66298 Federal Register / Vol. 75, No. 208 / Thursday, October 28, 2010 / Rules and Regulations 

1Part 702 has been amended five times since it 

was originally adopted in 2000: First, to incorporate 

limited technical corrections. 65 FR 55439 (Sept. 

14, 2000). Second, to delete sections made obsolete 

by adoption of a uniform quarterly schedule for 

filing Call Reports. 67 FR 12459 (March 19, 2002). 

Third, to incorporate a series of revisions and 

adjustments to improve and simplify PCA 

implementation. 67 FR 71078 (Nov. 29, 2002). 

Fourth, to add a third risk-weighting tier to the 

standard risk-based net worth component for 

member business loans. 68 FR 56537, 56546 (Oct. 

1, 2003). A proposal to modify the criteria for filing 

a net worth restoration plan, 67 FR 7113 (Nov. 29, 

2002), was never adopted. Fifth, to implement a 

statutory amendment allowing the acquirer in a 

merger of credit unions to combine the merging 

credit union’s retained earnings with its own to 

determine the acquirer’s post-merger ‘‘net worth.’’ 

73 FR 72688 (Dec. 1, 2008). 

2 ‘‘Long-term real estate loans,’’ ‘‘Member Business 

Loans (‘‘MBL’’) outstanding,’’ ‘‘Investments,’’ ‘‘Lowrisk assets,’’ ‘‘Average-risk assets,’’ ‘‘Loans sold with 

recourse,’’ ‘‘Unused MBL commitments’’ and 

‘‘Allowance.’’ 12 CFR 702.104. 

3The first offering of this senior debt consists of 

$3.8 billion in fixed- and floating-rate ‘‘NCUA 

Guaranteed Notes 2010–R1.’’ The underlying 

distressed assets of this debt are the residential 

mortgage-backed securities held by the liquidation 

estate of U.S. Central Federal Credit Union. Credit 

unions purchased a significant proportion of the 

first NGN offering. NCUA anticipates a series of 

similar NGN offerings. 

assets for substantive safety and 

soundness reasons; and 

* * * * * 

PART 723—MEMBER BUSINESS 

LOANS 

■ 3. The authority citation for part 723 

continues to read as follows: 

Authority: 12 U.S.C. 1756, 1757, 1757A, 

1766, 1785, 1789. 

§ 723.7 [Amended] 

■ 4. Amend § 723.7 by removing the last 

sentence of paragraph (b). 

PART 742—REGULATORY 

FLEXIBILITY PROGRAM 

■ 5. The authority citation for part 742 

continues to read as follows: 

Authority: 12 U.S.C. 1756, 1766. 

§ 742.4 [Amended] 

■ 6. Amend § 742.4 by removing the 

first sentence of paragraph (a)(3) and 

removing paragraphs (a)(4), (5), and (6) 

and redesignating paragraphs (a)(7), (8), 

and (9) as (a)(4), (5), and (6), 

respectively. 

[FR Doc. 2010–27149 Filed 10–27–10; 8:45 am] 

BILLING CODE 7535–01–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 702 

RIN 3133–AD81 

Prompt Corrective Action; Amended 

Definition of Low-Risk Assets 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Interim final rule with request 

for comments. 

SUMMARY: NCUA is issuing this Interim 

Final Rule to amend the definition of 

‘‘low-risk assets’’ for regulatory capital 

purposes. Assets in this category receive 

a risk-weighting of zero, reflecting the 

absence of credit risk. The amendment 

will expand the definition of ‘‘low-risk 

assets’’ to include debt instruments on 

which the payment of principal and 

interest is unconditionally guaranteed 

by NCUA as an agency of the Executive 

Branch of the United States. 

DATES: This rule is effective October 28, 

2010. Comments must be received on or 

before November 29, 2010. 

ADDRESSES: You may submit comments 

by any of the following methods (Please 

send comments by one method only): 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• NCUA Web Site: http:// 

www.ncua.gov/Resources/ 

RegulationsOpinionsLaws/ 

ProposedRegulations.aspx. Follow the 

instructions for submitting comments. 

• E-mail: Address to 

regcomments@ncua.gov. Include ‘‘[Your 

name] Comments on Risk Portfolio 

Defined’’ in the e-mail subject line. 

• Fax: (703) 518–6319. Use the 

subject line described above for e-mail. 

• Mail: Address to Mary Rupp, 

Secretary of the Board, National Credit 

Union Administration, 1775 Duke 

Street, Alexandria, Virginia 22314– 

3428. 

• Hand Delivery/Courier: Same as 

mail address. 

FOR FURTHER INFORMATION CONTACT: 

Steven W. Widerman, Trial Attorney, at 

the above address, or telephone: (703) 

518–6557. 

SUPPLEMENTARY INFORMATION: 

Public Inspection of Comments: All 

public comments are available on the 

agency’s Web site at: http:// 

www.ncua.gov/Resources/ 

RegulationsOpinionsLaws/ 

RegulationComments.aspx as 

submitted, except as may not be 

possible for technical reasons. Public 

comments will not be edited to remove 

any identifying or contact information. 

Paper copies of comments may be 

inspected in NCUA’s law library at 1775 

Duke Street, Alexandria, Virginia 22314, 

by appointment weekdays between 

9 a.m. and 3 p.m. To make an 

appointment, call (703) 518–6546 or 

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

A. Background 

1. Prompt Corrective Action. In 1998, 

the Credit Union Membership Access 

Act, Public Law 105–219, 112 Stat. 913, 

mandated a system of regulatory capital 

standards for natural person credit 

unions entitled ‘‘Prompt Corrective 

Action’’ (‘‘PCA’’). 12 U.S.C. 1790d et seq. 

PCA imposes minimum capital 

standards and corresponding remedies 

to improve a credit union’s net worth. 

Id. The NCUA Board implemented a 

comprehensive system of PCA primarily 

under Part 702.1 12 CFR 702 et seq. 

Under PCA, a natural person credit 

union’s ‘‘net worth ratio’’ determines its 

classification among five statutory net 

worth categories. 12 U.S.C. 1790d(c); 12 

CFR 702.102. A credit union’s minimum 

required ‘‘net worth ratio’’ is based upon 

a risk-weighting applied to each of eight 

different portfolios of credit union 

assets.2 Id. § 702.104. As a credit union’s 

‘‘net worth ratio’’ declines, so does its 

classification among the five net worth 

categories, thus subjecting it to an 

expanding range of mandatory and 

discretionary supervisory actions. 12 

U.S.C. 1790d(e), (f) and (g); 12 CFR 

702.204(a)–(b). 

2. Corporate System Resolution. In 

response to the unprecedented 

disruption in the nation’s credit markets 

over the last two years, NCUA and other 

federal banking regulators have taken a 

series of steps to preserve the nation’s 

confidence in financial institutions. 

Through its Corporate Stabilization 

Program, NCUA has taken specific 

actions to stabilize the corporate credit 

union (‘‘CCU’’) system and to address 

problems associated with the impact of 

the economic downturn on CCUs. Chief 

among these problems is the substantial 

devaluation of the mortgage-backed and 

asset-backed securities (‘‘the distressed 

assets’’) held in the investment 

portfolios of CCUs. In several cases, the 

realization of losses on these distressed 

assets has driven the CCU into 

insolvency, requiring NCUA to place the 

CCU into liquidation. 

To monetize the distressed assets held 

by the liquidated CCUs, NCUA has 

embarked on a Corporate System 

Resolution Program primarily to sell 

those distressed assets to a trust 

established by NCUA. The trust will 

then resecuritize the distressed assets in 

the form of senior debt instruments 

denominated ‘‘NCUA Guaranteed Notes’’ 

(‘‘NGNs’’) that will be offered to public 

investors, including financial 

institutions.3 The trust will pass 

through to the NGN-holders the 

monthly cash flows produced by the 


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Federal Register / Vol. 75, No. 208 / Thursday, October 28, 2010 / Rules and Regulations 66299 

4CCUs that purchase the NGNs prior to January 

18, 2011 will not be required to divest provided the 

NGNs pose no safety and soundness concerns when 

assessed as part of the credit union’s overall 

business strategy and balance sheet structure. 

5See joint letter dated October 13, 2010, from the 

Federal Reserve Board, OCC, FDIC and OTS to 

Director, Division of Supervision, NCUA Office of 

Examination and Insurance. 

underlying distressed assets. The NGNs 

will benefit from the credit 

enhancement provided by the 

overcollateralization and excess interest 

generated by the underlying distressed 

assets. 

3. NCUA Guaranty. As a further 

incentive to instill investor confidence 

in the NGNs, NCUA, as an agency of the 

Executive Branch of the United States, 

has fully and unconditionally 

guaranteed to investors the timely 

payment of principal and interest (‘‘the 

NCUA Guaranty’’). As is the case with 

debt issued and guaranteed by other 

federal financial institution regulators, 

the NCUA Guaranty is backed by the 

full faith and credit of the United States. 

As a result of the NCUA Guaranty, the 

NGNs are legally permissible 

investments for federal credit unions. 

For state-chartered credit unions, the 

NGNs are legally permissible 

investments if they comply with state 

law at the time of purchase. Currently, 

the NGNs are permissible investments 

for CCUs, but may be purchased by 

CCUs only with NCUA prior approval 

once the recently adopted part 704 final 

rule takes effect on January 18, 

2011.4 See 75 FR 64786 (October 20, 

2010). 

4. Risk-Weighting of Guaranteed 

Notes. Under PCA as it exists today, the 

NGNs held by a natural person credit 

union would fall within the 

‘‘investments’’ risk portfolio, consisting 

of investments ‘‘[a]s defined by federal 

regulation or applicable State law.’’ 12 

CFR 702.104(c). The minimum riskweighting applied to assets in that 

portfolio, based on their weighted 

average life, is 3 percent. Id. 

§ 702.106(c)(1). The ‘‘investments’’ 

portfolio does not permit a riskweighting of zero to be applied to an 

investment even when it carries no 

credit risk. The ‘‘Low-risk assets’’ risk 

portfolio, in contrast, does apply a riskweighting of zero, but the NGNs 

presently do not fall within its scope. Id. 

§ 702.106(d). Only ‘‘Cash on hand * * * 

and the NCUSIF deposit’’ meet the 

definition of ‘‘Low-risk assets.’’ Id. 

§ 702.104(d). 

Recognizing that an obligation 

supported by the full faith and credit of 

the United States carries no credit risk, 

the four other federal financial 

institution regulators—the Board of 

Governors of the Federal Reserve 

System (‘‘Federal Reserve Board’’), the 

Office of the Comptroller of the 

Currency (‘‘OCC’’), the Federal Deposit 

Insurance Corporation (‘‘FDIC’’) and the 

Office of Thrift Supervision (‘‘OTS’’)— 

have jointly confirmed that their 

respective institutions may apply a zero 

percent risk-weighting to the NGNs the 

institutions purchase because of the 

direct, unconditional guaranty by 

NCUA.5 The purpose of the Interim 

Final Rule is to accord the same zero 

percent risk-weighting to NGNs 

purchased by natural person credit 

unions. 

To that end, the Interim Final Rule 

expands the PCA definition of ‘‘Low-risk 

assets’’ to extend that risk portfolio’s 

zero percent risk weighting to ‘‘debt 

instruments unconditionally guaranteed 

by the National Credit Union 

Administration,’’ such as the NGNs, and 

thus backed by the full faith and credit 

of the United States. Were the definition 

not expanded to include guaranteed 

debt instruments, potential credit union 

investors in the NGNs would face a 

disincentive to invest: A minimum 3 

percent risk-weighting—and the adverse 

effect on PCA net worth—even though 

the NGNs are free of credit risk. 

B. Interim Final Rule and Immediate 

Effective Date 

NCUA is issuing this rulemaking as 

an Interim Final Rule effective upon 

publication. The Administrative 

Procedure Act (‘‘APA’’), 5 U.S.C. 553, 

requires that before a rulemaking can be 

finalized, it must first be published as 

a notice of proposed rulemaking with 

the opportunity for public comment, 

unless the agency for good cause finds 

that notice and public comment are 

impracticable, unnecessary, or contrary 

to the public interest. Except for good 

cause, the APA further requires a final 

rule to have an effective date no earlier 

than 30 days from the date of 

publication. 

In this rulemaking, NCUA invokes the 

good cause exception to the 

requirements of the APA. Good cause 

exists to issue as an interim final rule 

effective immediately that expands the 

‘‘Low–risk assets’’ risk portfolio to 

include the NGNs that NCUA already 

has begun offering to investors, 

including credit unions. A series of 

similar NGN offerings is expected. To 

maximize credit union participation in 

these offerings of risk-free debt— 

beginning with the first one, which is 

set to close imminently—it is essential 

to implement a rule immediately 

expanding the ‘‘Low-risk assets’’ 

definition to include the NGNs, thus 

relieving credit unions of the riskweighting disincentive explained above. 

In this rulemaking, NCUA has 

determined that the APA’s usual 

requirements for public notice and 

participation before a regulation may 

take effect would be contrary to the 

public interest and, further, that good 

cause exists to waive the customary 30- 

day period preceding the effective date. 

Nonetheless, NCUA believes it would 

benefit from public comments on the 

Interim Final Rule before adopting a 

permanent Final Rule. The public is 

therefore invited to submit comments 

during a 30-day comment period 

commencing on the date this Interim 

Final Rule is published. NCUA plans to 

revise Interim Final Rule, where 

appropriate, to reflect the public 

comments it receives. 

C. Regulatory Procedures 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

requires NCUA to prepare an analysis to 

describe any significant economic 

impact a rule may have on a substantial 

number of small entities (primarily 

those under ten million dollars in 

assets). The rule will not have a 

significant economic impact on a 

substantial number of small credit 

unions. Thus, a Regulatory Flexibility 

Analysis is not required. 

Paperwork Reduction Act 

NCUA has determined that this rule 

will not increase paperwork 

requirements under the Paperwork 

Reduction Act of 1995 and regulations 

of the Office of Management and 

Budget. 

Executive Order 13132 

Executive Order 13132 encourages 

independent regulatory agencies to 

consider the impact of their regulatory 

actions on State and local interests. 

NCUA, an independent regulatory 

agency as defined in 44 U.S.C. 3502(5), 

voluntarily adheres to the fundamental 

federalism principles addressed by the 

Executive Order. This rule would not 

have a substantial direct effect 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. Accordingly, this 

rule does not constitute a policy that has 

federalism implications for purposes of 

the Executive Order. 

Treasury and General Government 

Appropriations Act, 1999 

NCUA has determined that the rule 

will not affect family well-being within 

the meaning of section 654 of the 


wwoods2 on DSK1DXX6B1PROD with RULES_PART 1
66300 Federal Register / Vol. 75, No. 208 / Thursday, October 28, 2010 / Rules and Regulations 

Treasury and General Government 

Appropriations Act, 1999, Public Law 

105–277, 112 Stat. 2681 (1998). 

Small Business Regulatory Enforcement 

Fairness Act 

The Small Business Regulatory 

Enforcement Fairness Act of 1996 (Pub. 

L. 104–121) (SBREFA) provides 

generally for congressional review of 

agency rules. A reporting requirement is 

triggered in instances where NCUA 

issues a final rule as defined by Section 

551 of the APA. 5 U.S.C. 551. NCUA 

does not believe this interim final rule 

is a ‘‘major rule’’ within the meaning of 

the relevant sections of SBREFA. NCUA 

has submitted the rule to the Office of 

Management and Budget for its 

determination in that regard. 

List of Subjects in 12 CFR Part 702 

Credit unions, Reporting and 

recordkeeping requirements. 

By the National Credit Union 

Administration Board on October 21, 2010. 

Mary F. Rupp, 

Secretary of the Board. 

■ For the reasons discussed above, 12 

CFR part 702 is amended as follows: 

PART 702—PROMPT CORRECTIVE 

ACTION 

■ 1. The authority citation for part 702 

continues to read as follows: 

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

■ 2. Amend § 702.104 by revising 

paragraph (d) to read as follows: 

§ 702.104 Risk portfolios defined. 

* * * * * 

(d) Low-risk assets. Cash on hand 

(e.g., coin and currency, including vault, 

ATM and teller cash), the NCUSIF 

deposit, and debt instruments 

unconditionally guaranteed by the 

National Credit Union Administration; 

* * * * * 

[FR Doc. 2010–27150 Filed 10–27–10; 8:45 am] 

BILLING CODE 7535–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2009–1182; Airspace 

Docket No. 09–ASW–37] 

Amendment of Class E Airspace; 

Searcy, AR 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: This action amends Class E 

airspace for Searcy, AR. 

Decommissioning of the Searcy nondirectional beacon (NDB) at Searcy 

Municipal Airport, Searcy, AR, has 

made this action necessary to enhance 

the safety and management of 

Instrument Flight Rule (IFR) operations 

at the airport. The geographic 

coordinates of the airport also will be 

adjusted. 

DATES: Effective date 0901 UTC, January 

13, 2011. The Director of the Federal 

Register approves this incorporation by 

reference action under 1 CFR part 51, 

subject to the annual revision of FAA 

Order 7400.9 and publication of 

conforming amendments. 

FOR FURTHER INFORMATION CONTACT: 

Scott Enander, Central Service Center, 

Operations Support Group, Federal 

Aviation Administration, Southwest 

Region, 2601 Meacham Blvd., Fort 

Worth, TX 76137; telephone (817) 321– 

7716. 

SUPPLEMENTARY INFORMATION: 

History 

On July 27, 2010, the FAA published 

in the Federal Register a notice of 

proposed rulemaking to amend Class E 

airspace for Searcy, AR, reconfiguring 

controlled airspace at Searcy Municipal 

Airport (75 FR 43884) Docket No. FAA– 

2009–1182. Interested parties were 

invited to participate in this rulemaking 

effort by submitting written comments 

on the proposal to the FAA. No 

comments were received. Class E 

airspace designations are published in 

paragraph 6005 of FAA Order 7400.9U 

dated August 18, 2010, and effective 

September 15, 2010, which is 

incorporated by reference in 14 CFR 

71.1. The Class E airspace designations 

listed in this document will be 

published subsequently in the Order. 

The Rule 

This action amends Title 14 Code of 

Federal Regulations (14 CFR) part 71 by 

amending Class E airspace for the 

Searcy, AR area. Decommissioning of 

the Searcy NDB and cancellation of the 

NDB approach at Searcy Municipal 

Airport has made this action necessary 

for the safety and management of IFR 

operations at the airport. Adjustment to 

the geographic coordinates of the airport 

also will be made in accordance with 

the FAA’s National Aeronautical 

Navigation Services. 

The FAA has determined that this 

regulation only involves an established 

body of technical regulations for which 

frequent and routine amendments are 

necessary to keep them operationally 

current. Therefore, this regulation: (1) Is 

not a ‘‘significant regulatory action’’ 

under Executive Order 12866; (2) is not 

a ‘‘significant rule’’ under DOT 

Regulatory Policies and Procedures (44 

FR 11034; February 26, 1979); and (3) 

does not warrant preparation of a 

regulatory evaluation as the anticipated 

impact is so minimal. Since this is a 

routine matter that will only affect air 

traffic procedures and air navigation, it 

is certified that this rule, when 

promulgated, will not have a significant 

economic impact on a substantial 

number of small entities under the 

criteria of the Regulatory Flexibility Act. 

The FAA’s authority to issue rules 

regarding aviation safety is found in 

Title 49 of the U.S. Code. Subtitle 1, 

section 106, describes the authority of 

the FAA Administrator. Subtitle VII, 

Aviation Programs, describes in more 

detail the scope of the agency’s 

authority. This rulemaking is 

promulgated under the authority 

described in subtitle VII, part A, subpart 

I, section 40103. Under that section, the 

FAA is charged with prescribing 

regulations to assign the use of airspace 

necessary to ensure the safety of aircraft 

and the efficient use of airspace. This 

regulation is within the scope of that 

authority as it amends controlled 

airspace at Searcy Municipal Airport, 

Searcy, AR. 

List of Subjects in 14 CFR Part 71 

Airspace, Incorporation by reference, 

Navigation (Air). 

Adoption of the Amendment 

■ In consideration of the foregoing, the 

Federal Aviation Administration 

amends 14 CFR part 71 as follows: 

PART 71—DESIGNATION OF CLASS A, 

B, C, D, AND E AIRSPACE AREAS; AIR 

TRAFFIC SERVICE ROUTES; AND 

REPORTING POINTS 

■ 1. The authority citation for 14 CFR 

part 71 continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40103, 40113, 

40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959– 

1963 Comp., p. 389. 

§ 71.1 [Amended] 

■ 2. The incorporation by reference in 

14 CFR 71.1 of the Federal Aviation 

Administration Order 7400.9U, 

Airspace Designations and Reporting 

Points, dated August 18, 2010, and 

effective September 15, 2010 is 

amended as follows: 

* * * * * 

Paragraph 6005 Class E airspace areas 

extending upward from 700 feet or more 

above the surface. 

* * * * * 


wwoods2 on DSK1DXX6B1PROD with RULES_PART 1