[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4674-4679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01623]


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NATIONAL CREDIT UNION ADMINISTRATION


Request for Comment Regarding National Credit Union 
Administration Operating Fee Schedule Methodology

AGENCY: National Credit Union Administration (NCUA).

ACTION: Request for comment.

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SUMMARY: The NCUA Operating Budget has two primary funding mechanisms: 
(1) An Overhead Transfer, which is funded by federal credit unions 
(FCUs) and federally insured state-chartered credit unions (FISCUs); 
and (2) annual Operating Fees, which are charged only to FCUs. In a 
voluntary effort to invite input from stakeholders representing federal 
and state-chartered credit unions, the NCUA Board (Board) is 
simultaneously requesting comments on the methodologies for both 
funding mechanisms in separate notices in the Federal Register.
    This request for comments focuses on the methodology NCUA uses to 
determine the aggregate amount of Operating Fees charged to federal 
credit unions, including the fee schedule that allocates the Operating 
Fees at different rates among FCUs according to various asset 
thresholds. While the NCUA Board is interested in all comments from the 
public and stakeholders, commenters are also asked to consider the 
following questions when responding: (1) Are the asset determination 
thresholds reasonable; and (2) is the method for forecasting projected 
asset growth for the credit union system reasonable? Responding to 
these questions will provide valuable insight to the NCUA Board with 
respect to how the Operating Fee is administered. To be most 
instructive to the Board, commenters are encouraged to provide the 
specific basis for their comments and recommendations, as well as 
documentation to support their proposed adjustments or alternatives.

DATES: Comments must be received on or before April 26, 2016 to be 
assured of consideration.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
    <bullet> NCUA Web site: http://www.ncua.gov. Please follow the 
instructions for submitting comments under the ``Board Comments'' 
section of the NCUA Web site.
    <bullet> Email: Address to <a href="/cdn-cgi/l/email-protection#abc9c4cad9cfc8c4c6c6cec5dfd8ebc5c8deca85ccc4dd"><span class="__cf_email__" data-cfemail="f89a97998a9c9b9795959d968c8bb8969b8d99d69f978e">[email protected]</span></a>. Include ``[Your 
name]--Comments on Operating Fee Schedule Methodology'' in the email 
subject line.
    <bullet> Fax: (703) 518-6319. Include your name and the following 
subject line: ``Comments on Operating Fee Schedule.''
    <bullet> Mail: Address to Gerard Poliquin, 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 can view all public comments on NCUA's Web 
site

[[Page 4675]]

at http://www.ncua.gov/about/pages/board-comments.aspx as submitted, 
except for those we cannot post for technical reasons. NCUA will not 
edit or remove any identifying or contact information from the public 
comments submitted. You may inspect paper copies of comments at NCUA's 
headquarters at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6570 or send an email to <a href="/cdn-cgi/l/email-protection#2f606c69606c4042424a415b5c6f414c5a4e01484059"><span class="__cf_email__" data-cfemail="b7f8f4f1f8f4d8dadad2d9c3c4f7d9d4c2d699d0d8c1">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Rendell Jones, Chief Financial 
Officer, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428 or telephone: (703) 518-6570.

    Authority: 12 U.S.C. 1755.


SUPPLEMENTARY INFORMATION:

I. Legal Background
II. Historical Practice in Assessing the Operating Fee
III. Methodology for Determining the Aggregate Operating Fee Amount
IV. Methodology for Determining the Operating Fee Schedule

I. Legal Background

    NCUA charters, regulates and insures deposits in federal credit 
unions (FCUs) and insures deposits in state-chartered credit unions 
that have their shares insured through the National Credit Union Share 
Insurance Fund (Share Insurance Fund). To cover expenses related to its 
statutory mission, the Board adopts an Operating Budget in the fall of 
each year (Operating Budget). The Federal Credit Union Act (FCU Act) 
authorizes two primary sources to fund the Operating Budget: (1) 
Requisitions from the Share Insurance Fund ``for such administrative 
and other expenses incurred in carrying out the purposes of [Title II 
of the FCU Act] as [the Board] may determine to be proper''; \1\ and 
(2) ``fees and assessments (including income earned on insurance 
deposits) levied on insured credit unions under [the FCU Act].'' \2\ 
The latter of fees are referred to herein as annual Operating Fees, 
which ``may be expended by the Board to defray the expenses incurred in 
carrying out the provisions of [the FCU Act,] including the examination 
and supervision of [FCUs].'' \3\
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    \1\ 12 U.S.C. 1783(a).
    \2\ 12 U.S.C. 1766(j)(3). Other sources of income for the 
Operating Budget include interest income, funds from publication 
sales, parking fee income, and rental income.
    \3\ 12 U.S.C. 1755(d).
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    With regard to the Operating Fee, the FCU Act requires each FCU to, 
``in accordance with rules prescribed by the Board, . . . pay to the 
[NCUA] an annual operating fee which may be composed of one or more 
charges identified as to the function or functions for which 
assessed.'' \4\ The fee must ``be determined according to a schedule, 
or schedules, or other method determined by the Board to be 
appropriate, which gives due consideration to the expenses of the 
[NCUA] in carrying out its responsibilities under the [FCU Act] and to 
the ability of [FCUs] to pay the fee.'' \5\ The statute requires the 
Board to, among other things, ``determine the periods for which the fee 
shall be assessed and the date or dates for the payment of the fee or 
increments thereof.'' \6\
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    \4\ 12 U.S.C. 1755(a).
    \5\ 12 U.S.C. 1755(b).
    \6\ Id.
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    Accordingly, the FCU Act imposes three requirements on the Board in 
connection with assessing an Operating Fee on FCUs: (1) The fee must be 
assessed according to a schedule or schedules, or other method that the 
Board determines to be appropriate, which gives due consideration to 
NCUA's responsibilities in carrying out the FCU Act and the ability of 
FCUs to pay the fee; (2) the Board must determine the period for which 
the fee will be assessed and the due date for payment; and (3) the 
Board must deposit collected fees into the Treasury to defray the 
Board's expenses in carrying out the FCU Act.
    The Operating Fee methodology that this document describes meets 
all three legal requirements. First, the Board is assessing the 
Operating Fee under a schedule presented later in this document. The 
schedule sets forth assessment rates for FCUs based on asset size and 
takes account of NCUA's responsibilities in carrying out the FCU Act as 
well as the ability of FCUs to pay. Specifically, the schedule reflects 
consideration of NCUA's expenses in various areas of responsibility 
under the FCU Act and is scaled by asset size to account for the 
ability to pay. Second, this document specifies the applicable time 
period for the assessment, 2016, and notes that a later publication 
will update the due date. Third, NCUA will deposit collected fees in 
the United States Treasury, and the collected fees will fund some of 
NCUA's expenses in carrying out its responsibilities under the FCU Act.

II. Historical Practice in Assessing the Operating Fee

    NCUA has a regulation that governs Operating Fee processes.\7\ The 
regulation establishes (i) the basis for charging Operating Fees (i.e., 
total assets), (ii) a notice process, (iii) rules for new charters, 
conversions, mergers, and liquidations, and (iv) administrative fees 
and interest for late payment, among other principles and processes.\8\ 
Certain aspects of and adjustments to the Operating Fee process, such 
as the asset tier of FCUs that are exempt from Operating Fees and the 
multipliers that are used to determine fees applicable to higher asset 
tiers, are usually not published in the Federal Register. Instead, the 
Board traditionally set the Operating Fee during an open meeting each 
November, after determining the Operating Budget and Overhead Transfer 
at the same open meeting. At an open meeting in November 2015, the 
Board delegated authority to the Chief Financial Officer to administer 
the Board-approved Operating Fee methodology, and to set the Operating 
Fees as calculated per the approved methodology each annual budget 
cycle beginning with 2016.\9\
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    \7\ 12 CFR 701.6.
    \8\ Id.
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    Although it is not required to do so under the Administrative 
Procedure Act, the Board now chooses to specifically solicit public 
comments on the methodology and process NCUA uses for the fee schedule 
through this Federal Register publication, as it has done on occasion 
in the past.
    The Board adopted the current Operating Fee methodology in 1979, 
after Congress passed the Financial Institutions Regulatory and 
Interest Rate Control Act of 1978.\10\ This legislation permitted the 
Board to consolidate previously separate chartering, supervision, and 
examination fees into a single Operating Fee, charged ``in accordance 
with schedules, and for time periods, as determined by the Board, in an 
amount necessary to offset the expenses of the Administration at a rate 
consistent with a credit union's ability to pay.'' \11\ In combination 
with a proposed change to NCUA Regulation 12 CFR 701.6 in 1979, the 
Board proposed an initial fee schedule in the Federal Register, 
including rates for 12 asset tiers.\12\ It later published a final rule 
in the Federal Register, which also included a finalized fee schedule 
for 1979.\13\
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    \10\ 44 FR 11786 (Mar. 2, 1979).
    \11\ Id.
    \12\ Id. at 11787.
    \13\ 44 FR 27379 (May 10, 1979).
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    On three additional occasions, the Board has requested comments on 
potential changes to the Operating Fee schedule through a Federal 
Register notice, independent of any changes to 12 CFR 701.6. First, in 
1990, the Board

[[Page 4676]]

provided notice to the public that it was considering consolidating the 
Operating Fee schedule from 14 asset tiers to two asset tiers, 
retaining an exemption for FCUs under $50,000 in assets and 
implementing a $100 minimum fee.\14\ The Board provided a 60-day 
comment period.\15\
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    \14\ 55 FR 29857 (July 23, 1990).
    \15\ Id.
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    In 1990, the Board determined that current 14 asset tier Operating 
Fee scale was sharply regressive. In looking at the issue of fairness, 
the Board concluded the previous scale was no longer based fairly on 
the ability to pay, as evidenced by the rate for the smallest credit 
unions being $2.41 per $1,000 in assets, compared to $0.07 per $1,000 
in assets for the largest credit unions, so that the burden on smaller 
credit unions had become significantly greater than on larger credit 
unions. In 1989, the Operating Fee was an average of 3.96 percent of 
expenses for credit unions in the lowest asset bracket, compared to 
0.23 percent of expenses for the largest credit union. While a single 
rate was initially considered to be potentially more equitable, the 
fees from a single rate would have more than tripled for the largest 
credit unions. In 1990, the Board instead adopted a final two-bracket, 
two-rate structure proposal as the most feasible solution. In general, 
larger federal credit unions pay a higher dollar Operating Fee, but 
based on a lower (regressive) rate. The Board considered this 
regressive rate approach to be the fairest method of balancing the 
competing concepts and views of larger federal credit unions' higher 
dollar fees paid as subsidizing smaller federal credit unions, and 
larger federal credit unions not receiving proportionally more service 
from NCUA for the fees they pay. The Board-adopted proposal in 1990 
exempted credit unions with assets under $50,000, set a minimum fee of 
$100, established two brackets with $250 million in assets as the 
dividing line between the two, and allowed the dividing points to be 
changed based on projected asset growth. The proposed fee structure did 
even out the effect on credit unions. For credit unions between 
$250,000 and $1 million in assets, the fee was 0.58 percent of 
expenses, down from 3.00 percent, and for credit unions over $1 billion 
in assets, the fee was 0.33 percent of expenses, up from 0.25 percent.
    In restructuring the scale in 1990, the Board also established a 
policy that the asset level dividing points between the brackets be 
adjusted annually or ``indexed'' in accordance with the projected asset 
growth of federal credit unions. This indexing was made in order to 
preserve the same relative relationship of the scale to the asset base 
to which it is applied.
    Two years later, the Board adopted a new third bracket at its open 
Board meeting in late 1992 that applied to assets exceeding $1 billion. 
The Board made this change in the interest of fairness to all credit 
unions. At that time, there were four federal credit unions with assets 
over $1 billion. The current approach to the fee schedule for natural-
person FCUs continues to use three asset tiers.
    Second, also in 1992, the Board requested comments on a plan to 
limit Operating Fees to the first $1 million of each FCU's assets.\16\ 
The Board provided a 30-day comment period.\17\ It later extended the 
comment period by an additional 20 days.\18\
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    \16\ 57 FR 34152 (Aug. 3, 1992).
    \17\ Id.
    \18\ 57 FR 38329 (Aug. 24, 1992).
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    Third, in 1995, the Board requested comments on a plan to 
restructure the Operating Fee schedule for natural-person FCUs, to 
exempt FCUs with assets of $500,000 or less.\19\ It also requested 
comments on imposing a minimum fee of $100 on all natural-person FCUs 
with assets over $500,000 but less than or equal to $750,000.\20\ The 
Board provided a 30-day comment period.\21\
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    \19\ 60 FR 32925 (June 26, 1995).
    \20\ Id.
    \21\ Id.
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    The Board did not publish a response to the comments in the Federal 
Register in any of the cases referenced above. Instead, it adopted 
changes at open Board meetings. At its open meeting on November 12, 
1992, for example, rather than eliminating fees for FCUs with assets 
under $1 million as proposed in the Federal Register, the Board adopted 
a third rate of 0.0003 for that asset tier.\22\ At its open meeting on 
November 16, 1995, after a discussion of the comments received, the 
Board adopted changes as proposed in the Federal Register, exempting 
FCUs under $500,000 in assets and imposing a $100 fee on FCUs with 
between $500,000 and $750,000 in assets.\23\
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    \22\ Board Action Memorandum on Operating Fee Assessment for 
Fiscal Year 1993 (Nov. 12, 1992).
    \23\ Minutes of Board Meeting, National Credit Union 
Administration, p. 2 (Nov. 16, 1995); Board Action Memorandum on 
Fiscal Years 1995 and 1996 Budget (Nov. 16, 1995).
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    In general, since 1995, the Board has not used Federal Register 
notices in connection with the annual adjustments to the asset tiers 
and rates of the Operating Fee schedule. In the past, the Board has 
opted to adopt such changes at open meetings. As recently as 2012, for 
example, the Board increased the asset threshold used to exempt FCUs 
from Operating Fees from $500,000 to $1 million at an open meeting 
without requesting advance comment in the Federal Register.\24\ While 
the Board has varied its practice with respect to fee schedule changes, 
it has done so within the FCU Act's broad directive that the fee 
schedule should be as ``determined by the Board to be appropriate,'' 
subject to its consideration of its expenses and the ability of FCUs to 
pay.\25\ In addition, NCUA's existing regulation on Operating Fee 
processes includes a standing invitation for written comments from FCUs 
on existing fee schedules.\26\
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    \24\ Board Action Memorandum on 2013 Operating Fee (Nov. 15, 
2012).
    \25\ 12 U.S.C. 1755(b).
    \26\ 12 CFR 701.6(c).
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III. Methodology for Determining the Aggregate Operating Fee Amount

    The Board adopts an Operating Budget in the fall of each year. The 
Operating Budget provides the resources required to execute the goals 
and objectives as outlined in NCUA's strategic plan. NCUA develops its 
Operating Budget using zero-based budgeting techniques, which ensure 
each activity is properly justified before the Board considers it for 
funding.\27\ As discussed above, two primary sources fund the Operating 
Budget: (1) The Overhead Transfer Rate (OTR); and (2) FCU Operating 
Fees. The following summarizes the various adjustments to arrive at the 
FCU Operating Fee and is illustrated below in Table 1.
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    \27\ Additional information on the NCUA budget may be found at 
the following Web address: http://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
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    Adjustments to the Budget. When calculating the aggregate annual 
Operating Fee requirements, the Board first subtracts amounts 
transferred for operational expenses from the Share Insurance Fund 
through the Overhead Transfer Rate and other expected income amounts 
from the operating budget for that year.
    Overhead Transfer Rate: The FCU Act authorizes NCUA to expend funds 
from the Share Insurance Fund for administrative and other expenses 
related to federal share insurance.\28\ An Overhead Transfer from the 
Share Insurance Fund covers the expenses associated with insurance-
related functions of NCUA's operations. The Overhead Transfer is one of 
the funding sources for the budget, but the Overhead Transfer Rate does 
not affect the amount

[[Page 4677]]

of the budget. The Board approves the budget separately and without 
regard to the Overhead Transfer Rate. The Overhead Transfer Rate is 
applied to actual expenses incurred each month.\29\
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    \28\ 12 U.S.C. 1783(a).
    \29\ In November 2015, the Board delegated authority to the 
Director of the Office of Examination and Insurance to administer 
the methodology approved by the Board for calculating the Overhead 
Transfer Rate, and set the rate as calculated per the approved 
methodology and validated by the Chief Financial Officer each budget 
cycle, beginning with the rate for 2016. Board Action Memorandum on 
Overhead Transfer Rate Delegation (Nov. 19, 2015), https://www.ncua.gov/About/Documents/Agenda%20Items/AG20151119Item5a.pdf.
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    Other Income: Other income reduces the required Operating Fees by 
providing an additional source of funds to cover regulatory (i.e., non-
insurance) related aspects of operating NCUA. Other income is projected 
based on the latest financial statements and includes interest income 
and miscellaneous revenues. Interest income includes interest on 
investments of annual Operating Fees not needed for current operations. 
Such investments may be made only in interest-bearing securities of the 
United States, with maturities requested by the Board, bearing interest 
at rates determined by the Secretary of the Treasury.\30\ Other income 
includes miscellaneous revenues, such as proceeds from publication 
sales, parking fee income, and rental income. Publication sales include 
proceeds from the sale of printed publications and brochures. NCUA 
leases office space to commercial tenants in its Central Office 
building and recognizes rental income in accordance with generally 
accepted accounting principles (GAAP). NCUA's Central Office has a 
parking garage and NCUA collects income on parking fees, which are 
divided among the complex owners according to the percentage of parking 
garage space owned by each.
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    \30\ 12 U.S.C. 1755(e)(2).
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    Adjustments for cash and non-cash needs. The balance remaining 
after removing the Overhead Transfer amount and other expected income 
is then adjusted for cash and non-cash needs. Cash needs include 
additions for capital acquisitions and the payment of the note payable 
for the NCUA Central Office building on King Street. Non-cash needs 
include deductions for accrued annual leave and depreciation. 
Additional deductions or additions to cash needs are necessary to 
maintain a sufficient cash reserve to continue NCUA's operations. 
Operating Fund Mid-Session adjustments may also result in changes to 
cash needs, normally in the form of a reduction.
    Sufficient Cash Reserves: NCUA's policy for the Operating Fund is 
to maintain cash reserves of at least one month for contingencies.\31\ 
Cash requirements are projected to last approximately 15 months from 
the end of the current budget year, until the subsequent Operating Fee 
collections are received from FCUs. NCUA sends an annual Letter to FCUs 
that establishes the Operating Fees for the coming year.\32\ It then 
provides invoices that require payment by April 15.
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    \31\ 2016 Operating Fee BAM.
    \32\ https://www.ncua.gov/Resources/Documents/LFCU2015-01.pdf.
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    Accrued Annual Leave: Accrued annual leave is the change in the 
economic value of earned, but unpaid annual leave for current NCUA 
employees. It is a non-cash expense under GAAP and therefore is 
excluded when determining the required Operating Fees. NCUA uses 
historical data to determine the annual amount of accrued annual leave.
    Depreciation: Capital acquisitions are investments in assets 
including information technology software and building improvement 
projects. Depreciation is a reduction in the value of an asset with the 
passage of time. For NCUA's Operating Budget, depreciation expenses are 
included for assets such as NCUA's Central Office building, furniture 
and equipment, and leasehold improvements. The Share Insurance Fund 
covers a percentage of the depreciation expenses based on the OTR. The 
cash needs of all budgeted capital acquisitions are added to the FCU 
Operating Fee requirements.
    Repayment of NCUA Central Office on King Street, Note Payable. In 
1992, the Operating Fund entered into a commitment to borrow up to 
$42.0 million in a 30-year secured term note with the Share Insurance 
Fund to fund the costs of constructing NCUA's Central Office in 1993. 
Since the Operating Fund borrowed monies from the Share Insurance Fund, 
the annual scheduled principal payments are excluded from the OTR and 
Overhead Transfer amount. The annual scheduled principal payments are 
treated as a cash need and applied as an increase to Operating Fee 
requirements.
    Operating Fee Requirements. The amount remaining after adjustments 
for all cash and non-cash needs is the total budgeted Operating Fee 
requirements. The total budgeted Operating Fee requirements (i.e., line 
11 below) represents Operating Fees for both natural-person and 
corporate FCUs. The natural-person FCU Operating Fees required (i.e. 
line 13 below) is determined by deducting the corporate FCU Operating 
Fees (i.e. line 12 below) from the total budgeted Operating Fee 
requirements (i.e., line 11 below).

       Table 1--Operating Fee Calculation Factors and Explanation
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  Natural-person Federal Credit
 Union operating fee calculation      Calculation
     factors and explanation            formula
-----------------------------------------------------
1...............................  Proposed Annual     ..................
                                   Operating Fund
                                   Budget amount
                                   determines the
                                   baseline fee
                                   requirement.
2...............................  Overhead Transfer   OTR% x - 1.
                                   Rate calculated
                                   from the examiner
                                   time survey
                                   results,
                                   determines the
                                   amount of the
                                   budget to be
                                   reimbursed by the
                                   Share Insurance
                                   Fund. This amount
                                   is subtracted
                                   from the proposed
                                   budget amount.
3...............................  Interest Income     ..................
                                   projected for the
                                   year is estimated
                                   based on the
                                   latest financial
                                   statements, and
                                   is subtracted
                                   from the budget.
4...............................  Miscellaneous       ..................
                                   (rents,
                                   publication fees,
                                   FOIA fees) is
                                   estimated based
                                   on the latest
                                   financial
                                   statements, and
                                   is subtracted
                                   from the budget.
------------------------------------------------------------------------
5...............................  Net Adjustment to   Sum lines 1-4.
                                   Budget.
6...............................  Reduction of any    reduce cash
                                   Operating Fund      collections.
                                   Mid-Session
                                   return adjustment.

[[Page 4678]]

 
7...............................  Reduction of        reduce cash
                                   Accrued Annual      collections.
                                   Leave (based on
                                   historical annual
                                   amounts).
8...............................  Depreciation (e.g.  reduce cash
                                   building,           collections.
                                   leasehold, and
                                   equipment
                                   estimate).
9...............................  New investment      increase cash
                                   projects            collections.
                                   requested in
                                   capital budget.
10..............................  Annual payment of   increase cash
                                   King Street Note    collections.
                                   Payable
                                   (scheduled
                                   principal
                                   payments).
------------------------------------------------------------------------
11..............................  Budgeted Operating  Sum lines 5-10.
                                   Fee/Capital
                                   Requirements.
12..............................  Corporate federal   ..................
                                   credit union fees
                                   are collected and
                                   subtracted from
                                   natural-person
                                   credit union fee
                                   requirement
                                   (based on
                                   corporate credit
                                   union scale).
------------------------------------------------------------------------
13..............................  Natural-Person      Sum lines 11-12.
                                   Federal Credit
                                   Union Operating
                                   Fees Required.
14..............................  Estimated Fee
                                   collections for
                                   end of year
                                   (December 31).
                                   This projection
                                   uses the current
                                   Operating Fee
                                   scale with
                                   estimated asset
                                   growth from an
                                   internal NCUA
                                   economic
                                   forecasting
                                   models. Based on
                                   the June 30
                                   assets, the year-
                                   end assets are
                                   projected using
                                   the estimated
                                   asset growth to
                                   calculate fee
                                   collection
                                   estimates for the
                                   following year.
                                   The Operating Fee
                                   assessment is
                                   applied against
                                   the year-end
                                   credit union
                                   asset value.
------------------------------------------------------------------------
15..............................  Difference between  Difference between
                                   estimated           lines 13 and 14.
                                   Operating Fee
                                   collections and
                                   projected
                                   collections based
                                   on estimated
                                   asset growth.
========================================================================
16..............................  Average Rate        Line 15 divided by
                                   Adjustment          14.
                                   Indicated.
------------------------------------------------------------------------

IV. Methodology for Determining the Operating Fee Schedule

    The corporate credit union fee schedule was established in 1979 and 
has changed little over the years. In fact, for many years, the 
Operating Fee scale remained virtually unchanged. The main driver for 
no change is the concept that corporate FCUs hold assets of natural-
person credit unions, which are already assessed under the natural-
person Operating Fees. Assessing corporate FCUs at the same rate would, 
effectively, assess the same assets twice. Corporate FCUs return a 
large portion of their earnings to natural-person FCUs in the form of 
lower fees and higher dividends. Raising Operating Fee assessments for 
corporate FCUs would result in higher expenses for corporate FCUs. 
Corporate FCUs would need to pass the higher expenses to natural-person 
FCUs in the form of higher fees and lower investment yields. The 
corporate credit union fee schedule is a method of charging corporate 
FCUs a supervisory fee to defray costs. Table 2 below outlines the 2016 
corporate FCU Operating Fee schedule:

     Table 2--Corporate Federal Credit Union Operating Fee Schedule
------------------------------------------------------------------------
                                                     The Operating Fee
   If total assets are over        But not over        assessment is:
------------------------------------------------------------------------
$50,000,000...................  $100,000,000.....  $10,593.90 plus
                                                    0.0001987 of the
                                                    total assets over
                                                    $50,000,000.
$100,000,000..................  No limit.........  $20,528.90 plus
                                                    0.0000123 of the
                                                    total assets over
                                                    $100,000,000.
------------------------------------------------------------------------

    As stated above, the Board delegated authority to the Chief 
Financial Officer to administer the methodology approved by the Board 
for calculating the Operating Fees and to set the fee schedule as 
calculated per the approved methodology beginning in 2016. After 
determining the Operating Fee requirements for natural-person FCUs 
(i.e., line 13 above), the Chief Financial Officer creates the natural-
person FCU Operating Fee schedule for the upcoming year. Table 3 below 
outlines the 2016 Operating Fee schedule for natural-person FCUs.

                       Table 3--Natural-Person Federal Credit Union Operating Fee Schedule
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
       If total assets are more than $1,000,000, the Operating Fee assessment is:
----------------------------------------------------------------------------------------------------------------
Assessment rates.....................                           Asset tiers............
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0.00018198...........................  on the first...........  $1,275,170,573.........  of assets, plus.
0.00005304...........................  on the next............  2,583,476,422..........  of assets, plus.

[[Page 4679]]

 
0.00001771...........................  on assets over.........  3,858,646,995..........
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    A different assessment rate is applied to each tier. FCUs with $1 
million or less in assets pay no Operating Fee.
    There are two primary steps used to determine the adjustments to 
the Operating Fee schedule for the upcoming year. They are: (1) 
Updating the prior year asset tiers using the projected asset growth 
rate; and (2) updating the prior year assessment rates for each asset 
tier by determining the average assessment rate adjustment.
    Updating prior year asset levels. The first step in determining the 
new Operating Fee schedule is to increase each asset tier from the 
prior year by the projected asset growth rate. Assets are indexed 
annually to preserve the same relative relationship of the scale to the 
applicable asset base.
    The projected asset growth rate is a forecast of FCU asset growth 
rates for a year. NCUA's Office of Chief Economist (OCE) uses three 
different methods to forecast asset growth and combines them to 
generate an overall asset growth rate forecast.
    Forecasting Method #1: Uses Call Report data for the first half of 
the year to predict full-year asset growth. This is done by first 
calculating the ratio of first-half asset growth to full-year asset 
growth. The percentage of full-year growth accounted for by first-half 
asset growth varies from year to year but, on average, nearly 80 
percent of the asset growth for FCUs occurs in the first half of the 
year. Using the growth rate in the first half of the year, OCE projects 
the full-year growth rate.
    Forecasting Method #2: Uses Call Report data to determine the most 
recent four-quarter growth rate and sets this rate to the full-year 
asset growth rate. This approach is based on the idea that an FCU is 
likely to establish and maintain a relatively constant growth rate over 
a short period, after accounting for variations in the growth rate that 
is attributable to seasonal fluctuations. This implies that a good 
forecast of full-year asset growth is the most recently available four-
quarter asset growth.
    Forecasting Method #3: Uses a time series statistical model. Using 
quarterly Call Report data, OCE predicts future four-quarter asset 
growth using the four-quarter growth in assets for the period ending 
two quarters earlier (that is, four-quarter asset growth lagged two 
quarters).
    Combined Forecast: In general, forecasting literature shows that 
combining forecasts from different approaches can improve forecast 
accuracy and decrease the likelihood of forecast errors. Using the root 
mean squared error statistic to calculate the accuracy of the 
individual approaches and combined forecast approaches, OCE has found 
that the combined forecast approach is better at predicting the final 
asset growth rate than any of the individual approaches. OCE therefore 
averages the forecasts from the three approaches to maximize accuracy.
    Updating the prior year's assessment rates. After updating the 
prior year asset tiers, the next step is to project Operating Fees 
using the updated asset tiers and the prior year assessment rates 
charged to each tier. The percentage difference between the projected 
Operating Fees (i.e., line 14 above) and the required Operating Fees 
(i.e., line 13 above) is the average rate adjustment (i.e., line 16 
above).
    The average rate adjustment (i.e., line 16 above) is used to amend 
the prior year's assessment rates for each asset tier either upwards or 
downwards. If the projected amount of Operating Fees is less than the 
required amount, then the assessment rates for each asset tier are 
adjusted upwards. If the projected amount is more than the required 
amount, then the assessment rates for each asset tier are adjusted 
downwards.
    The resulting new Operating Fee schedule and due date are 
communicated via a Letter to Federal Credit Unions and posted to 
www.NCUA.gov at least 30 days in advance of the due date. No later than 
March of each year, natural-person FCUs with assets greater than $1 
million will receive an invoice for their Operating Fee. Operating Fees 
are based on actual assets reported as of December 31 of the previous 
year. NCUA combines the annual Operating Fee and capitalization deposit 
adjustment into a single invoice normally due in April. As required by 
the FCU Act, NCUA will deposit the collected fees in the United States 
Treasury.

    By the National Credit Union Administration Board on January 21, 
2016.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2016-01623 Filed 1-26-16; 8:45 am]
BILLING CODE 7535-01-P


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