email__" data-cfemail="80cfc7c3cde1e9ecc0eee3f5e1aee7eff6">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Yvonne Applonie, Director of 
Supervision, Office of National Examinations and Supervision; or Rachel 
Ackmann, Senior Staff Attorney, Office of General Counsel, 1775 Duke 
Street, Alexandria, VA 22314-3428. Yvonne Applonie can also be reached 
at (703) 518-6595, and Rachel Ackmann can be reached at (703) 548-2601.

SUPPLEMENTARY INFORMATION:

I. Background

Part 702 Capital Planning and Stress Testing Requirements

    Part 702, subpart C, of the NCUA's regulations (part 702) 
implements the NCUA's capital planning and stress testing requirements 
for consumer FICUs.\1\ As discussed above, a consumer FICU is defined 
as a covered credit union, and subject to capital planning and stress 
testing requirements, if it has $10 billion or more in total assets.\2\ 
Covered credit unions are then further divided into three tiers, and 
varying levels of regulatory requirements are imposed based on those 
asset tiers. For example, tier I credit unions are not subject to 
stress testing requirements, however tier II and tier III credit unions 
are subject to stress testing requirements. Under part 702:
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    \1\ 12 CFR 702.301. The term consumer FICU is being used instead 
of the term natural person FICU. This terminology is being used for 
clarity, however, the term natural person FICU will continued to be 
used for the accompanying regulatory text changes for consistency 
with other sections of the NCUA's regulations.
    \2\ 12 CFR 702.302.
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    <bullet> A tier I credit union is a covered credit union that has 
less than $15 billion in total assets;
    <bullet> A tier II credit union is a covered credit union that has 
$15 billion or more in total assets, but less than $20 billion in total 
assets, or is otherwise designated as a tier II credit union by the 
NCUA; and
    <bullet> A tier III credit union is a covered credit union that has 
$20 billion or more in total assets, or is otherwise designated as a 
tier III credit union by the NCUA.

Agency Structure

    In 2012, the NCUA established a new office, the Office of National 
Examinations and Supervision (ONES), and reorganized its central and 
field office structure. As part of its internal restructuring, the NCUA 
transferred the responsibility for supervising covered credit unions to 
ONES from the Regional Offices.\3\ Initially, covered credit unions 
were transferred to ONES on January 1, 2014. Annually thereafter FICUs 
newly reporting assets of $10 billion or more on March 31 of a given 
calendar year are reassigned to ONES on the first day of the following 
calendar year.
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    \3\ In general, Regional Office means the office of NCUA located 
in the designated geographical areas in which the office of the FICU 
is located.
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COVID-19 Pandemic

    Many FICUs have experienced significant balance sheet growth as a 
result of the COVID-19 Pandemic and the corresponding policy 
response.\4\ For example, FICUs with just below $10 billion in total 
assets incurred balance sheet growth of about 14 percent on average 
during the COVID-19 Pandemic, and in one case more than 34 percent. In 
contrast, FICUs with assets just below the $10 billion threshold had an 
average asset growth of only 9 percent in 2019.
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    \4\ See generally, 86 FR 15397 (Mar. 23, 2021).
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    In March 2021, the Board provided regulatory relief to FICUs 
meeting certain asset thresholds through an interim final rule (Asset 
Threshold IFR).\5\ The Asset Threshold IFR permitted FICUs to continue 
to use financial data as of March 31, 2020, to determine the 
applicability of certain regulations for calendar years 2021 and 2022, 
instead of assets reported as of March 31, 2021. The Asset Threshold 
IFR also made a conforming amendment to the measurement date for 
determining ONES supervision. Under the Asset Threshold IFR, the NCUA 
used financial data as of March 31, 2020, instead of March 31, 2021, to 
determine the appropriate supervisory office of FICUs for calendar year 
2022. As a result, no FICU was transitioned to ONES supervision for 
calendar year 2022, even if the FICU had $10 billion or more in total 
assets as of March 31, 2021.
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    \5\ Id.
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    The next effective measurement period to determine whether a FICU 
is subject to capital planning and stress testing requirements and ONES 
supervision is March 31, 2022. Unless the threshold is changed, the 
Board anticipates at least nine new FICUs will meet or exceed the $10 
billion threshold as of March 31, 2022, and would become subject to 
ONES supervision beginning January 1, 2023.

II. The Proposed Rule

    The Board has reconsidered its policy of assigning all covered 
credit unions to ONES supervision. Under the proposed rule, tier II and 
tier III covered credit unions would remain subject to ONES 
supervision. The Board, however, would not assign tier I covered credit 
unions to ONES supervision.\6\ Tier I covered credit unions would 
generally remain subject to Regional Office supervision until they 
become tier II covered credit unions.\7\
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    \6\ As discussed in the Reservation of Authority section, the 
Board has the option of using its existing reservation of authority 
in part 702 to transfer a tier I covered credit union to ONES 
supervision before it becomes a tier II or tier III covered credit 
union.
    \7\ The proposed rule would also revise the authority citation 
in part 702 to cite 12 U.S.C. 1784(a) and 1786(e), which were 
previously added but inadvertently removed from the Code of Federal 
Regulations.
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    Tier I covered credit unions that are currently supervised by ONES, 
however, would be grandfathered under the proposed rule and remain 
subject to ONES supervision.\8\ The proposed rule would grandfather 
tier I covered credit unions currently subject to ONES supervision to 
provide continuity for institutions that are already accustomed to ONES 
supervision. The Board believes that most grandfathered tier I covered 
credit unions would likely become tier II credit unions, and subject to 
ONES supervision, due to organic

[[Page 11998]]

growth within a short timeframe. Given these covered credit unions 
would once again be subject to ONES supervision as tier II credit 
unions within a short timeframe, the Board believes transitioning the 
grandfathered credit unions to Regional Office supervision is 
unnecessary. The Board, however, invites comments on whether 
grandfathered credit unions should be subject to Regional Office 
supervision until they become tier II covered credit unions.
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    \8\ Accordingly, if a FICU had $10 billion or more in total 
assets on or before March 31, 2020, then it is currently subject to 
ONES supervision. If a FICU has crossed the $10 billion threshold 
since March 31, 2020, then it is not currently subject to ONES 
supervision due to the Asset Threshold IFR and, under this proposed 
rule, would not be subject to ONES supervision until it is a tier II 
covered credit union.
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    The Board has reconsidered its position that all covered credit 
unions should transition to ONES for two reasons. First, the agency can 
more effectively manage its resources by continuing to supervise most 
tier I covered credit unions through the Regional Offices. Without 
delaying the transition of tier I covered credit unions to ONES 
supervision, the number of covered credit unions supervised by ONES 
would approximately double in calendar year 2023, which would require a 
substantial reallocation of agency resources.
    Second, the Board has reconsidered the level of risk to the 
National Credit Union Share Insurance Fund (NCUSIF) posed by tier I 
covered credit unions. Applying a historical loss factor of 30 percent 
on a FICU failure to the NCUSIF's equity suggests that a $15 billion 
credit union presents the same relative risk at the end of 2020 as an 
approximately $10 billion FICU did at the beginning of 2013 when 
covered credit unions were first transitioned to ONES supervision.
    The Board also does not believe that altering tier I covered credit 
unions' transition to ONES supervision results in undue risk to the 
NCUSIF. Regulatory requirements for covered credit unions are not 
affected by the proposed rule. For example, capital planning and stress 
testing requirements are initially triggered at $10 billion in 
assets.\9\ These requirements will remain in effect for all covered 
credit unions regardless of a covered credit union's supervisory 
office.\10\
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    \9\ 12 CFR 702.302.
    \10\ Tier I covered credit unions' capital plans would be 
subject to Regional Office review (provided the tier I covered 
credit union is not grandfathered under ONES supervision).
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    Additionally, the NCUA has implemented various supervisory tools 
which enhance offsite monitoring of covered credit union risk. Under 
the proposed rule, these tools would remain in use for the supervision 
of covered tier I credit unions regardless of their supervisory office. 
Specifically, all covered credit unions would continue to be required 
to submit data to the NCUA under the capital planning and stress test 
rule.\11\ Data collection is part of the NCUA's strategic initiative to 
enhance supervision and is used to inform qualitative and quantitative 
assessments and ratings of covered credit unions. Further, this data 
provides insight for offsite supervision and enable timely risk 
identification and mitigation. The NCUA shares the results of this 
information collection and collaborates with applicable state 
supervisory authorities on joint supervisory efforts.
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    \11\ 12 CFR 702.306(d).
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    Finally, as discussed above, ONES was formed, in part, to provide 
enhanced supervision of FICUs systemically important to the NCUSIF. And 
while regulatory requirements remain the same for tier I covered credit 
unions under the proposed rule, certain aspects of ONES enhanced 
supervision may vary for covered credit unions supervised by Regional 
Offices. The Board believes this difference, along with other more 
technical procedures unique to ONES supervision, is not necessary to 
adequately supervise tier I covered credit unions given the mitigating 
factors discussed above.
    Therefore, the Board does not believe that altering tier I covered 
credit unions' transition to ONES supervision results in undue risk to 
the NCUSIF.

Reservation of Authority

    The proposed change to the threshold for FICUs being supervised by 
ONES would generally apply to new tier I covered credit unions. 
However, there may be rare instances that warrant a FICU with assets 
between $10 billion and $15 billion to be assigned to ONES. To address 
such situations, the Board may use existing reservations of authority 
in part 702 to transfer a tier I covered credit union to ONES 
supervision before it becomes a tier II or tier III covered credit 
union.\12\ When making any such determination, the Board would consider 
all relevant factors affecting the covered credit union's safety and 
soundness, such as its activities, business model, risk-management 
practices, and the types of assets held. Any exercise of authority 
under this section by the NCUA would be in writing and would consider 
the financial condition, size, complexity, risk profile, scope of 
operations, and level of net worth of the covered credit union, in 
addition to any other relevant factors. The Board solicits comments on 
its proposed use of the reservation of authority to transfer a tier I 
covered credit to ONES supervision.
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    \12\ 12 CFR 702.301.
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III. Legal Authority

    The Board is issuing this proposed rule pursuant to its authority 
under the Federal Credit Union Act (FCU Act).\13\ Under the FCU Act, 
the NCUA is the chartering and supervisory authority for federal credit 
unions (FCUs) and the federal supervisory authority for FICUs. The FCU 
Act grants the NCUA a broad mandate to issue regulations governing both 
FCUs and FICUs. Section 120 of the FCU Act is a general grant of 
regulatory authority and authorizes the Board to prescribe regulations 
for the administration of the FCU Act.\14\ Section 209 of the FCU Act 
is a plenary grant of regulatory authority to the NCUA to issue 
regulations necessary or appropriate to carry out its role as share 
insurer for all FICUs.\15\ Accordingly, the FCU Act grants the Board 
broad rulemaking authority to ensure that the credit union industry and 
the NCUSIF remain safe and sound.
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    \13\ 12 U.S.C. 1751 et seq.
    \14\ 12 U.S.C. 1766(a).
    \15\ 12 U.S.C. 1789.
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IV. Request for Comments

    The Board seeks comment on all aspects of this proposed rule. In 
particular, the Board seeks comment on the advantages and disadvantages 
of adjusting the threshold for determining which credit unions are 
supervised by ONES. Should the Board consider other amendments to its 
supervisory process for covered credit unions? Is the definition of 
ONES credit union sufficiently clear? Should the definition state 
explicitly that it does not include tier I covered credit unions that 
are not grandfathered?

V. Regulatory Procedures

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)). For 
purposes of the PRA, a paperwork burden may take the form of a 
reporting, recordkeeping, or a third-party disclosure requirement, 
referred to as an information collection. The proposed rule will not 
affect any existing or impose any new information collection 
requirements.
    The information collection requirement under Office of Management 
and Budget (OMB) No. 3133-0199, Capital Planning and Stress Testing, 
that tier I covered credit unions retain a record of their annual 
capital

[[Page 11999]]

plan will remain in effect regardless of a covered credit union's 
supervisory office.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule or a final rule pursuant to the 
Administrative Procedure Act or another law, the agency must prepare a 
regulatory flexibility analysis that meets the requirements of the RFA 
and publish such analysis in the Federal Register. Specifically, the 
RFA normally requires agencies to describe the impact of a rulemaking 
on small entities by providing a regulatory impact analysis. For 
purposes of the RFA, the Board considers credit unions with assets less 
than $100 million to be small entities.\16\ A regulatory flexibility 
analysis is not required, however, if the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities and publishes its certification and a short, 
explanatory statement in the Federal Register together with the rule. 
The proposed rule affects the supervisory office assigned to oversee 
large FICUs with $10 billion or more in total assets. Therefore, the 
Board certifies that it would not have a significant economic impact on 
a substantial number of small credit unions.
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    \16\ NCUA Interpretive Ruling and Policy Statement 15-1, 80 FR 
57512 (Sept. 24, 2015).
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Executive Order 13132

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

Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule would not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999.\17\
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    \17\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects

12 CFR Part 700

    Credit unions.

12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 702

    Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 708a

    Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 708b

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

12 CFR Part 750

    Credit unions, Golden parachute payments, Indemnity payments.

12 CFR Part 790

    Organization and functions (Government agencies).

    By the NCUA Board on February 17, 2022.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons discussed in the preamble, the Board proposes to 
amend 12 CFR parts 700, 701, 702, 708a, 708b, 750, and 790 as follows:

PART 700--DEFINITIONS

0
1. The authority citation for part 700 continues to read as follows:

    Authority: 12 U.S.C. 1752, 1757(6), 1766.
0
2. In Sec.  700.2, revise the definitions of ``Regional Director'' and 
``Regional Office'' to read as follows:


Sec.  700.2   Definitions.

* * * * *
    Regional Director means the representative of NCUA in the 
designated geographical area in which the office of the federally 
insured credit union is located or, for ONES credit unions under part 
702 of this chapter, the Director of the Office of National 
Examinations and Supervision.
    Regional Office means the office of NCUA located in the designated 
geographical areas in which the office of the federally insured credit 
union is located or, for ONES credit unions under part 702 of this 
chapter, the Office of National Examinations and Supervision.
* * * * *

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
3. The authority citation for part 701 continues to read as follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789. 
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

0
4. In Sec.  701.14, revise paragraph (c)(3)(i) to 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.

* * * * *
    (c) * * *
    (3) * * *
    (i) Where to file. Notices will be filed with the appropriate 
Regional Director or, in the case of a corporate credit union or a ONES 
credit union under part 702 of this chapter, with the Director of the 
Office of National Examinations and Supervision. All references to 
Regional Director will, for corporate credit unions and ONES credit 
unions under part 702 of this chapter, mean the Director of Office of 
National Examinations and Supervision. State-chartered federally 
insured credit unions will also file a copy of the notice with their 
state supervisor.
* * * * *

PART 702--CAPITAL ADEQUACY

0
5. The authority citation for part 702 is revised to read as follows:

    Authority: 12 U.S.C. 1766(a), 1784(a), 1786(e), 1790d.

0
6. In Sec.  702.302, add a definition of ``ONES credit union,'' in 
alphabetical order, to read as follows:


Sec.  702.302   Definitions.

* * * * *
    ONES credit union means a credit union subject to supervision by 
the Office of National Examinations and Supervision and includes tier I 
covered credit unions that had $10 billion or more in total assets as 
of March 31, 2020, and tier II and tier III covered credit unions.
* * * * *

PART 708a--BANK CONVERSIONS AND MERGERS

0
7. The authority citation for part 708a continues to read as follows:

    Authority: 12 U.S.C. 1766, 1785(b), and 1785(c).


[[Page 12000]]


0
8. In Sec.  708a.101, revise the second sentence of the definition of 
``Regional Director'' to read as follows:


Sec.  708a.101   Definitions.

* * * * *
    Regional Director * * * For corporate credit unions and natural 
person credit unions defined as ONES credit unions under part 702 of 
this chapter, Regional Director means the Director of NCUA's Office of 
National Examinations and Supervision.
* * * * *
0
9. In Sec.  708a.301, revise the second sentence of the definition of 
``Regional Director'' to read as follows:


Sec.  708a.301   Definitions.

* * * * *
    Regional Director * * * For corporate credit unions and natural 
person credit unions defined as ONES credit unions under part 702 of 
this chapter, Regional Director means the Director of NCUA's Office of 
National Examinations and Supervision.
* * * * *

PART 708b--MERGERS OF INSURED CREDIT UNIONS INTO OTHER CREDIT 
UNIONS; VOLUNTARY TERMINATION OR CONVERSION OF INSURED STATUS

0
10. The authority citation for part 708b continues to read as follows:

    Authority: 12 U.S.C. 1752(7), 1766, 1785, 1786, 1789.

0
11. In Sec.  708b.2, revise the second sentence of the definition of 
``Regional Director'' to read as follows:


Sec.  708b.2   Definitions.

* * * * *
    Regional Director * * * For corporate credit unions and natural 
person credit unions defined as ONES credit unions under part 702 of 
this chapter, Regional Director means the Director of NCUA's Office of 
National Examinations and Supervision.
* * * * *

PART 750--GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS

0
10. The authority citation for part 750 continues to read as follows:

    Authority: 12 U.S.C. 1786(t).
0
11. In Sec.  750.6, revise the third sentence of paragraph (a) to read 
as follows:


Sec.  750.6   Filing instructions; appeal.

    (a) * * * In the case of a Federal or state-chartered corporate 
credit union or ONES credit union under part 702 of this chapter, such 
written requests must be submitted to the Director of the Office of 
National Examinations and Supervision. * * *
* * * * *

PART 790--DESCRIPTION OF NCUA; REQUESTS FOR AGENCY ACTION

0
12. The authority citation for part 790 continues to read as follows:

    Authority: 12 U.S.C. 1766, 1789, 1795f.
0
13. In Sec.  790.2, revise the first sentence of paragraph (c)(2) to 
read as follows:


Sec.  790.2   Central and field office organization.

* * * * *
    (c) * * *
    (2) * * * Similar to a Regional Director, the Director of the 
Office of National Examinations and Supervision manages NCUA's 
supervisory program over credit unions; however, it oversees the 
activities for corporate credit unions and of natural person credit 
unions defined as ONES credit unions under part 702 of this chapter, in 
accordance with established policies. * * *

[FR Doc. 2022-03846 Filed 3-2-22; 8:45 am]
BILLING CODE 7535-01-P


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