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

39702 

Vol. 82, No. 161 

Tuesday, August 22, 2017 

1https://www.ncua.gov/About/Pages/Missionand-Vision.aspx. 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Chapter VII 

Regulatory Reform Agenda 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Request for comment. 

SUMMARY: NCUA has established a 

Regulatory Reform Task Force (Task 

Force) to oversee the implementation of 

the agency’s regulatory reform agenda. 

This is consistent with the spirit of 

President Trump’s regulatory reform 

agenda and Executive Order 13777. 

Although NCUA, as an independent 

agency, is not required to comply with 

Executive Order 13777, the agency 

chooses to comply with its spirit and 

has reviewed all of NCUA’s regulations 

to that end. The substance of the Task 

Force’s initial report is provided in this 

notice. NCUA seeks public comment on 

the report and if any other regulatory 

changes should be made. 

DATES: Comments must be received on 

or before November 20, 2017. 

ADDRESSES: You may submit comments 

by any one of the following methods 

(Please send comments by one method 

only): 

• NCUA Web site: https://

www.ncua.gov/about/pages/boardcomments.aspx. 

• Email: Address to boardcomments@

ncua.gov. Include ‘‘[Your name]— 

Comments on NCUA Regulatory Reform 

Agenda’’ in the email subject line. 

• Fax: (703) 518–6319. Use the 

subject line described above for email. 

• Mail: Address to Gerald Poliquin, 

Secretary of the Board, National Credit 

Union Administration, 1775 Duke 

Street, Alexandria, Virginia 22314– 

3428. 

• Hand Delivery/Courier: Same as 

mailing address. 

Public Inspection: You can view all 

public comments on NCUA’s Web site 

at https://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 in 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) 518–6546 or send an email to 

OGCMail@ncua.gov. 

FOR FURTHER INFORMATION CONTACT: 

Thomas I. Zells, Staff Attorney, Office of 

General Counsel, National Credit Union 

Administration, 1775 Duke Street, 

Alexandria, Virginia 22314 or 

telephone: (703) 548–2478. 

SUPPLEMENTARY INFORMATION

Table of Contents 

I. Background 

a. NCUA’s Regulatory Mission 

b. The Regulatory Reform Agenda 

II. This Notice—NCUA’s Implementation of 

the Regulatory Reform Agenda 

III. The Task Force Report 

a. Executive Summary 

b. Introduction 

c. General Recommendations 

d. Regulatory Recommendations and 

Proposed Timeline 

IV. Request for Comment 

I. Background 

a. NCUA’s Regulatory Mission 

NCUA, as a prudential safety and 

soundness regulator, is charged with 

protecting the safety and soundness of 

the credit union system and, in turn, the 

National Credit Union Share Insurance 

Fund (NCUSIF) and the taxpayer 

through regulation and supervision. 

NCUA’s mission is to ‘‘provide, through 

regulation and supervision, a safe and 

sound credit union system, which 

promotes confidence in the national 

system of cooperative credit.’’ 1

Consistent with that mission, NCUA has 

statutory responsibility for a wide 

variety of regulations that protect the 

credit union system, members, and the 

NCUSIF. 

b. The Regulatory Reform Agenda 

President Trump has established a 

regulatory reform agenda and issued 

multiple executive orders designed to 

alleviate unnecessary regulatory 

burdens. NCUA is not subject to these 

executive orders but has nonetheless 

chosen to comply with them in spirit. 

Executive Order 13777, entitled 

‘‘Enforcing the Regulatory Reform 

Agenda,’’ directs subject agencies to 

establish Regulatory Task Forces and to 

evaluate existing regulations to identify 

those that should be repealed, replaced, 

or modified. The Executive Order 

requires subject agencies to, at a 

minimum, attempt to identify 

regulations that: 

1. Eliminate jobs, or inhibit job 

creation; 

2. Are outdated, unnecessary, or 

ineffective; 

3. Impose costs that exceed benefits; 

4. Create a serious inconsistency or 

otherwise interfere with regulatory 

reform initiatives and policies; 

5. Are inconsistent with the 

requirements of section 515 of the 

Treasury and General Government 

Appropriations Act, 2001 (44 U.S.C. 

3516 note), or the guidance issued 

pursuant to that provision, in particular 

those regulations that rely in whole or 

in part on data, information, or methods 

that are not publicly available or that are 

insufficiently transparent to meet the 

standard for reproducibility; or 

6. Derive from or implement 

Executive Orders or other Presidential 

directives that have been subsequently 

rescinded or substantially modified. 

II. This Notice—NCUA’s 

Implementation of the Regulatory 

Reform Agenda 

In complying with the spirit of 

Executive Order 13777, NCUA formed 

its Task Force in March 2017. The Task 

Force undertook an exhaustive review 

of NCUA’s regulations and issued its 

first draft report to Chairman McWatters 

in May 2017 and submitted it without 

change to the NCUA Board in June 

2017. This report outlines the Task 

Force’s proposed review and reporting 

procedures and makes numerous 

recommendations for the amendment or 

repeal of regulatory requirements that 

the Task Force believes are outdated, 

ineffective, or excessively burdensome. 

The substance of the report is provided 

below. The report has been minimally 

modified from its original form to 

ensure readability and compliance with 

Federal Register publication 

requirements. 


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III. The Task Force Report 

a. Executive Summary 

Executive Order 13777 requires 

agencies to appoint a Regulatory Reform 

Officer (RRO) and establish a Regulatory 

Reform Task Force (Task Force) to 

oversee the implementation of 

regulatory reform initiatives and 

policies to ensure that agencies 

effectively carry out regulatory reforms, 

consistent with applicable law. 

Although NCUA is not required to 

comply with this Executive Order, the 

agency is choosing to comply with its 

spirit. From the end of March to the 

beginning of May, the Task Force met 

and reviewed all of NCUA’s Regulations 

to determine how best to fulfill the aims 

of the Executive Order and decide what 

regulations could be eliminated, 

revised, improved, or clarified. This 

report contains the Task Force’s initial 

findings and recommendations. 

The Task Force has developed a 

comprehensive four-year agenda for 

reviewing and revising NCUA’s 

Regulations. The regulations are broken 

into three tiers that cover the four-year 

scope. The Task Force approached this 

task with Executive Order’s stated 

policy of ‘‘alleviat[ing] unnecessary 

regulatory burdens placed on the 

American people’’ and the strong 

philosophy of regulatory relief 

embraced by both the new 

administration and NCUA’s Chairman 

in mind. As a result, the Task Force’s 

recommendations eclipse the depth of 

changes previously proposed during 

NCUA’s Economic Growth and 

Regulatory Paperwork Reduction Act 

(EGRPRA) and annual one-third 

regulatory review processes. For 

comparison purposes, this report also 

includes NCUA’s 2016 EGRPRA report 

to Congress and the agency’s regulatory 

review recommendations from 2014– 

2016. These attachments are not 

included in this Federal Register notice. 

Instead, they are available on NCUA’s 

Web site at https://www.ncua.gov/ 

regulation-supervision/Pages/ 

rules.aspx. 

The primary factors for evaluating the 

tiers were degree of impact and degree 

of effort, which are described in Section 

II of this report [section III.c of this 

Federal Register notice]. ‘‘Impact’’ is 

focused on the magnitude of the benefit 

that would result from the change, and 

how broadly the stakeholder community 

would be impacted. ‘‘Effort’’ considers 

how much time and energy would go 

into making the change. Additional 

consideration was also given to the need 

to connect or sequence certain changes 

together, efforts to change regulations 

that are already underway, and the 

overall level of resources available to 

carry out this comprehensive approach. 

Consistent with the spirit of the 

Executive Order, the Task Force 

recommends publishing in the Federal 

Register, with a 90 day comment period, 

a summary version of the Section III 

[III.d] regulations targeted for reform. 

This summary version would provide 

both a description of the regulations and 

the recommended actions. Publication 

will require an affirmative NCUA Board 

vote. 

Going forward, the Task Force shall 

determine a mechanism for measuring 

progress in performing the tasks 

outlined in the Executive Order and 

report to the Board. The Task Force also 

recommends that in the second quarter 

of 2018, after NCUA has received and 

evaluated public comments on the 

summary version of Section III [III.d], 

the Task Force, upon consultation with 

the Board, provide the Board with a 

second report and a refined blueprint of 

the timeline for completing the specific 

amendments discussed in Tiers 2 and 3 

of Section III [III.d] of this report. It is 

important to note that, while the report 

and refined blueprint will guide 

NCUA’s actions moving forward, the 

process of implementing the 

amendments suggested in Tier 1 has 

already begun. 

b. Introduction 

Executive Order 13777 states that ‘‘it 

is the policy of the United States to 

alleviate unnecessary regulatory 

burdens placed on the American 

people.’’ It goes on to require that each 

Task Force created under this Executive 

Order ‘‘evaluate existing regulations [ ] 

and make recommendations to the 

agency head regarding their repeal, 

replacement, or modification, consistent 

with applicable law.’’ 

Executive Order 13777 requires 

agencies to appoint a Regulatory Reform 

Officer (RRO) and establish a Regulatory 

Reform Task Force (Task Force) to 

oversee the implementation of 

regulatory reform initiatives and 

policies to ensure that agencies 

effectively carry out regulatory reforms, 

consistent with applicable law. 

Although NCUA is not required to 

comply with this Executive Order, the 

agency is choosing to comply with its 

spirit. Because NCUA is an independent 

agency, it does not have the structure of 

a cabinet department. Accordingly, the 

Task Force has tried to cohere the 

language of the Executive Order to 

NCUA’s structure, as well as follow the 

timeline outlined in it. 

On March 20, 2017, Chairman 

McWatters appointed General Counsel 

Michael McKenna as NCUA’s 

Regulatory Reform Officer and chair of 

the Regulatory Reform Task Force (Task 

Force). In addition, Chairman 

McWatters appointed to the Task Force 

the following: (1) Larry Fazio, Director, 

Examination & Insurance; (2) Ralph 

Monaco, Chief Economist; (3) Scott 

Hunt, Director, Office of National 

Examinations & Supervision; (4) Eugene 

Schied, Deputy Chief Financial Officer; 

and (5) Bob Foster, Director of Public 

and Congressional Affairs. General 

Counsel Michael McKenna added 

Special Counsel to the General Counsel 

Ross Kendall and Staff Attorney Tom 

Zells to the Task Force on March 21, 

2017. 

From the end of March to the 

beginning of May, the Task Force met 

and reviewed all of NCUA’s Regulations 

to determine how best to fulfill the aims 

of the Executive Order and decide what 

regulations could be eliminated, 

revised, improved, or clarified. Section 

II [III.c] provides five general 

recommendations for complying with 

the spirt of the Executive Order. Section 

III [III.d] outlines those regulations the 

Task Force believes are ripe for reform. 

The current recommendations are the 

views of the Task Force; the Task Force 

has not yet consulted with the NCUA 

Board, other NCUA staff or sought the 

opinion of the credit union industry. 

Sections IV and V of this document 

contain the NCUA portion of the final 

EGRPRA report and NCUA’s annual 

one-third regulatory reviews from 2014– 

2016. The Task Force’s 

recommendations are generally 

consistent with that report and the 

regulatory reviews, but more fully 

embrace the regulatory relief philosophy 

of the current administration, the 

Chairman and Executive Order 13777, 

and should be used as guiding 

principles for the NCUA Board’s 

regulatory reform initiatives moving 

forward. 

c. General Recommendations 

The NCUA Regulatory Reform Task 

Force recommends a comprehensive 

approach for eliminating, revising, 

improving, and clarifying NCUA’s 

regulations over a four year period. The 

approach would examine all aspects of 

NCUA’s regulations and embrace the 

strong philosophy of regulatory relief 

promoted by the new administration, 

NCUA’s Chairman, and Executive Order 

13777. The Task Force’s 

recommendations propose greater and 

more significant regulatory relief 

amendments than have been embraced 

in the past. As such, this report makes 

recommendations that, while for the 

most part consistent with those 

articulated in NCUA’s EGRPRA report 


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and annual one-third regulatory 

reviews, may not have been prescribed 

by those documents. 

The general framework for this 

approach considers as primary factors 

both the ‘‘degree of effort’’ and ‘‘degree 

of impact’’ involved in amending each 

section of the existing regulations. 

Additional consideration is also given 

to the need to connect or sequence 

certain changes together, efforts to 

change regulations that are already 

underway, and the overall level of 

resources available to carry out this 

comprehensive approach. All regulatory 

changes will require the affirmative vote 

of the NCUA Board. 

The primary factors for assessing how 

to comprehensively approach the 

review of NCUA regulations are defined 

as follows: 

Degree of Effort: The degree of effort 

considers factors such as the length of time 

needed to make the change, the complexity 

of the change, the resources needed to make 

the change and the perceived 

contentiousness of the change. A lower 

degree of effort has relatively fewer of these 

characteristics than does a high degree of 

effort. 

Degree of Impact: The degree of impact 

mostly considers the number of credit unions 

that would experience a benefit from the 

change. A low degree of impact classification 

does not mean that an amendment is 

unimportant. 

The table on the following page 

arranges these two primary factors into 

an effort/impact prioritization matrix. 

The purpose of the matrix is to guide 

agency efforts toward the actions that 

are expected to yield the greatest benefit 

relative to the degree of effort to make 

a particular change. The more 

immediate focus of the regulatory 

reform effort should emphasize changes 

that would require a relatively small 

effort in order to yield a large impact 

(benefit), as well as some changes with 

a significant impact that may require a 

higher degree of effort (the right side of 

the matrix). Changes that would fall on 

the left side of the matrix (lesser impact) 

will also be pursued in this 

comprehensive approach, but in many 

cases as a less immediate focus. 

The Task Force’s initial prioritization 

of regulatory reforms is presented in 

Section III [III.d] of this document, 

which prioritizes the regulatory review 

into three tiers. As expressed in Section 

III [III.d], Tier 1 regulations provide the 

most important targets for reform and 

they should be amended in the first two 

years of this project. Tier 2 and Tier 3 

regulations would be implemented in 

year three and year four respectively. 

The timeframe for Tier 2 and Tier 3 is 

dependent on timely completion of Tier 

1 and NCUA Board priorities. Tier 2 and 

Tier 3 regulations should be scheduled 

later because generally these will 

require more research and consensus on 

reform initiatives. 

Consistent with the Executive Order, 

the Task Force recommends publishing 

in the Federal Register, with a 90 day 

comment period, a summary version of 

the Section III [III.d] regulations targeted 

for reform. This summary version would 

include a description of the regulations 

and the recommended actions. 

Publication will require an affirmative 

NCUA Board vote. The Task Force also 

recommends a Board briefing at an open 

meeting to report on the substance of 

the comments received, as well as to 

report on the progress in reforming Tier 

1 regulations. 

The Task Force also recommends that 

in the second quarter of 2018, after 

NCUA has received and evaluated 


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2Recommendation Categories: Remove, Clarify, 

Simplify, Improve, Expand (Authority/Relief). 

3The timeline of this rule is subject to pending 

litigation. 

4 Includes potential efficiencies and/or cost 

savings for NCUA. 

public comments on the summary 

version of Section III [III.d], the Task 

Force, upon consultation with the 

Board, provide the Board with a refined 

blueprint of the timeline for completing 

the specific amendments discussed in 

Tiers 2 and 3 of Section III [III.d] of this 

report. It is important to note that, while 

the report and refined blueprint will 

guide NCUA’s actions moving forward, 

the process of implementing the 

amendments suggested in Tier 1 has 

already begun. Despite this blueprint, 

NCUA Board future priorities may 

change over time with circumstances, so 

ongoing changes to the tiers can be 

expected. 

In light of the comprehensive 

approach articulated by the Executive 

Order, the Task Force recommends 

suspending the Office of General 

Counsel’s annual one-third review of 

NCUA’s Regulations because the Task 

Force will have reviewed all of NCUA’s 

Regulations as part of this project. The 

Task Force recommends that the onethird review be revived again in 2020. 

The Task Force recommends that the 

offices of primary interest, the Office of 

General Counsel and the Office of 

Examination & Insurance take the lead 

in revising all regulations. This makes 

sense both because of the substantive 

expertise each office of primary interest 

will have for individual regulations and 

because the regular duties of both the 

General Counsel and the Director of E&I 

encompass the efforts that will be 

required in amending the regulations. 

The lead offices will also consult and 

engage other offices as needed. 

Finally, the Task Force recommends 

the agency continue to coordinate with 

the other federal financial institution 

regulators to determine if there are any 

joint rulemakings that can be targeted 

for reform. 

d. Regulatory Recommendations and 

Proposed Timeline 2

As noted, Section III [III.d] details the 

specific regulations the Task Force 

identified as being ripe for reform 

initiatives and makes general 

recommendations about how each of the 

identified regulations should be 

amended and the timeline that should 

be followed. The Task Force’s 

recommendations, as described in 

Section II [III.c], follow. 

i. Tier 1 (First 24 Months) 

1. § 701.21—Loans to Members and 

Lines of Credit to Members 

Addresses: Loan maturity limits for 

federal credit unions. 

Sections: 701.21(c)(4),(f), & (g). 

Category: Clarify. 

Degree of Effort: Moderate. 

Degree of Impact: High. 

Recommendation: Combine all the 

maturity limitations into one section. 

Current maturity limits are confusing 

because they are not all co-located. 

Also, incorporate the legal opinion with 

respect to modifications to make it clear 

a lending action (like a troubled debt 

restructuring) that does not meet the 

generally accepted accounting 

principles (GAAP) standard for a ‘‘new 

loan’’ is not subject to the maturity 

limits. In addition, consider providing 

longer maturity limits for 1–4 family 

real estate loans and other loans (such 

as home improvement and mobile home 

loans) permitted by 12 U.S.C. 

1757(5)(A)(i) and (ii) and removing the 

‘‘case-by-case’’ exception the NCUA 

Board can provide. 

Addresses: Single borrower and group 

of associated borrowers limit. 

Sections: 701.21(c)(5); 701.22(a) & 

(b)(5); 723.2 & 723.4(c). 

Category: Clarify. 

Degree of Effort: Low. 

Degree of Impact: High. 

Recommendation: Combine single 

borrower (and group of associated 

borrowers) limits into one provision. 

Currently these limits are interspersed 

in the general loan, loan participation 

and member business lending 

regulations. It would provide clarity and 

consistency to incorporate all references 

in one location. 

Addresses: Third-party servicing of 

indirect vehicle loans. 

Sections: 701.21(h). 

Category: Remove. 

Degree of Effort: Low. 

Degree of Impact: Moderate. 

Recommendation: Revise this section 

to eliminate the portfolio limits and 

related waiver provision. A single, 

comprehensive third-party due 

diligence regulation would address the 

minimum expectations for credit unions 

using any servicers. 

2. § 701.21—Loans to Members and 

Lines of Credit to Members 

Addresses: Compensation in 

connection with loans. 

Sections: 701.21(c)(8). 

Category: Clarify. 

Degree of Effort: Low. 

Degree of Impact: Moderate/High. 

Recommendation: Modify to provide 

flexibility with respect to senior 

executive compensation plans that 

incorporate lending as part of a broad 

and balanced set of organizational goals 

and performance measures. 

3. Appendix A to Part 701—Federal 

Credit Union Bylaws 

Addresses: Federal Credit Union 

Bylaws. 

Sections: Appendix A to Part 701. 

Category: Improve. 

Degree of Effort: High. 

Degree of Impact: High. 

Recommendation: Recommend using 

an ANPR and forming a working group 

to update the Bylaws. The Bylaws have 

not been significantly updated in nearly 

a decade and need to be modernized; 

the modernization is likely to be 

complex enough to require a working 

group approach. 

4. Appendix B to Part 701—Chartering 

and Field of Membership Manual 

Addresses: Field of Membership. 

Sections: Appendix B to Part 701. 

Category: Expand Authority. 

Degree of Effort: Moderate. 

Degree of Impact: Moderate. 

Recommendation: Revise the 

chartering and field of membership 

rules to give applicants for communitycharter approval, expansion or 

conversion the option, in lieu of a 

presumptive community, to submit a 

narrative to establish common interests 

or interaction among residents of the 

area it proposes to serve, thus qualifying 

the area as a well-defined local 

community. Add public hearings for 

determining well-defined local 

communities with populations over 2.5 

million. Remove the population limit on 

a community consisting of a statistical 

area or a portion thereof. Finally, when 

such an area is subdivided into 

metropolitan divisions, permit a credit 

union to designate a portion of the area 

as its community without regard to 

division boundaries.3

5. Appendix B to Part 701—Chartering 

and Field of Membership Manual 

Addresses: Emergency Mergers. 

Sections: Appendix 1 to Appendix B 

to Part 701. 

Category: Improve. 

Degree of Effort: Moderate. 

Degree of Impact: Moderate.4

Recommendation: Revise the 

definition of the term ‘‘in danger of 

insolvency’’ for emergency merger 

purposes to provide a standard that 

better protects the National Credit 

Union Share Insurance Fund (NCUSIF). 

First, for two of the three current net 

worth-based categories, extend the time 

period in which a credit union’s net 

worth is projected to either render it 


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5 Includes potential efficiencies and/or cost 

savings for NCUA. 

6 Includes potential efficiencies and/or cost 

savings for NCUA. 

7CECL (current expected credit loss) is a new 

accounting standard adopted by the Financial 

Accounting Standards Board (FASB) affecting how 

credit unions account for losses and related reserves 

for financial instruments. The FASB effective date 

of CECL applicable to credit unions is 2021. 

8 Includes potential efficiencies and/or cost 

savings for NCUA. 

9The timeline of this rule is subject to pending 

litigation. 

insolvent or drop below two percent 

from 24 to 30 months and from 12 to 18 

months, respectively. Additionally, add 

a fourth category to the three existing 

net worth-based categories of the 

definition, to include credit unions that 

have been granted or received assistance 

under section 208 of the Federal Credit 

Union Act (FCU Act) within the last 15 

months. 

6. Part 702—Capital Adequacy 

Addresses: Capital Planning and 

Stress Testing. 

Sections: 702.501–702.506. 

Category: Expand Relief. 

Degree of Effort: Moderate. 

Degree of Impact: Moderate.5

Recommendation: Explore raising the 

threshold for required stress testing to 

an amount greater than $10 billion, and 

assigning responsibility for conducting 

stress testing to the credit unions. 

7. Part 702—Capital Adequacy 

Addresses: Risk-Based Capital 

(Delay). 

Sections: 702. 

Category: Improve. 

Degree of Effort: Low. 

Degree of Impact: High.6

Recommendation: Consider extending 

the January 1, 2019, implementation 

date to avoid needing to develop call 

report and system changes while this 

rule is under review. This will also 

allow time for the agency to more 

closely coincide changes with the 

implementation of the new expected 

credit loss accounting standard and 

consider any changes in risk-based 

capital standards for community banks 

currently being considered by the 

federal banking agencies.7

Considerations include changing the 

definition of complex to narrow the 

applicability of the rule, allowing for 

credit unions with high net worth ratios 

to be exempt, and simplifying the 

overall risk category and weighting 

scheme. (See also number 7 in Tier 2 

discussion below.) 

8. Part 704—Corporate Credit Unions 

Addresses: Corporate Credit Unions. 

Sections: 704. 

Category: Improve. 

Degree of Effort: Moderate. 

Degree of Impact: Low. 

Recommendation: Amend capital 

standards for corporate credit unions to 

include expanding what constitutes Tier 

1 Capital. For mergers, permit Tier 1 

Capital to include GAAP Equity 

Acquired. Also, establish a retained 

earnings requirement of 2.50 percent, 

which, when achieved, will allow for all 

perpetual contributed capital to be 

included in Tier 1 Capital. The current 

rule for perpetual contributed capital 

would remain in effect until the 

retained earnings requirement is met. 

9. Part 713—Fidelity Bond and 

Insurance Coverage 

Addresses: Fidelity Bond and 

Insurance Coverage. 

Sections: 713. 

Category: Improve. 

Degree of Effort: High. 

Degree of Impact: High.8

Recommendation: Explore ways to 

implement the requirements of the FCU 

Act in the least costly way possible. 

While requiring fidelity coverage is an 

FCU Act requirement, NCUA’s objective 

should be to allow a credit union to 

make a business decision based on their 

own product and service needs. This 

will effectively reduce NCUA’s 

involvement in a credit union’s 

operational decisions while maintaining 

the spirit of the FCU Act. This should 

be done separately from the Regulatory 

Reform Task Force.9

10. Part 715—Supervisory Committee 

Audits and Verification 

Addresses: Engagement letter, target 

date of delivery. 

Sections: 715.9(c)(6). 

Category: Remove. 

Degree of Effort: Low. 

Degree of Impact: High. 

Recommendation: Revise this section 

of the regulation to remove the specific 

‘‘120 days from the date of calendar or 

fiscal year-end under audit (period 

covered)’’ reference from this section. 

Recommend the target date of the 

engagement letter be presented so the 

‘‘credit union can meet the annual audit 

requirement.’’ This allows credit unions 

to negotiate the target date of delivery 

with the person or firm they contract 

with, but also ensures they meet the 

audit requirement per the FCU Act. This 

would also alleviate the need for a 

waiver. 

11. Part 715—Supervisory Committee 

Audits and Verification 

Addresses: Audit per Supervisory 

Committee Guide. 

Sections: 715.7(c). 

Category: Clarify. 

Degree of Effort: Moderate. 

Degree of Impact: High. 

Recommendation: Revise this to 

remove the reference to NCUA’s 

Supervisory Committee Audit Guide. In 

its place, include minimum standards a 

supervisory committee audit would be 

required to meet if they do not obtain 

a CPA opinion audit. 

12. Securitization 

Addresses: Securitization. 

Sections: 721. 

Category: Expand Authority. 

Degree of Effort: High. 

Degree of Impact: Low. 

Recommendation: Issue a legal 

opinion letter authorizing federal credit 

unions to issue and sell securities under 

their incidental powers authority. Also, 

finalize the safe harbor rule proposed in 

2014 regarding the treatment by the 

NCUA Board, as liquidating agent or 

conservator of a federally insured credit 

union, of financial assets transferred by 

the credit union in connection with a 

securitization or a participation. 

13. Part 722—Appraisals 

Addresses: Appraisals. 

Sections: 722. 

Category: Expand Relief. 

Degree of Effort: Moderate. 

Degree of Impact: High. 

Recommendation: NCUA should 

further explore issuing a rule to raise 

appraisal thresholds separately from the 

interagency process. In response to 

comments received through the 

EGRPRA process, NCUA joined with the 

other banking agencies to establish an 

interagency task force to consider 

whether changes in the appraisal 

threshold are warranted. The task force 

is now drafting a proposed rule to 

relieve certain appraisal burdens. In 

particular, the proposal would increase 

the appraisal threshold from $250,000 to 

$400,000 for ‘‘commercial real estate 

loans’’ where repayment is dependent 

primarily on the sale of real estate or 

rental income derived from the real 

estate. In contrast to the other agencies’ 

appraisal regulations, NCUA’s appraisal 

regulation does not currently 

distinguish, with respect to the 

appraisal threshold requirement, 

between different types of real estate 

secured loans. Under 12 CFR part 722, 

the dollar threshold for any real estate 

secured loan is $250,000; loans above 

that amount must be supported by an 

appraisal performed by a state certified 

appraiser. The banking agencies’ current 

appraisal regulations have the same 

$250,000 threshold as NCUA’s 

regulation for most real estate related 

loans, but also recognize a separate 

appraisal threshold of $1 million for 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules 39707 

10 If NCUA decides to join the other agencies in 

issuing this joint proposed rule the timing will be 

subject to the interagency process. 

11Also make technical corrections to the GAAP 

citations in 741.6(c). 

12 Includes potential efficiencies and/or cost 

savings for NCUA. 

13See 12 U.S.C. 1757(7)(E), 1757(13), and 

1757(14). 

certain real estate related business loans 

that are not dependent on the sale of, or 

rental income derived from, real estate 

as the primary source of income 

(hereinafter, qualifying business loans). 

If NCUA joins the task force in issuing 

this joint proposed rule defining and 

raising the threshold for ‘‘commercial 

real estate loans,’’ the agency will likely 

also need to address the appraisal 

threshold for ‘‘qualifying business 

loans’’ in a subsequent rulemaking. 

Recommend that, instead of joining the 

joint proposed rule, NCUA further 

explore issuing a rule to raise both 

thresholds separately from the 

interagency process.10

14. Part 740—Accuracy of Advertising 

and Notice of Insured Status 

Addresses: Accuracy of Advertising 

and Notice of Insured Status. 

Sections: 740. 

Category: Expand Relief. 

Degree of Effort: Moderate. 

Degree of Impact: High. 

Recommendation: Revise certain 

provisions of NCUA’s advertising rule to 

provide regulatory relief to federally 

insured credit unions. The current draft 

NPRM proposes to allow federally 

insured credit unions to use a fourth 

version of the official advertising 

statement, ‘‘Insured by NCUA.’’ The 

draft also expands a current exemption 

from the advertising statement 

requirement regarding radio and 

television advertisements and 

eliminates the requirement to include 

the official advertising statement on 

statements of condition required to be 

published by law. Finally, it requests 

comment about whether the regulation 

should be modified to accommodate 

advertising via new types of social 

media, mobile banking, text messaging 

and other digital communication 

platforms, including Twitter and 

Instagram. Changes made based on this 

final request would need to be part of 

a separate rulemaking. 

15. Part 741—Requirements for 

Insurance 11

Addresses: Conversion from, or 

termination of, Federal share insurance. 

Sections: 741.4(j)(1)(ii). 

Category: Improve. 

Degree of Effort: Low, 

Degree of Impact: Low.12

Recommendation: Revise this section 

of the regulation to preclude a credit 

union that has already converted to 

another form of insurance from 

receiving a subsequently declared 

NCUSIF dividend. Currently, if a credit 

union terminates insurance before a 

premium is declared it does not pay, but 

if it terminates insurance before a 

dividend is declared but within the 

same calendar year it receives the 

dividend. This is unfair to credit unions 

that remain insured. 

16. Supervisory Review Committee 

Addresses: Supervisory Review 

Committee. 

Sections: 746, Subpart A. 

Category: Improve. 

Degree of Effort: High. 

Degree of Impact: Low. 

Recommendation: Expand and 

formalize procedures by which federally 

insured credit unions may secure 

review of material supervisory 

determinations by NCUA’s Supervisory 

Review Committee (SRC). Broaden the 

jurisdiction of the SRC to more closely 

conform to the practices of the other 

federal financial institution regulatory 

agencies. Expand the pool of agency 

personnel who will serve on the SRC 

and implement an optional, 

intermediate level of review by the 

Director of NCUA’s Office of 

Examination and Insurance before a 

matter is considered by the SRC. 

17. Appeals 

Addresses: Appeals. 

Sections: 746, Subpart B. 

Category: Improve. 

Degree of Effort: High. 

Degree of Impact: Low. 

Recommendation: Consolidate 

procedures currently imbedded in 

various substantive regulations by 

which parties affected by an adverse 

determination at the regional or program 

office level may appeal that 

determination to the NCUA Board. 

Exclude formal enforcement actions and 

certain other subject areas. Establish 

uniform procedural guidelines to govern 

appeals and provide an avenue by 

which appellants may request the 

opportunity to appear in person before 

the Board. Matters that are excluded 

from the proposed new rule either 

require a formal hearing on the record 

in accordance with the Administrative 

Procedure Act (e.g., formal enforcement 

actions and certain creditor claims in 

liquidation) or are already governed by 

separate, discrete procedures (e.g., 

enforcement measures under prompt 

corrective action or material supervisory 

determinations reviewable by the 

Supervisory Review Committee). 

Appeals of matters that are delegated by 

rule to an officer or position below the 

Board for final, binding agency action 

are also excluded. 

ii. Tier 2 (Year 3) 

1. § 701.22—Loan Participations 

Addresses: Establish a limit on the 

aggregate amount of loan participations 

that may be purchased from any one 

originating lender not to exceed the 

greater of $5 million or 100 percent of 

the federally insured credit union’s net 

worth (unless waived). 

Sections: 701.22(b)(5)(ii); 701.22(c). 

Category: Remove. 

Degree of Effort: Low. 

Degree of Impact: High. 

Recommendation: Remove the 

prescriptive limit on the aggregate 

amount of loan participations that may 

be purchased from one originating 

lender. Replace with a requirement the 

credit union establish a limit in their 

policy, and tie into proposed new 

universal standards for third-party due 

diligence with heightened standards if it 

exceeds 100 percent of net worth. 

Eliminates the need for the waiver 

provision in section 701.22(c). 

2. § 701.23—Purchase, Sale, and Pledge 

of Eligible Obligations 

Addresses: Purchase, sale, and pledge 

of eligible obligations. 

Sections: 701.23. 

Category: Clarify & Expand. 

Degree of Effort: Moderate. 

Degree of Impact: High. 

Recommendation: Simplify and 

combine all the authority to purchase 

loans and other assets into one section, 

and provide full authority consistent 

with the FCU Act. Eligible obligations of 

the credit union’s members should have 

no limit. Remove CAMEL rating and 

other limitations not required by the 

FCU Act.13

3. § 741.8—Purchase of assets and 

assumption of liabilities 

Addresses: Purchase of assets and 

assumption of liabilities. 

Sections: 741.8. 

Category: Improve. 

Degree of Effort: Moderate. 

Degree of Impact: Moderate. 

Recommendation: Review this 

regulation to determine if NCUA 

approval is really needed in purchasing 

loans and assuming liabilities from 

market participants other than federally 

insured credit unions. Credit unions 

already have relatively broad authority 

to make loans, buy investments and 

other assets, and enter into transactions 

that create liabilities. Requiring NCUA 

approval in all cases (including 


sradovich on DSK3GMQ082PROD with PROPOSALS
39708 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules 

14 Degree of impact depends on the approach. 

15These regulations will require more discussion 

on any potential changes. 

16 Includes potential efficiencies and/or cost 

savings for NCUA. 

transactions not material to the acquirer) 

is an inordinate burden for the 

institution and NCUA. 

4. § 701.32—Payment on Shares by 

Public Units and Nonmembers 

Addresses: Payment on shares by 

public units and nonmembers. 

Sections: 701.32. 

Category: Expand. 

Degree of Effort: Low. 

Degree of Impact: Moderate. 

Recommendation: Raise the 

nonmember deposit limit from 20 

percent to 50 percent. As the functional 

equivalent of borrowing, this will 

parallel the ability of credit unions to 

borrow from any source up to 50 

percent of paid-in and unimpaired 

capital and surplus per section 1757(9) 

of the FCU Act. A credit union is 

required to be low-income designated to 

accept nonmember deposits, limiting 

the institutions that can engage in this 

activity. 

5. § 701.34—Designation of Low Income 

Status; Acceptance of Secondary Capital 

Accounts by Low-Income Designated 

Credit Unions 

Addresses: Designation of low income 

status; Acceptance of secondary capital 

accounts by low-income designated 

credit unions. 

Sections: 701.34. 

Category: Improve. 

Degree of Effort: High. 

Degree of Impact: Low. 

Recommendation: See the January 

2017 ANPR on Alternative Capital for 

the broad range of changes that need to 

be made to this regulation to relocate 

capital treatment to Part 702 and 

address securities law issues, issuance 

and redemption standards, etc. 

6. § 701.38—Borrowed Funds From 

Natural Persons 

Addresses: Borrowed funds from 

natural persons. 

Sections: 701.38. 

Category: Clarify/Expand. 

Degree of Effort: High. 

Degree of Impact: Moderate. 

Recommendation: Recommend 

revising this section of the regulation to 

comprehensively address borrowing 

authority for federal credit unions. See 

the January 2017 ANPR on Alternative 

Capital for a discussion on this subject. 

Also, see recommended changes to Part 

703. A comprehensive borrowing rule 

could provide clarity and certainty 

needed to support supplemental capital. 

7. Part 702—Capital Adequacy 

Addresses: Risk-Based Capital 

(Substantive Amendments). 

Sections: 702. 

Category: Improve. 

Degree of Effort: High. 

Degree of Impact: Low/Moderate.14

Recommendation: Considerations 

include changing the definition of 

complex to narrow the applicability of 

the rule, allowing for credit unions with 

high net worth ratios to be exempt, and 

simplifying the overall risk category and 

weighting scheme. These amendments 

need to be coordinated with any 

amendments to supplemental and 

secondary capital, which need to be 

coordinated with any amendments to 

the borrowing rule. 

8. Alternative Capital 

Addresses: Alternative Capital. 

Sections: 702 generally. 

Category: Expand Authority. 

Degree of Effort: High. 

Degree of Impact: Low. 

Recommendation: As a follow up to 

the ANPR issued in January 2017, the 

NCUA Board should consider whether 

to propose a rule on alternative forms of 

capital federally insured credit unions 

could use in meeting capital standards. 

First, the Board should decide whether 

to make changes to the secondary 

capital regulation for low-income 

designated credit unions. Second, the 

Board should decide whether or not to 

authorize credit unions to issue 

supplemental capital instruments that 

would only count towards the riskbased net worth requirement. 

9. Part 703—Investment and Deposit 

Activities 

Addresses: Investment and Deposit 

Activities. 

Sections: 703. 

Category: Improve & Expand. 

Degree of Effort: High. 

Degree of Impact: High. 

Recommendation: Revise the 

regulation to remove unnecessary 

restrictions on investment authorities 

not required by the FCU Act, and 

provide a principles-based approach 

focused on governance for investing 

activity. Also, remove the pre-approval 

requirement for derivatives authority 

and substitute with a notice requirement 

(coheres this to Part 741 for federally 

insured, state-charted credit unions as 

well). See the appendix for details on 

modifying this regulation. 

10. § 701.21—Loans to Members and 

Lines of Credit to Members 

Addresses: Put option purchases in 

managing increased interest-rate risk for 

real estate loans produced for sale on 

the secondary market. 

Sections: 701.21(i). 

Category: Clarify. 

Degree of Effort: Low. 

Degree of Impact: High. 

Recommendation: Recommend 

moving section 701.21(i) to Part 703 

Subpart B—Derivatives Authority to 

have all options/derivatives authority in 

one section. 

iii. Tier 3 (Year 4+) 15

1. § TBD—Third-Party Due Diligence 

Requirements 

Addresses: Third-party due diligence 

requirements. 

Sections: TBD. 

Category: Simplify & Improve. 

Degree of Effort: Moderate. 

Degree of Impact: High. 

Recommendation: Add a 

comprehensive third-party due 

diligence regulation and remove and/or 

relocate such provisions from other 

regulations. 

2. § 701.21—Loans to Members and 

Lines of Credit to Members 

Addresses: Preemption of state laws 

Sections: 701.21(b) 

Category: Simplify & Improve 

Degree of Effort: Moderate 

Degree of Impact: High 

Recommendation: Enhance Federal 

preemption where possible and 

appropriate. Federal credit unions that 

are multi-state lenders still are subject to 

a variety of state laws that create overlap 

and additional regulatory burden. 

Enhancing preemption where possible 

and appropriate may help reduce 

overlap and burden. 

3. § 701.21—Loans to Members and 

Lines of Credit to Members 

Addresses: Loan interest rate, 

temporary rate. 

Sections: 701.21(c)(7)(ii). 

Category: Expand/Clarify. 

Degree of Effort: Moderate. 

Degree of Impact: Low.16

Recommendation: Research the 

possibility of using a variable rate 

instead of a fixed, temporary rate. Also, 

remove the specific means for notifying 

credit unions to preserve future 

flexibility in sending notices in the most 

efficient and suitable manner available. 

4. § 701.37—Treasury Tax and Loan 

Depositaries and Financial Agents of the 

Government 

Addresses: Treasury tax and loan 

depositaries and financial agents of the 

Government. 

Sections: 701.37. 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules 39709 

17 Includes potential efficiencies and/or cost 

savings for NCUA. 

18 12 U.S.C. 1757(5)(D). 

19 12 U.S.C. 1757(7)(I). 20There are 11 federally insured, state-chartered 

credit unions from 8 different states that report a 

total of $4.4 million in this account on the Call 

Report as of December 31, 2016. 

Category: Remove/Improve. 

Degree of Effort: Moderate. 

Degree of Impact: Undetermined. 

Recommendation: Determine if this 

regulation remains relevant and 

necessary. 

5. Part 709—Involuntary Liquidation of 

Federal Credit Unions and Adjudication 

of Creditor Claims Involving Federally 

Insured Credit Unions in Liquidation 

Addresses: Payout priorities in 

involuntary liquidation. 

Sections: 709.5. 

Category: Clarify. 

Degree of Effort: Low. 

Degree of Impact: Low.17

Recommendation: Revise the payout 

priorities to make unsecured creditors 

pari passu with the NCUSIF. Currently, 

unsecured creditors are senior to the 

NCUSIF. 

6. Part 712—Credit Union Service 

Organizations (CUSOs) 

Addresses: Credit Union Service 

Organizations (CUSOs). 

Sections: 712. 

Category: Remove & Expand. 

Degree of Effort: Low. 

Degree of Impact: High. 

Recommendation: Recommend 

examining the CUSO regulation and 

evaluating the permissible activities in 

light of the FCU Act permitting CUSOs 

‘‘whose business relates to the daily 

operations of the credit unions they 

serve’’ 18 or that are ‘‘providing services 

which are associated with the routine 

operations of credit unions.’’ 19

7. Part 714—Leasing 

Addresses: Leasing. 

Sections: 714. 

Category: Improve. 

Degree of Effort: Moderate. 

Degree of Impact: Undetermined. 

Recommendation: Review this 

regulation to identify if any changes or 

improvements are needed. 

8. Part 725—National Credit Union 

Administration Central Liquidity 

Facility (CLF) 

Addresses: National Credit Union 

Administration Central Liquidity 

Facility (CLF). 

Sections: 725. 

Category: Clarify. 

Degree of Effort: Moderate. 

Degree of Impact: Moderate. 

Recommendation: Update this 

regulation to streamline, facilitate the 

use of correspondents, and reduce 

minimum collateral requirements for 

certain loans/collateral. 

9. Part 741—Requirements for Insurance 

Addresses: Maximum borrowing 

authority. 

Sections: 741.2. 

Category: Remove. 

Degree of Effort: Low. 

Degree of Impact: Low. 

Recommendation: Remove the 50 

percent borrowing limit for federally 

insured, state-chartered credit unions 

and the related waiver provision. State 

law should govern in this area. 

10. Part 741—Requirements for 

Insurance 

Addresses: Special reserve for 

nonconforming investments. 

Sections: 741.3(a)(2). 

Category: Remove. 

Degree of Effort: Low. 

Degree of Impact: Technical 

Amendment. 

Recommendation: Remove as no 

longer necessary and not consistent 

with GAAP.20

11. Part 748—Security Program, Report 

of Suspected Crimes, Suspicious 

Transactions, Catastrophic Acts, and 

Bank Secrecy Act Compliance 

Addresses: Security Program, Report 

of Suspected Crimes, Suspicious 

Transactions, Catastrophic Acts, and 

Bank Secrecy Act Compliance. 

Sections: 748. 

Category: Improve. 

Degree of Effort: Moderate. 

Degree of Impact: High. 

Recommendation: Review this 

regulation to identify if any changes or 

improvements are needed. Recommend 

using an ANPR and forming a working 

group due to the complexity. 

12. Part 749—Records Preservation 

Program and Appendices—Record 

Retention Guidelines; Catastrophic Act 

Preparedness Guidelines 

Addresses: Records Preservation 

Program and Appendices—Record 

Retention Guidelines; Catastrophic Act 

Preparedness Guidelines 

Sections: 749 

Category: Improve 

Degree of Effort: Moderate 

Degree of Impact: High 

Recommendation: Review this 

regulation to identify if any changes or 

improvements are needed. Recommend 

using an ANPR and forming a working 

group due to the complexity. 

e. Appendix to Section III—Part 703 

Recommendations Details 

INVESTMENTS—PART 703 SUBPART A 

Item Change Rationale 

1. Investment Policies § 703.3 ........................... Fine tune section to focus on investment activities and not on balance sheet activities. 

E.g., remove (c) and (d), IRR and liquidity, 

since those items should be addressed in 

the IRR and liquidity policies.

Reduces burden on credit unions by not requiring IRR and liquidity policies in the investment policy. Also should help credit 

unions focus on balance sheet risk. 

2. Discretionary Control Over Investments and 

Investment Advisor § 703.5(b)(1)(ii), 

§ 703.5(b)(2)—(Net worth limit).

Remove 100 percent of net worth limit for delegated discretionary control. Would need to 

add language to ensure credit unions have 

provided investment advisors with investment guidelines that contain: Duration/average life targets, permissible investments, 

and investment limits.

This would allow credit unions to have professionally managed, separate-account, investments without imposing a limit. There are 

no limits on mutual funds where the credit 

union has less control of what the manager 

invests in. Separate-account delegated discretionary programs have considerably 

more transparency than mutual funds. 

3. Discretionary Control Over Investments and 

Investment Advisor § 703.5(b)(3)—(Due diligence).

Remove prescriptive due diligence requirements and simply state the credit union 

must perform due diligence on the investment advisor.

This section is too prescriptive for a credit 

union to perform due diligence. It also does 

not focus on the investment advisor’s ability 

to manage investments for the credit union. 


sradovich on DSK3GMQ082PROD with PROPOSALS
39710 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules 

INVESTMENTS—PART 703 SUBPART A—Continued 

Item Change Rationale 

4. Credit Analysis § 703.6—(Due diligence) ....... Modify exception to credit analysis requirements to only securities guaranteed by the 

entities listed in the section.

This will make it clear that NCUA requires 

credit analysis for investments not guaranteed, but issued by, agencies. Currently the 

rule would not require a credit analysis for a 

Fannie Mae loss sharing bond or an 

unguaranteed subordinate tranche of a 

Freddie Mac multi-family mortgage security. 

5. Credit Analysis § 703.6—(Maximum credit 

risk).

Require a minimum of investment grade for 

all investments.

Sets a minimum expectation of credit worthiness for all investments purchased under 

the Part 703 investment authority. 

6. Credit Analysis § 703.6—(Credit union process and people).A credit union, or its investment advisor, must 

have sufficient resources, knowledge, systems, and procedures to handle the risks 

and risk management (e.g. IRR modeling) 

of the investments it purchases.

This establishes the basic standard for a 

credit union to purchase an investment. 

This will allow for a loosening of Part 703 

since NCUA has established standards to 

purchase investments that may have been 

prohibited or restricted in the past. 

7. Broker-Dealers—§ 703.8(b)—(Due diligence) Remove prescriptive due diligence requirements and simply state the credit union 

must perform due diligence on the brokerdealer.

This section is too prescriptive for a brokerdealer that doesn’t provide advice. May 

want to specify standards for broker-dealers 

that provide advice to credit unions. 

8. Monitoring Non-Security Investments 

§ 703.10—(Reporting requirements).

Remove this section ........................................ Unduly prescriptive. 

9. Valuing Securities § 703.11(a) & (d)—(Due 

diligence).

Combine sections and remove the reference 

to two price quotations. The requirement 

should be that the credit union use market 

inputs to determine if the purchase is at a 

reasonable market price.

Currently too prescriptive. A principled approach conforms more to market convention. 

10. Valuing Securities § 703.11(c)—(Due diligence).Remove this section ........................................ Unnecessary. This should be dictated by 

GAAP. 

11. Monitoring Securities § 703.12(a)—(Reporting requirements).Move to and combine with § 703.11 ................ Streamlines Part 703. 

12. Monitoring Securities § 703.12(b), (c) and 

(d)—(Reporting requirements).

Remove these sections and 703.12 (a) will be 

combined with Part 703.11.

Unduly prescriptive. 

13. Permissible Investment Activities and Permissible Investments § 703.13 and § 703.14.Merge these sections and add language from 

the FCU Act for permissible investments.

Streamlines rule and provides full investment 

authority allowed under the Act. 

14. Permissible Investment Activities 

§ 703.13(d) (Borrowing repurchase transactions).

Allow mismatch permissible in § 703.20 as the 

‘‘base’’ permissible activity.

A 30 day mismatch is not very risky. 

15. Permissible Investments § 703.14(a)—(Permissible indices for variable rate investments).Expand permissible indices for credit unions 

that have sufficient resources, knowledge, 

systems, and procedures to handle the 

risks of the investment. Ability to model the 

investment for IRR should be required.

This could provide credit unions with investments that they could benefit from and not 

pose a risk to the NCUSIF. 

16. Permissible Investments § 703.14(e)—(Muni 

bond limits).

Remove limitations on municipal exposure ..... This limit is unnecessary. Credit unions 

should determine limits. 

17. Permissible Investments § 703.14(h)— 

(Mortgage note repurchase transactions).

Limits will be reviewed to determine if they 

are appropriate.

Limits may need to be increased or eliminated. 

18. Permissible Investments § 703.14(i)—(Zero 

coupon investment restrictions).

Remove limits on zero-coupon investments .... Interest rate and liquidity risk should be managed from a balance sheet standpoint. This 

appears to try to manage it from an individual security standpoint. This limit is unnecessary. 

19. Permissible Investments § 703.14(j)(3)— 

(Commercial mortgage related securities).

Remove this section ........................................ Not realistic in the current market place. Furthermore, having a large number of loans 

was actually a negative in many CMRS 

deals prior to 2007. Less attention was paid 

to the smaller loans that were poorly underwritten versus the larger loans in the deal. 

20. Prohibited Investment Activities § 703.15— 

(Short Sales).

Review regulatory history on the prohibition of 

short sales.

Restriction may be reconsidered. 

21. Prohibited Investments § 703.16(a)—(Mortgage servicing rights).Determine if mortgage servicing rights (MSRs) 

are permissible for credit unions to purchase per the FCU Act. If so, there should 

be consideration given to permit the purchase of MSRs.

Buying MSRs from other credit unions may 

offer efficiencies in the credit union system. 

22. Prohibited Investments § 703.16(b)—(Exchangeable, IO and PO MBS).Remove this section ........................................ A credit union should be able to purchase interest-only and principal-only investments if 

it has sufficient resources, knowledge, systems, and procedures to handle the risks 

and risk management (e.g. IRR modeling) 

of the investments it purchases. 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules 39711 

INVESTMENTS—PART 703 SUBPART A—Continued 

Item Change Rationale 

23. Grandfathered Investments § 703.18 ........... Remove sections that will no longer apply 

based on other changes in the rule.

Some parts of the section may not apply due 

to other changes in the rule. 

24. Investment Pilot Program § 703.19 .............. Remove this section ........................................ Pilot programs will no longer be needed with 

the proposed changes. 

25. Request for Additional Authority § 703.20 ... Remove this section ........................................ Will no longer be needed with the removal or 

alignment of the restrictions in other sections. 

DERIVATIVES—PART 703 SUBPART B AND RELATED ITEMS

Item Change Rationale 

1. ‘‘Move’’ Put-option purchases in managing 

increased interest-rate risk for real estate 

loans produced for sale on the secondary 

market, in 701.21(i) to 703.102(a).

Move the product to the Subpart B permissible derivative products.This would consolidate into one place all permissible derivative activities. 

2. ‘‘Move’’ European financial options contract 

in 703.14(g) to 703.102(a).

Move the product to the Subpart B permissible derivative products.This would consolidate into one place all permissible derivative activities. 

3. ‘‘Rename’’ 703 Subpart B from ‘‘Derivatives 

Authority’’ to ‘‘Derivatives and Hedging Authority’’.

Name change ................................................... Would widen the rule to address off balance 

sheet hedging instruments that are permissible. 

4. ‘‘Move and Modify’’ Derivatives section in 

703.14(k) to 703 Subpart B.

With the move, remove 703.14(k)(1), move 

703.14(k)(2) to 703.100 and move 

703.14(k)(3) to 703.102.

Would provide more clarity on hedging activities for TBA, Dollar Rolls, etc. 

5. ‘‘Modify’’ Derivatives Application process to 

‘‘Notification’’.

Remove the FCU application requirements 

and replace with a ‘‘Notification’’. This 

would require changes to § 703.108, 

§ 703.109, § 703.110, § 703.111, § 703.112.

The ‘‘Notification’’ requirements would include 

providing NCUA with at least 60 day notice 

before initially engaging in a Derivative 

transaction. 

6. ‘‘Remove’’ Derivatives Regulatory Limits ....... Remove the volume limits on derivatives activity. This would require changes to 

§ 703.103, § 703.105, Appendix A.

Will be better supported as part of supervision 

guidance and possible use as scoping 

metrics. 

7. ‘‘Expand’’ Eligible Collateral for Margining ..... Expand the eligible collateral in 

703.104(a)(2)(iii) to include Agency Debt 

(Ginnie Mae Securities).

This is an acceptable practice and should 

have been in the Final Rule. 

8. ‘‘Modify’’ Eligibility (only part) ......................... Remove or change 703.108(b) to require notice but not pre-approval, and re-evaluate 

the CAMEL and asset size eligibility criteria.

Allows for more credit unions to use derivatives to manage interest rate risk subject to 

supervisory intervention if they are not 

equipped to manage it properly. 

9. ‘‘Modify’’ Notification requirement for FISCUs Change 741.219(b) .......................................... Make consistent with FCU notification requirements. 

10. ‘‘Remove’’ Pilot Program Participants .......... Change 703.113 .............................................. Not relevant anymore. 

IV. Request for Comment 

Executive Order 13777 requires that 

‘‘each Regulatory Reform Task Force 

shall seek input and other assistance, as 

permitted by law, from entities 

significantly affected by Federal 

regulations, including State, local, and 

tribal governments, small businesses, 

consumers, non-governmental 

organizations, and trade associations.’’ 

In compliance with the spirit of the 

Executive Order, the Board seeks 

comments on all aspects of the Task 

Force’s report. 

Commenters are also encouraged to 

discuss any other relevant issues they 

believe NCUA should consider with 

respect to reducing regulatory burden 

and fulfilling the aims of Executive 

Order 13777. The Board requests that, to 

the extent feasible, commenters provide 

documentation to support any 

recommendations. 

By the National Credit Union 

Administration Board on August 15, 2017. 

John H. Brolin, 

Acting Board Secretary. 

[FR Doc. 2017–17673 Filed 8–21–17; 8:45 am] 

BILLING CODE 7535–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Food and Drug Administration 

21 CFR Part 172 

[Docket No. FDA–2017–F–3717] 

Juice Products Association; Filing of 

Food Additive Petition; Correction 

AGENCY: Food and Drug Administration, 

HHS. 

ACTION: Notification; petition for 

rulemaking; correction. 

SUMMARY: The Food and Drug 

Administration (FDA or we) is 

correcting a notice that appeared in the 

Federal Register of Wednesday, July 26, 

2017 (82 FR 34615). The document 

announced that we have filed a petition, 

submitted by the Juice Products 

Association, proposing that the food 

additive regulations be amended to 

replace the current Recommended Daily 

Intake (RDI) percentage values of 

calcium in fruit juices and fruit juice 

drinks in the regulation for vitamin D3

with absolute values and to update the 

specifications for vitamin D3. The 

document was published with incorrect 

information on the absolute level of 

added calcium for fruit juice drinks that 

are fortified with calcium. This 

document corrects that error. 

DATES: This document is publishing in 

the Federal Register on August 22, 

2017. 


sradovich on DSK3GMQ082PROD with PROPOSALS