[Federal Register Volume 82, Number 191 (Wednesday, October 4, 2017)]
[Notices]
[Pages 46298-46309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-21305]


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NATIONAL CREDIT UNION ADMINISTRATION


Closing the Temporary Corporate Credit Union Stabilization Fund 
and Setting the Share Insurance Fund Normal Operating Level

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final notice.

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SUMMARY: In July 2017, the NCUA Board (Board) sought comments on its 
plan to close the Temporary Corporate Credit Union Stabilization Fund 
(Stabilization Fund) in 2017, prior to its scheduled closing date in 
June 2021, and raise the normal operating level of the National Credit 
Union Share Insurance Fund (Insurance Fund) to 1.39 percent. This final 
notice provides a discussion of comments received and explains the 
Board's decision to close the Stabilization Fund in 2017. This notice 
also explains the Board's decision to set the normal operating level of 
the Insurance Fund to 1.39 percent.

FOR FURTHER INFORMATION CONTACT: Anthony Cappetta, Supervisory 
Financial Analyst, Amanda Parkhill, Loss/Risk Analysis Officer, or 
Kevin Tuininga, Senior Staff Attorney, at 1775 Duke Street, Alexandria, 
VA 22314, or telephone: (703) 518-1592.

SUPPLEMENTARY INFORMATION:

I. Background
II. Comments Received
III. The Board's Response to Comments
IV. Final Action

I. Background

    On July 20, 2017, the Board approved a Notice and Request for 
Comment (July 2017 Notice) requesting comments on its plan to close the 
Stabilization Fund in 2017 and set the normal operating level at 1.39 
percent. The notice appeared in the Federal Register on July 27, 
2017.\1\ Specific matters the Board sought comment on included whether 
the NCUA should:
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    \1\ Closing the Temporary Corporate Credit Union Stabilization 
Fund and Setting the Share Insurance Fund Normal Operating Level, 82 
FR 34982 (July 27, 2017).
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    <bullet> Close the Stabilization Fund in 2017, close it at some 
future date, or wait until it is currently scheduled to close in 2021.
    <bullet> Set the normal operating level based on the Insurance 
Fund's ability to withstand a moderate recession without requiring 
assessments over a five-year period.
    <bullet> Set the normal operating level based on the Insurance 
Fund's ability to withstand a severe recession without requiring 
assessments over a five-year period.
    <bullet> Base the approach to setting the normal operating level on 
preventing the equity ratio from declining below 1.20 percent, or some 
other higher minimum level.
    The Board requested comments by September 5, 2017, which would 
allow the Board sufficient time to permit closing before the end of 
2017 and establish a distribution method to insured credit unions to 
the extent the closure caused the Insurance Fund's equity ratio to 
exceed its normal operating level, as of the end of 2017. In a separate 
but related proposal, also adopted on July 20, 2017, the Board 
requested comments on its regulation governing equity distributions 
from the Insurance Fund.\2\
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    \2\ Requirements for Insurance; National Credit Union Share 
Insurance Fund Equity Distributions, 82 FR 35705 (Aug. 1, 2017).
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A. Stabilization Fund Background

    Public Law 111-22, the Helping Families Save Their Homes Act of 
2009 (Helping Families Act), signed into law by the President on May 
20, 2009, created the Stabilization Fund. Congress provided the NCUA 
with this temporary fund to accrue the losses of the corporate credit 
union system and assess insured credit unions for such losses over 
time. This prevented insured credit unions from bearing a significant 
burden for losses associated with the insolvency of five corporate 
credit unions within a short period. Without creation of the 
Stabilization Fund, corporate credit union losses would have been borne 
by the Insurance Fund. The magnitude of losses would have exhausted the 
Insurance Fund's retained earnings and significantly impaired credit 
unions' one percent contributed capital deposit.\3\ The deposit 
impairment, along with premiums \4\ that would have been necessary to 
restore the Insurance Fund's equity ratio, would have resulted in a 
significant, immediate cost to credit unions at a time when their 
earnings and capital were already under stress due to the Great 
Recession.\5\ In June 2009, the Board formally approved use of the 
Stabilization Fund for the costs of the Corporate System Resolution 
Program.\6\ Since then, all of these costs have been accounted for in 
the financial statements of the Stabilization Fund.
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    \3\ Prior to reassignment of these costs to the Stabilization 
Fund, the equity ratio of the Insurance Fund would have been only 
about 0.11 percent at year-end 2009--resulting in a deposit 
impairment of 89 percent.
    \4\ Throughout this document, the terms ``premium'' and 
``assessment'' are used interchangeably.
    \5\ Because the contributed capital deposit is reflected as an 
asset on the financial statements of insured credit unions, under 
applicable accounting rules any impairment results in an immediate 
expense to credit unions.
    \6\ For more details on the Corporate System Resolution Program, 
please see the NCUA Corporate System Resolution Costs Web page 
(https://www.ncua.gov/regulation-supervision/Pages/corporate-system-resolution.aspx).
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    The Act specifies that the Stabilization Fund will terminate 90 
days after the seven-year anniversary of its first borrowing from the 
U.S. Treasury.\7\ The first borrowing occurred on June 25, 2009, making 
the original closing date September 27, 2016. However, the Act provided 
the Board, with the concurrence of the Secretary of the U.S. Treasury, 
authority to extend the closing date of the Stabilization Fund. In June 
2010, the Board voted to extend the life of the Stabilization Fund and, 
on September 24, 2010, the NCUA received concurrence from the Secretary 
of the U.S. Treasury to extend the closing date to June 30, 2021.
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    \7\ 12 U.S.C. 1790e(h).
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    Unlike in 2009, the Insurance Fund's $13.2 billion now exceeds both 
the corporate credit union Legacy Asset balance and NGN balance (as of 
June 30, 2017). Due primarily to the nearly $4 billion in net legal 
recoveries, the Stabilization Fund has a positive net position of 
approximately $2.0 billion as of June 2017. Additionally, there are no 
outstanding U.S. Treasury borrowings. Closing the Stabilization Fund in 
2017 will, barring the unexpected, result in an equity distribution to 
insured credit unions in 2018, putting funds to work in the credit 
union system prior to its current scheduled closure in 2021.

[[Page 46299]]

B. Normal Operating Level Background

    When contemplating closing the Stabilization Fund, the Board also 
had to consider whether a normal operating level of 1.30 percent would 
be sufficient to cover all of the Insurance Fund's resulting exposures. 
To determine this, the NCUA modeled the losses that would be expected 
under a moderate and a severe recession.\8\ For the two recession 
scenarios, the agency modeled the:
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    \8\ In estimating the equity ratio under various economic stress 
scenarios, the NCUA must make estimates and assumptions that affect 
the model output. Actual results could differ from the NCUA's 
estimates; however, the agency evaluates the reasonableness of such 
estimates when analyzing the model output.
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    <bullet> Impact on the equity ratio of the estimated decline in the 
value of the Insurance Fund's claims on the liquidated corporate credit 
unions' asset management estates--which would be driven by a reduction 
in the value of the Legacy Assets.
    <bullet> Performance of the Insurance Fund based on the three 
primary factors that currently affect the Insurance Fund's equity 
ratio: Insured share growth, yield on investments, and insurance 
losses.
    The Insurance Fund was modeled over a five-year period and the 
Legacy Assets were modeled over their remaining life.\9\ The NCUA used 
the applicable variables describing economic developments for the 
Adverse and Severely Adverse economic scenarios from the Federal 
Reserve Board's 2017 annual stress test supervisory scenarios.\10\
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    \9\ A five-year horizon (beginning at year-end 2017) was used to 
cover the cycle of an economic downturn and the life of the NGN 
Program.
    \10\ Supervisory Scenarios for Annual Stress Test Required under 
the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule, 
Feb. 10, 2017. (https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20170203a5.pdf).
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    Based on this modeling, to withstand a moderate recession without 
the equity ratio falling below the statutory minimum of 1.20 
percent,\11\ the Insurance Fund's equity ratio needs to be high enough 
to withstand the following:
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    \11\ 12 U.S.C. 1782(c)(2).
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    <bullet> A 13-basis-point decline in the equity ratio due to the 
impact on the three primary drivers of the Insurance Fund's 
performance.
    <bullet> A 4-basis-point decline in the value of the Insurance 
Fund's claim on the corporate credit union asset management estates.
    <bullet> A 2-basis-point decline in the equity ratio expected to 
occur prior to when the remaining NGNs begin to mature in 2020 and 
remaining exposure to the Legacy Assets can begin to be reduced. This 
helps ensure the 4 basis points of additional equity to account for the 
potential decline in value of the claims on the asset management 
estates is maintained in the Insurance Fund until Legacy Assets can be 
sold.\12\
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    \12\ The Board must consider retaining this equity now because, 
as the equity ratio declines, the Board would be unable to replenish 
the equity through premium assessments as long as the equity ratio 
remains above 1.30 percent, per the Act. 12 U.S.C. 1782(c)(2)(B).
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    Therefore, the Board proposed setting the normal operating level at 
1.39 percent.

II. Comments Received

    The Board received 663 comment letters on its notice proposing to 
close the Stabilization Fund in 2017 and increase the Insurance Fund's 
normal operating level to 1.39 percent. Commenters included 
representatives of three national credit union trade associations; 15 
credit union leagues or regional trade associations; 244 federal credit 
unions; 268 federally insured, state-chartered credit unions; and 133 
individuals and organizations, including credit union service 
organizations. The majority of commenters expressly supported or did 
not oppose closing the Stabilization Fund in 2017 and expressly opposed 
increasing the Insurance Fund's normal operating level or advocated a 
``full rebate'' of Stabilization Fund equity. A more detailed 
discussion of the comments follows.

A. Closing the Stabilization Fund

    Approximately 170 commenters expressly supported the Board's 
proposal to close the Stabilization Fund in 2017. An additional two-
thirds of all commenters omitted an express opinion on whether to close 
the Stabilization Fund in 2017 and instead voiced more definite 
opinions on the Insurance Fund's normal operating level. Many 
commenters that did not make a statement supporting closure in 2017 
nevertheless urged a near-term distribution of funds, indicating or 
implying either that they (a) did not oppose closing the Stabilization 
Fund in 2017 or (b) believed the Board could make a distribution to 
credit unions directly from the Stabilization Fund.
    Supportive commenters generally expressed that closing the 
Stabilization Fund before 2021 would provide an earlier opportunity to 
expand business and increase the financial security of credit unions, 
particularly smaller credit unions. Multiple commenters also noted that 
closure would reduce the NCUA's costs for maintaining multiple funds.
    As noted above, some commenters supporting closure in 2017, along 
with a few others that opposed closure, also suggested that the NCUA 
could make distributions to the Insurance Fund or to credit unions 
directly from the Stabilization Fund without closing it. Under one 
commenter's analysis, the NCUA would receive deference in making such 
distributions under the Supreme Court case Chevron U.S.A., Incorporated 
v. Natural Resources Defense Council, Incorporated \13\ because the Act 
is silent on the subject. This commenter believed the Insurance Fund is 
owed a refund from the Stabilization Fund, which would provide a 
sufficient nexus with Stabilization Fund authorities to support a 
distribution to the Insurance Fund. At the same time, this commenter 
stated mingling funds from the Stabilization Fund with the Insurance 
Fund would be unfair to credit unions. A few commenters suggested the 
NCUA could make distributions directly from the Stabilization Fund to 
former capital holders of the corporate credit unions.
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    \13\ 467 U.S. 837 (1984).
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    A number of commenters supporting closing the Stabilization Fund in 
2017 hedged their support if (a) closure was combined with an increase 
to the Insurance Fund's normal operating level or (b) Stabilization 
Fund money could not be accounted for separately after its closure. 
Many of these commenters believed Stabilization Fund equity should not 
be available to permanently increase the Insurance Fund's equity ratio 
(whether or not the normal operating level was increased) or for 
insurance losses related to natural person credit unions. These 
commenters stated it would be inappropriate to ``repurpose'' or 
``divert'' Stabilization Fund equity for uses beyond losses related to 
the liquidated corporate credit unions. A common comment was that the 
Board should maintain separate operations for resolution of the 
corporate credit union estates after closing the Stabilization Fund and 
maintain income and equity attributable to the Stabilization Fund in a 
separate account payable to credit unions.
    A number of commenters were concerned the Stabilization Fund's 
closure would affect the total distributions available to insured 
credit unions once the corporate credit union asset management estates 
were resolved. Many of these commenters were also concerned closure 
would affect the allocation of funds between credit unions that paid 
Stabilization Fund assessments and credit unions that hold certificates 
of claim against the asset

[[Page 46300]]

management estates related to corporate credit union capital 
investments. A few commenters appeared to urge the NCUA to prioritize 
payments to former capital holders of the liquidated corporate credit 
unions over distributions to insured credit unions, while some others 
expressed concern that capital holders not receive priority over credit 
unions that paid assessments.
    One commenter argued that the NCUA should treat the corporate asset 
management estates collectively for purposes of paying claims against 
the estates under 12 CFR 709.5(b), governing priority of claims. This 
commenter observed that a collective approach would maximize 
reimbursements to the Stabilization Fund before any payments to capital 
holders of the corporate credit unions could occur. This commenter 
believed the Board had treated the asset management estates 
collectively by pooling their assets in NGN trusts and then departed 
from collective treatment with respect to payment of claims under Sec.  
709.5(b). This commenter recommended a new regulation providing that 
the corporate credit union asset management estates would be treated as 
one pool of assets for purposes of distributions under Sec.  709.5(b).
    Slightly under 30 commenters firmly opposed closing the 
Stabilization Fund in 2017. Many of these commenters were concerned 
that closing the Stabilization Fund, which would result in 
consolidation, would cause less than full transparency regarding 
Insurance Fund distributions to credit unions and payments to former 
capital holders of the liquidated corporate credit unions. One 
commenter voiced concern about volatility in the Insurance Fund's 
equity ratio and complications related to multiple small distributions.

B. Normal Operating Level

    Just under 60 commenters supported or indicated some level of 
acceptance of an increase to the Insurance Fund's normal operating 
level, provided the increase was temporary. About one dozen of these 
commenters supported or appeared to accept an increase to 1.39 percent. 
One commenter advocated a permanent increase to 1.50 percent. An 
additional three dozen commenters supported a temporary increase to 
1.34 percent to cover exposure to Legacy Assets. Three more commenters 
suggested an increase to 1.35 percent, while another seven commenters 
indicated some level of support for a temporary increase without 
specifying their preferred threshold. These commenters nearly 
universally advocated that any increase from 1.30 percent be temporary. 
Many commenters urged the Board to set a defined schedule or express 
specific intent to move the normal operating level back to 1.30 percent 
as exposure to Legacy Assets decreases. One commenter who advocated the 
Board set the normal operating level at 1.50 percent urged the NCUA to 
approach Congress for further authorities that would permit the 
Insurance Fund's equity ratio to reach 2.0 percent, similar to the 
Deposit Insurance Fund for banks.
    One commenter supported a temporary increase of the Insurance 
Fund's equity ratio to 1.30 percent but only for so long as exposure to 
Legacy Assets remained. This commenter stated that all equity related 
to the Stabilization Fund should be distributed once Legacy Asset 
exposure subsided, including funds needed to increase the Insurance 
Fund's equity ratio to 1.30 percent. Thus, this commenter implied the 
Board should decrease the normal operating level below 1.30 percent to 
meet the equity ratio at the time of the Stabilization Fund's closure 
to permit distribution of all equity received from the Stabilization 
Fund.
    Around 55 percent of all commenters expressly opposed any increase 
to the normal operating level. However, around 90 additional commenters 
urged a ``full rebate'' of Stabilization Fund equity, implying they 
also opposed any increase to the normal operating level that would 
decrease a distribution in 2018 or beyond. Many of these commenters 
contended no increase could be justified because a normal operating 
level of 1.30 percent had been sufficient to withstand the financial 
crisis. A large number of these commenters (as well as some that 
supported an increase) were concerned the Board would never again 
decrease the normal operating level if it increased it in 2017. Many 
commenters that opposed any increase to the normal operating level 
urged that, if the Board did increase it, the increase should sunset 
after one year and the Board should then substantiate any extension of 
a normal operating level above 1.30 percent. Some of these commenters 
suggested increasing the normal operating level would erode the NCUA's 
motivations to control its operating expenses and that the NCUA's 
operating budget and the overhead transfer rate had consumed most 
Insurance Fund investment returns in recent years. A common thread in 
the comments was that failure to return all Stabilization Fund equity 
would be contrary to prior assurances and promises from the Board.
    Commenters opposing an increase often supported their position by 
noting that funds would be more productive and earn higher returns in 
the hands of credit unions than in the Insurance Fund. Many of these 
commenters acknowledged that near-term Insurance Fund assessments could 
be required and that this was an acceptable outcome. One commenter 
stated that 1.39 percent seemed arbitrary because the Insurance Fund 
would not have withstood the financial crisis even if its equity ratio 
had been at that level before the crisis began.
    Numerous commenters noted the Insurance Fund's audit reports from 
December 2016 determined that an equity ratio of 1.24 percent was 
sufficient to cover all contingencies. With respect to the 
Stabilization Fund, these commenters cited the December 2016 audit 
report that stated ``there were no probable losses for the guarantee of 
NGN's associated with the re-securitization transactions.'' These 
commenters argued the NCUA could therefore not, only nine months later, 
justify an increase to the normal operating level based on exposure to 
the Legacy Assets or for potential losses related to natural person 
credit unions.
    Some commenters contended an increase to the normal operating level 
would be akin to credit unions over-reserving for loan losses, a 
practice NCUA examiners generally advise against. They noted the 
strength of the credit union industry, the recent strengthening of the 
NCUA's regulations related to capital, and more stringent supervisory 
tests as additional firewalls that reduced the need for an increase to 
the normal operating level. These commenters often pointed to loss 
estimates related to the Legacy Assets as a basis to doubt the NCUA's 
projections of the Insurance Fund's performance.
    One commenter that characterized the Board's proposed closure of 
the Stabilization Fund as a ``cash grab'' alleged resulting 
distributions were an attempt to distract credit unions as the agency 
``hoards money for itself.'' According to this commenter, the NCUA 
intended to ``raid'' Stabilization Fund assets as an end-run around FCU 
Act restrictions that preclude assessments increasing the Insurance 
Fund's equity ratio above 1.30 percent. A few commenters contended 
using Stabilization Fund equity to increase the Insurance Fund's normal 
operating level above 1.30 percent was illegal because it was the 
equivalent of an assessment that the Act would not otherwise permit. 
Some commenters also expressed the sentiment that it would be improper 
to improve the Insurance

[[Page 46301]]

Fund's equity position using dollars from credit unions that paid 
Stabilization Fund assessments.
    Most commenters did not directly address whether they supported the 
NCUA lengthening the forecast horizon for Insurance Fund performance 
from two years to five years. Some that did address this opposed 
lengthening the forecast horizon because they believed a five-year 
horizon was significantly longer than the typical length of a 
recession. They also argued the NCUA had sufficient tools to manage the 
Insurance Fund, such as levying assessments, implementing a restoration 
plan, decreasing operating budgets, and altering investment strategies, 
without lengthening the forecast period.

C. Additional Comments

    A number of commenters noted improved transparency in NCUA 
operations. But many commenters were also concerned closure of the 
Stabilization Fund and the distribution of its assets to the Insurance 
Fund would decrease transparency. A few commenters specifically 
requested more transparency on the Board's administration of the 
corporate credit union asset management estates.
    A significant number of commenters attributed downward trends in 
the Insurance Fund's equity ratio to the cost of the NCUA's operations, 
recent increases in the NCUA's operating budget, and excessive 
Insurance Fund loss reserves. Many commenters also expressed a 
preference that the Board consider an increase to the Insurance Fund's 
normal operating level in a proposal completely separate from any 
related to closing the Stabilization Fund. Some of these commenters 
alleged an improper motive, or ``sleight of hand,'' in considering the 
proposals together.
    Multiple commenters stated no-near term Insurance Fund premiums 
would be required even if the Stabilization Fund was not closed in 
2017. These commenters stated that models showed no circumstances where 
the Insurance Fund's equity ratio would fall below 1.20 percent within 
the next two to four years. On the other hand, one commenter was 
concerned about the loss of contingency funding after closure of the 
Stabilization Fund. This commenter recommended that the NCUA review its 
Central Liquidity Facility authorities and regulations with an eye 
toward improving contingency funding sources.
    A material number of commenters, generally through variations of a 
form letter, stated that the ``proposed method for closing the 
[Stabilization Fund] does nothing to address the excessive $1B charged 
since its creation to the [asset management estates] by the NCUA.'' 
Many commenters also submitted form letters stating that, if the NCUA 
did not distribute the maximum amount, it would be ``dooming us to fail 
and claiming the hard won reserves our members have saved.'' Multiple 
commenters also argued that an increase to the Insurance Fund's equity 
ratio through an adjustment to the normal operating level was not 
warranted for Legacy Asset exposure because the distribution of 
Stabilization Fund equity to the Insurance Fund would cover such 
exposure. A few commenters requested or suggested more time to review 
and respond to the Board's proposal or lamented that they did not have 
more time to review and respond. One commenter proposed putting off the 
proposal until 2018 to permit more time for review.
    Many commenters had an inaccurate understanding of one or more of 
the following: (a) The law governing credit union liquidations; (b) the 
difference between distributions from the Insurance Fund to insured 
credit unions and distributions to claimants from asset management 
estates; (c) whether the timing of the Stabilization Fund's closure 
could affect overall distributions to either insured credit unions or 
former capital holders of the corporate credit unions; (d) the 
interaction of the Insurance Fund's equity ratio and its normal 
operating level; and (e) how the 1.30 percent equity ratio and normal 
operating level survived the financial crisis without immediate and 
heavy assessments. Almost fifty commenters advocated or mentioned a 
particular distribution method under the Board's separate proposal to 
amend 12 CFR 741.4.

III. The Board's Response to Comments

    The Board considered all of the comments and provides responses 
below to the salient arguments and concerns commenters raised.

A. Closing the Stabilization Fund

    In response to commenters that suggested the NCUA could make 
distributions to the Insurance Fund or to credit unions directly from 
the Stabilization Fund without closing it, the Board continues to see 
no legal basis for discretionary, non-closure distributions. This is 
true for either direct distributions to credit unions or non-closure 
distributions to the Insurance Fund. Commenters that urged non-closure 
distributions argued the NCUA would receive deference on its 
interpretation because the Act's silence on the subject creates 
ambiguity. However, these arguments are based on flawed legal, factual, 
and policy assumptions, which even substantial deference may not 
support.
    First, the Stabilization Fund is not silent on distribution 
authority. The legislation expressly references distributions, but only 
in relation to two circumstances. One, the legislation expressly 
prohibits an otherwise required end-of-year distribution from the 
Insurance Fund to insured credit unions if the Stabilization Fund has 
an outstanding advance from the Treasury. And, two, the legislation 
requires a distribution of all funds and property in the Stabilization 
Fund when the Board closes the Fund. Nowhere does the legislation 
discuss optional, non-closure distributions to the Insurance Fund (or 
to credit unions directly) prior to the Stabilization Fund's closure. 
Instead, as the Board noted in the July 2017 Notice, the legislation 
makes direct and express reference to particular Insurance Fund 
authorities that also apply to the Stabilization Fund (insurance 
payments, special assistance payments, and administrative or other 
Title II expenses). These direct and express references exclude the 
authorities the Act provides with respect to equity distributions to 
insured credit unions from the Insurance Fund.
    Second, the Act requires that, before the Board authorizes any non-
closure payment from the Stabilization Fund, it must ``certify that, 
absent the existence of the Stabilization Fund, the Board would have 
made the identical payment out of the [Insurance Fund].'' The Board 
must report these certifications to specified congressional committees. 
Especially with respect to a non-closure distribution to the Insurance 
Fund (as at least one commenter now urges), it is unclear how the Board 
would certify that the Insurance Fund could have made such a payment to 
itself. These provisions make it unwise to assume a court (or Congress) 
would approve of an interpretation that the NCUA can distribute funds 
between the Stabilization Funs and Insurance Fund outside of the 
circumstances described in the Act.
    Third, contrary to what one of the principal proponents of non-
closure distributions from the Stabilization Fund contends, the 
Insurance Fund is not ``owed a refund from the Stabilization Fund as a 
result of conserved and liquidated corporate credit unions.'' Other 
than the $1 billion capital note issued to U.S. Central Federal Credit 
Union, no material expenses related to the conserved and liquidated 
corporate credit unions were

[[Page 46302]]

paid from the Insurance Fund. Immediately after Congress established 
the Stabilization Fund, the Board transferred the $1 billion capital 
note receivable to the Stabilization Fund, at which time the Insurance 
Fund received full payment on the capital note from the Stabilization 
Fund. These events are all reflected in public Board records and the 
audited 2009 financial statements for the Insurance Fund and 
Stabilization Fund, available on the NCUA's Web site. Until the Board 
votes to close the Stabilization Fund or it reaches its statutory 
expiration date, thus triggering the distribution of all Stabilization 
Fund assets and liabilities to the Insurance Fund, the Insurance Fund 
has no receivable from the Stabilization Fund to support a payment 
characterized as a refund.
    Finally, the Board is skeptical Congress would approve of 
discretionary, non-closure distributions to credit unions or to the 
Insurance Fund because the Stabilization Fund has, at the Board's 
request, unhindered access to $6 billion in general tax revenues from 
the U.S. Treasury. Nothing in the Stabilization Fund legislation 
informs when or how non-closure general distributions would or could 
take place. Although the Insurance Fund shares the same U.S. Treasury 
borrowing authority, the Act imposes multiple timing, amount, and 
circumstance limitations with respect to its equity distributions. The 
Board believes a loose interpretation with respect to non-closure 
Stabilization Fund distributions poses a high risk that such 
distributions would be viewed unfavorably, with potential adverse 
consequences.
    A few commenters also argued the NCUA could make distributions 
directly from the Stabilization Fund to former capital holders of the 
corporate credit union asset management estates. This is not the case, 
however, because former capital holders have claims against the asset 
management estates, not against the Stabilization Fund or the Insurance 
Fund.\14\ With respect to each asset management estate, capital holders 
can only receive payment after the Stabilization Fund has been fully 
reimbursed for payments made from the Stabilization Fund on behalf of 
the estate. This is because claims of the Stabilization Fund are senior 
to those of capital holders under 12 CFR 709.5(b), governing priority 
of payments in liquidation. Funds in the Stabilization Fund belong to 
the Stabilization Fund. These funds are not available to capital 
holders or any other claimants against the asset management estates.
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    \14\ See 12 CFR 709.5(b) (listing ``unsecured claims against the 
liquidation estate'').
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    A common comment was that the Board should maintain income and 
equity attributable to the Stabilization Fund in a separate account 
payable to credit unions and maintain separate operations for 
resolution of the corporate credit union estates after closing the 
Stabilization Fund. The Board assures commenters that corporate credit 
union asset management estates will continue to be administered as 
distinct entities, as the Act requires. However, the Board sees no 
basis on which it can maintain separate accounts for equity distributed 
from what was the Stabilization Fund to the Insurance Fund once the 
Stabilization Fund is closed.
    Under the Act, all capital within the Insurance Fund contributes 
equally to its equity ratio if it is not a ``direct liabilit[y] of the 
Fund or contingent liabilit[y] for which no provision for losses has 
been made.'' \15\ Thus, distributions cannot become direct liabilities 
of the Insurance Fund to support some type of account-payable treatment 
until the Insurance Fund's equity ratio exceeds the normal operating 
level as of the end of a calendar year and the available assets ratio 
exceeds 1.0 percent.\16\ Additionally, until an equity distribution 
occurs, all equity in the Insurance Fund is available for the purposes 
designated in the Act, including payments of insurance, special 
assistance, or administrative or other expenses incurred in carrying 
out the purposes of Title II of the Act.\17\ There is no basis by which 
the Board can withhold equity transferred from the Stabilization Fund 
for a specific purpose. However, in its separate proposal on Insurance 
Fund distribution methods, the Board does attempt, to the extent 
possible, to treat distributions related to Stabilization Fund equity 
different from general equity distributions that might otherwise occur 
from the Insurance Fund.\18\
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    \15\ 12 U.S.C. 1782(h)(2).
    \16\ 12 U.S.C. 1782(c)(3).
    \17\ 12 U.S.C. 1783(a).
    \18\ Notice of Proposed Rulemaking ``Requirements for Insurance; 
National Credit Union Share Insurance Fund Equity Distributions'' 82 
FR 35705 (Aug. 1, 2017).
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    In response to commenters concerned that consolidation of the funds 
would cause less than full transparency regarding Insurance Fund 
distributions to credit unions and payments to former capital holders 
of the liquidated corporate credit unions, the Board reiterates that is 
not the case.
    As the Board noted in the July 2017 Notice, closing the 
Stabilization Fund will not change the accounting or reporting of the 
corporate credit union asset management estates. Each asset management 
estate is, and will always be, a separate legal entity and no claims 
against those estates will be affected by the closing. Additionally, 
corporate credit union asset management estates will be reported 
separately from natural person credit union asset management estates. 
The post-closure financial statements and note disclosures for the 
Insurance Fund will continue to provide the same level of detail about 
the Insurance Fund's receivables from the corporate assets management 
estates and related fiduciary activities. Regularly updated information 
on the NCUA's Web site for the NGNs, Legacy Assets, and asset 
management estates will continue to be provided after closure of the 
Stabilization Fund.
    As for the transparency related to Insurance Fund distributions, 
the Board has taken recent actions to increase transparency of the 
distribution process. Any resulting Insurance Fund distributions would 
be conducted in accordance with the Act and Part 741 of the NCUA's 
regulations. Interested stakeholders were provided an opportunity to 
comment on the proposed method for distributing equity from the 
Insurance Fund to insured credit unions in a Notice of Proposed 
Rulemaking approved by the Board in July 2017.\19\
---------------------------------------------------------------------------

    \19\ ``Requirements for Insurance; National Credit Union Share 
Insurance Fund Equity Distributions,'' 82 FR 35705 (Aug. 1, 2017).
---------------------------------------------------------------------------

    Some commenters were concerned the Stabilization Fund's closure 
would affect the total distributions available to insured credit unions 
once the corporate credit union asset management estates were resolved, 
or the allocation of funds between credit unions that paid 
Stabilization Fund assessments and credit unions that hold certificates 
of claim against the asset management estates related to corporate 
credit union capital investments. However, these concerns are similarly 
unfounded.
    Assuming all other potential equity ratio influences remain static, 
the Stabilization Fund's early closure will have no impact on the total 
distributions insured credit unions will receive once all corporate 
credit union legacy assets are resolved. This is because the amount of 
total receivables the Stabilization Fund holds against the asset 
management estates, which affects the amount that will eventually be 
distributed to credit unions depending on future performance of the 
Legacy

[[Page 46303]]

Assets, will not change as a result of the closure. All receivables the 
Stabilization Fund holds as of October 1, 2017 will be distributed to 
the Insurance Fund and equity will build from those receivables in the 
Insurance Fund rather than building and remaining in the Stabilization 
Fund until its scheduled closure date in 2021. Equity that builds in 
the Insurance Fund will become available for future distributions to 
the extent the equity ratio exceeds the normal operating level at the 
end of a calendar year.
    Instead of affecting total distribution amounts, early closure 
means credit unions will see a portion of total distributions sooner 
than they would if the Board continued to hold equity in the 
Stabilization Fund. If the Board continues to hold equity in the 
Stabilization Fund, credit unions are more likely to see fewer but 
individually larger distributions after the Stabilization Fund is 
closed at some future date, Aggregate distributions will not change, 
however, based on when the Stabilization Fund is closed. Also, if the 
Stabilization Fund is not closed in 2017, credit unions may be subject 
to an Insurance Fund premium in the near future to maintain the equity 
ratio at a prudent level.
    Although closure has no isolated impact on total distributions 
credit unions will eventually receive, future distribution amounts 
could change based on other factors, including but not limited to (a) 
greater than or less than expected losses to the Insurance Fund; (b) 
worse-than or better-than-expected Legacy Asset performance (which, 
along with legal recoveries, are the principal source for reimbursing 
Stabilization Fund claims against the asset management estates); (c) 
worse-than or better-than-expected investment returns; (d) insured 
share growth that is lower or higher than expected; or (e) changes to 
the Insurance Fund's normal operating level. Each of these factors, 
however, is independent of the Stabilization Fund's closure.
    Although one commenter argued the NCUA should treat the corporate 
asset management estates collectively for purposes of paying claims 
against the estates under 12 CFR 709.5(b), governing priority of 
claims, this approach would not be consistent with the applicable 
statutory and regulatory provisions. Under the Act, the Board as 
liquidating agent must ``pay all valid obligations of [a liquidated 
credit union] in accordance with the prescriptions and limitations of 
[the Act].'' \20\ With respect to liquidation priorities, the Act 
requires the Board to ``retain for the account of the Board such 
portion of the amounts realized from any liquidation as the Board may 
be entitled to receive in connection with the subrogation of the claims 
of accountholders'' and to ``pay to accountholders and other creditors 
the net amounts available for distribution to them.'' \21\ NCUA 
regulations further specify, consistent with principles that apply in 
general bankruptcies, that the administrative expenses associated with 
a liquidation receive priority over all other claims.\22\ Finally, case 
law related to the unwinding of financial institutions imposes 
fiduciary like duties on the receiver for an insolvent financial 
institution (or in the NCUA's case, the liquidating agent).\23\ Based 
on these applicable authorities and principles, the Board believes 
treating the asset management estates collectively for purposes of 
paying claims would cause material litigation risk. This litigation 
risk would arise because some estates would cover deficits in 
Stabilization Fund receivables related to other estates that suffered 
greater losses, potentially prejudicing subordinate creditors, 
including former capital holders.
---------------------------------------------------------------------------

    \20\ 12 U.S.C. 1787(b)(2)(F).
    \21\ 12 U.S.C. 1787(b)(11).
    \22\ 12 CFR 709.5(b).
    \23\ See Golden Pac. Bancorp. v. F.D.I.C., 375 F.3d 196, 201 (2d 
Cir. 2004) (``It is undisputed that, as a receiver, the FDIC owes a 
fiduciary duty to the Bank's creditors and to Bancorp.'').
---------------------------------------------------------------------------

    Further, the commenter that raised this prospect is incorrect in 
stating that the Board already treated the five asset management 
estates as one entity for purposes of the NGN re-securitizations. On 
the contrary, consistent with the authority cited above, the Board 
initially accounted for and continues to account for each asset 
management estate on an individual basis throughout the NGN 
transactions. This includes tracking the ongoing performance of each 
security that each asset management estate contributed. It also 
includes, for any guaranty obligations that accrue, allocating the 
liability for reimbursement to particular estates based on the 
performance of the assets they contributed.
    In line with this allocation practice, the legal documents related 
to each transaction, including owner trust certificates that represent 
a claim to residual assets, reflect the separate contributions of each 
asset management estate. Similarly, the Board, as liquidating agent, 
has allocated amounts from legal recoveries to individual asset 
management estates based on their ownership of securities to which the 
recovery relates. This process is described in more detail on the 
NCUA's Web site and reflects the Board's position that each asset 
management estate is, and should be, treated as a distinct legal 
entity.

B. Normal Operating Level

    In response to the commenter that characterized the NCUA's proposed 
closure of the Stabilization Fund as a ``cash grab,'' the Board 
reaffirms its position that the agency should maintain a resilient 
Insurance Fund for the mutual benefit of the credit union community and 
taxpayers. It is also important for the NCUA to avoid or minimize 
Insurance Fund premiums, especially during times of economic stress, to 
keep money at work in the credit union community when it is needed 
most.
    To that end, as outlined in the July 2017 Notice, the Board's main 
objectives in setting the normal operating level are as follows:
    <bullet> Retain public confidence in federal share insurance;
    <bullet> Prevent impairment of the one percent contributed capital 
deposit; and
    <bullet> Ensure the Insurance Fund can withstand a moderate 
recession without the equity ratio declining below 1.20 percent over a 
five-year period.
    Therefore, the Board has set the normal operating level at 1.39 
percent to account for:
    <bullet> A 13-basis-point decline in the equity ratio due to the 
impact of the three primary drivers of the Insurance Fund's 
performance;
    <bullet> A 4-basis-point decline in the value of the Insurance 
Fund's claims on the corporate credit union asset management estates; 
and
    <bullet> A 2-basis-point decline in the equity ratio expected to 
occur prior to when the remaining NGNs begin to mature in 2020 and 
remaining exposure to the Legacy Assets can begin to be reduced. This 
helps ensure the 4 basis points of additional equity to account for the 
potential decline in value of the claims on the asset management 
estates is maintained in the Insurance Fund until Legacy Assets can be 
sold.\24\
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    \24\ The Board must consider retaining this equity now because, 
as the equity ratio declines, the Board would be unable to replenish 
the equity through premium assessments as long as the equity ratio 
remains above 1.30 percent, per the Act. 12 U.S.C. 1782(c)(2)(B).
---------------------------------------------------------------------------

    Multiple commenters alleged it would be illegal for the NCUA to 
increase the Insurance Fund's equity ratio above 1.30 percent as a 
result of equity now held in the Stabilization Fund. This argument 
leads to potentially two flawed conclusions: (1) The Board must choose 
between closing the Stabilization Fund and increasing the normal

[[Page 46304]]

operating level and it cannot do both; and (2) the Board can never 
close the Stabilization Fund if its closure would, for any period, 
result in an equity ratio that exceeds 1.30 percent. Once again, this 
argument rests on faulty legal and factual assumptions.
    With respect to closing the Stabilization Fund, the Act requires 
the Board to contemporaneously distribute Stabilization Fund assets to 
the Insurance Fund. This distribution requirement does not vary based 
on the effect it will have on the Insurance Fund's equity ratio. The 
Board thinks it unlikely a court would find it illegal for the Board to 
do what the Act unambiguously requires. Further, the Stabilization Fund 
assessments were legal at the time they were assessed, and the Board 
sees no means by which they would become illegal in 2017 as a result of 
a mandatory distribution to the Insurance Fund at the Stabilization 
Fund's closure.
    With respect to the normal operating level, under the Act, the 
Board can designate the ratio at a level it deems appropriate at any 
time, from a minimum of 1.20 percent to a maximum of 1.50 percent. The 
Board's discretion to designate the normal operating level within that 
range is not limited (a) based on the source of funds that could 
increase the equity ratio above 1.30 percent or (b) by the NCUA's 
assessment authority. While the Board cannot impose an Insurance Fund 
assessment once the equity ratio is at or above 1.30 percent, the Board 
sees no reasonable argument that the equity the Stabilization Fund 
would distribute to the Insurance Fund is from (or becomes) an 
Insurance Fund assessment at the Stabilization Fund's closure.
    Finally, these commenters' argument rests on an incorrect factual 
assumption: That equity presently in the Stabilization Fund is solely 
attributable to Stabilization Fund assessments as opposed to cash 
collected from receivables from the asset management estates. In fact, 
increases in the value of the receivables from the asset management 
estates (from legal recoveries and improvements in the value of the 
Legacy Assets) have contributed significantly to the Stabilization 
Fund's net position. The NCUA was unable to fully repay Stabilization 
Fund borrowings from the assessments that had been paid by insured 
credit unions, which were last charged in 2013. Since that time, the 
Stabilization Fund has collected approximately $3 billion from the 
asset management estates, principally funded from legal recoveries and 
asset sales. These funds enabled the NCUA to fully repay the U.S. 
Treasury in October 2016, and account for the Stabilization Fund's 
current cash position. As such, there is a compelling argument that 
equity in the Stabilization Fund as of 2017 consists of asset 
management estate receivables, not assessments.
    For the same reasons, no additional amounts the Insurance Fund will 
continue to collect before the end of 2017 and that could contribute to 
increasing the Insurance Fund's equity ratio above 1.30 percent after 
2017 (and result in additional distributions) will be attributable to 
assessments. Although prior assessments make present-day receivables 
available as equity for distribution to the Insurance Fund when the 
Stabilization Fund closes, whether the Board should raise the normal 
operating level in connection with the Fund's closure is a policy 
determination. There are no legal provisions that preclude the proposed 
increase in the Insurance Fund's normal operating level.
    The Board understands commenters' concern that it is improper to 
improve the Insurance Fund's equity position using dollars from credit 
unions that paid Stabilization Fund assessments in the abstract, but 
believes it is factually unpersuasive. Under the Act, the group of 
credit unions required to pay a premium to the Insurance Fund or to the 
Stabilization Fund is identical.\25\ The basis for calculating the 
premiums is also the same for both the Insurance Fund and the 
Stabilization Fund.\26\ Further, for the Board to use the Stabilization 
Fund, the Act requires that it must have had the authority to make the 
same payment from the Insurance Fund.\27\ Thus, the Insurance Fund's 
purposes and authorities completely envelope those related to the 
Stabilization Fund.
---------------------------------------------------------------------------

    \25\ See 12 U.S.C. 1782(c)(2) (``Each insured credit union shall 
. . . pay'') and 12 U.S.C. 1790e(d) (special premiums are assessed 
to ``each insured credit union.'').
    \26\ See 12 U.S.C. 1782 (``in an amount stated as a percentage 
of insured shares (which shall be the same for all insured credit 
unions))'' and 12 U.S.C. 1790e (``percentage of insured shares, as 
represented on the previous call report for each insured credit 
union. The percentage shall be identical for each insured credit 
union.'')).
    \27\ 12 U.S.C. 1790e(b).
---------------------------------------------------------------------------

    Finally, as a practical matter, there were only 21 credit unions 
that were chartered or that converted to federal insurance since the 
Stabilization Fund was created in 2009. Of these 21 credit unions, 17 
filed a call report in the second quarter of 2017. These credit unions 
represent only 0.13 percent of total insured shares in the second 
quarter of 2017. Further, since joining the Insurance Fund, these 
credit unions have been subject to potential premiums, despite not 
existing at the time of corporate credit union losses.
    As such, there is no strong legal or equitable basis to view 
Stabilization Fund equity, regardless of whether one considers it due 
to assessments or asset management estate receivables, as different 
from Insurance Fund equity. In addition, the Insurance Fund distributed 
funds to the Stabilization Fund in 2011, 2012, and 2013, in amounts of 
$278.6 million, $88.1 million, and $95.3 million, respectively, because 
the Act precluded Insurance Fund distributions to credit unions given 
then-outstanding borrowings from the U.S. Treasury. Efforts to 
distinguish the equity of the two funds on this basis do not hold up.
    In response to commenters that urge a ``full rebate'' and those 
that believe failure to return all Stabilization Fund equity would be 
contrary to prior promises from the Board, the Board believes its plan 
to close the Stabilization Fund in 2017 and provide distributions to 
credit unions out of the Insurance Fund is consistent with information 
historically provided to stakeholders. Until 2013, when the projected 
assessment range became negative, the Board did not estimate that funds 
would be available to return to credit unions. Primarily due to the 
impact of legal recoveries, the agency started projecting negative 
assessments in 2013.
    Consistent with information routinely published on the NCUA's Web 
site and presentations given at Board meetings, the projected negative 
assessment range was disclosed as subject to change. At no time has the 
projected negative assessment range included estimates sufficient to 
repay all assessments or a specified amount of former capital holders' 
claims. As the NCUA has repeatedly stated, the Wescorp asset management 
estate is not projected to ever be able to repay the Stabilization Fund 
(or Insurance Fund after closure). Therefore, it is unlikely a ``full 
rebate'' of Stabilization Fund assessments will ever be possible, 
consistent with previous statements from the NCUA regarding the 
potential for some return of funds to credit unions.
    Therefore, the Board assumes that commenters are using the term 
``full rebate'' to refer to a rebate of the entire amount of equity 
currently in the Stabilization Fund, rather than a rebate of all 
assessments ever paid into the Stabilization Fund. As noted in the July 
2017 Notice, the Board believes it is prudent to retain some of the 
current Stabilization Fund equity to account for the Insurance Fund's 
existing and future

[[Page 46305]]

risk exposures, which will ultimately benefit credit unions by 
eliminating or materially reducing the need for premiums during a 
moderate recession.
    Additionally, the information on the NCUA's Web site and presented 
at open meetings of the Board is consistent with the statutory 
requirement that any distribution of Stabilization Fund equity to 
credit unions would occur after the Stabilization Fund is closed and to 
the extent the Insurance Fund's equity ratio exceeded the normal 
operating level.\28\
---------------------------------------------------------------------------

    \28\ See NCUA's Q4 2016 Costs and Assessments Q&A (response to 
question 8), December 2016 Board Briefing NGN Legacy Asset 
Disposition Strategy (slides 24-29), NCUA's Assessment Range Update 
Video (approximately 8-9 minute mark), and the September 2014 open 
meeting of the Board.
---------------------------------------------------------------------------

    Many of the commenters that opposed any increase in the normal 
operating level contended no increase could be justified because a 
normal operating level of 1.30 percent had been sufficient to withstand 
the financial crisis. As outlined in the July 2017 Notice, the 
Stabilization Fund was created to accrue losses from corporate credit 
union failures and assess credit unions for such losses over time. This 
prevented insured credit unions from bearing a significant burden 
associated with the failure of five corporate credit unions within a 
short period. It did not shelter credit unions from being assessed for 
the losses, nor did it eliminate the need for Insurance Fund premiums 
to cover declines in the equity ratio from natural person credit union 
failures and insured share growth.
    At year-end 2008, the normal operating level was 1.30 percent. In 
January 2009, prior to creation of the Stabilization Fund, credit 
unions were instructed to impair the one percent capital deposit by 69 
basis points and record a premium expense of 30 basis points to restore 
the Insurance Fund's equity ratio to above the 1.20 percent statutory 
minimum.\29\ However, because Congress took extraordinary and 
unprecedented action that allowed the NCUA to account for the corporate 
credit union losses in the Stabilization Fund, the NCUA passed back 
credit unions' 69 basis point deposit impairment.\30\
---------------------------------------------------------------------------

    \29\ See Letter to Credit Unions 09-CU-06 Corporate 
Stabilization Program--Conservatorship of U.S. Central FCU and 
Western Corporate FCU and NCUA Accounting Bulletin No. 09-2.
    \30\ See Letter to Credit Unions 09-CU-14 Corporate 
Stabilization Fund Implementation.
---------------------------------------------------------------------------

    During the Great Recession, the Insurance Fund's equity ratio fell 
below 1.20 percent even without the corporate credit union losses--that 
is, only for natural person credit union losses--resulting in two Share 
Insurance Fund premiums totaling 22.7 basis points. Actual premium 
charges were 10.3 basis points in 2009 and 12.4 basis points in 2010 
and totaled nearly $1.7 billion. As some commenters noted, these 
premiums had to be charged during the trough of the business cycle, 
when many credit unions were already facing financial difficulties. 
Therefore, while the NCUA was able to maintain the Insurance Fund's 
equity ratio above 1.20 percent during the Great Recession, it was only 
because of an act of Congress (creation of the Stabilization Fund) and 
premiums paid by credit unions at a time when they could least afford 
the expense. In another significant recession, stakeholders should not 
assume the NCUA could or should prevail upon Congress to establish a 
fund similar to the Stabilization Fund to again accrue significant 
near-term losses over time and avoid immediate assessments on insured 
credit unions.
    For those commenters that cite the Insurance Fund and Stabilization 
Fund annual audits as support that there is no justification for 
raising the normal operating level, the Board would like to correct 
some misconceptions.
    Similar to how credit union officials must make risk management 
decisions about the appropriate amount of capital to hold, the Board 
must make management decisions regarding the level of equity the 
Insurance Fund should maintain. A stronger capital position better 
enables the Insurance Fund to manage future uncertainties such as 
increased losses, high insured-share growth, and adverse economic 
cycles. While the amount of equity recorded and the calculation of the 
equity ratio are audited by an independent third party, the purpose of 
the audit is to ensure the Insurance Fund's financial statements are 
presented fairly, in all material respects, in accordance with the 
standards promulgated by the Federal Accounting Standards Advisory 
Board (FASAB). FASAB is designated by the American Institute of 
Certified Public Accountants as the source of generally accepted 
accounting principles for federal reporting entities.
    The independent auditor's report of the Insurance Fund as of and 
for the years ended December 31, 2016 and 2015 discusses the equity 
ratio as a ``significant financial performance measure in assessing the 
ongoing operations of the NCUSIF.'' The audit does not opine on whether 
the amount of equity retained meets the Board's objectives for managing 
risk to the Insurance Fund.
    With respect to the Stabilization Fund, the Board notes that the 
latest audit report states, ``there were no probable losses for the 
guarantee of NGNs associated with re-securitization transactions.'' 
However, the Board believes commenters failed to consider two factors.
    First, the Legacy Assets underlying the NGNs are expected to 
experience losses, resulting in approximately $3.2 billion of estimated 
guarantee payments made by the NCUA. As stated in the audit report and 
excerpted below, the NCUA expects those payments related to Legacy 
Asset losses to be offset by reimbursements and residuals after the 
fact.

    As of December 31, 2016 and 2015, there were no probable losses 
for the guarantee of NGNs associated with the re-securitization 
transactions. Although the gross estimated guarantee payments were 
approximately $3.2 billion and $3.3 billion, respectively, these 
payments are estimated to be offset by:
    (i) Related reimbursements and interest from the Legacy Assets 
of the NGN Trusts received directly from contractual reimbursement 
rights pursuant to the governing documents of approximately $3.1 
billion and $3.1 billion as of December 31, 2016 and 2015, 
respectively; and
    (ii) indirectly by collections pursuant to NCUA's right as 
liquidating agent from portions of the AMEs' economic residual 
interests in NGN Trusts of up to approximately $2.4 billion and $3.4 
billion as of December 31, 2016 and 2015, respectively, that are 
estimated to remain after all obligations of the NGN Trusts are 
satisfied.

    However, as noted, the guarantee payments are estimated to be 
offset by the reimbursements. The actual amount of future 
reimbursements is not certain, but based on projections that may vary 
(and have varied) over time, especially in the case of an economic 
downturn.
    Second, the guarantee payment discussion does not include potential 
fluctuations in values related to Legacy Assets that are no longer 
securitizing the NGNs. The un-securitized Legacy Asset values are also 
based on projections that may vary over time, especially in the case of 
an economic downturn.
    The audited financial statements reflect the accounting and 
valuation of assets and liabilities as of a certain date. The 
statements do not account for potential future economic downturns that 
would negatively impact the values. Therefore, the financial statements 
in no way undermine the Board's view that, as the insurer, it is 
prudent to ensure the Insurance Fund's equity is sufficient to 
withstand a moderate recession with minimal or no premium assessments.
    The Board also believes some commenters are confusing the equity 
ratio and normal operating level with the Insurance Fund's Insurance 
and Guarantee Program Liability by stating that raising the normal 
operating level is

[[Page 46306]]

akin to a credit union over-reserving for loan losses. The Insurance 
Fund's equity ratio is a measure of equity (retained earnings and 
contributed capital) the Fund holds in relation to the amount of 
insured shares in federally insured credit unions. It is a similar 
concept to a credit union's net worth ratio, or a bank's capital ratio.
    The Insurance Fund's Insurance and Guarantee Program Liability is a 
separate account. The Insurance and Guarantee Program Liability account 
is reported in accordance with Statement of Federal Financial 
Accounting Standard No. 5. The Insurance Fund records a contingent 
liability for probable losses relating to insured credit unions based 
on current economic and credit union-level data. The amount of this 
liability is adjusted based on changes in economic and credit union-
level data. When economic conditions and credit union financial trends 
deteriorate, this liability will increase to reflect the increase in 
potential failures. However, if the NCUA is able to resolve problem 
credit unions without assistance from the Insurance Fund, the liability 
is no longer needed. Because the NCUA is unable to predict or quantify 
which credit unions may be resolved without assistance, the Insurance 
Fund must establish a contingent liability for all potential failures 
based on current data.
    This account is similar to a credit union's reserve for loan losses 
and is audited annually by an independent third party. Thus, 
maintenance of the contingency liability must comply with accounting 
standards. This is different from maintenance of capital levels, which 
is a management decision. In addition, the Board's role as insurer is 
fundamentally different from that of a financial institution.
    Further, to those commenters that cite the strength of the credit 
union system and recent regulatory changes as reason to retain 1.30 
percent as the normal operating level, the Board agrees that the 
financial position of the credit union industry is strong. 
Additionally, the Board recognizes that supervisory requirements for 
large credit unions and restrictions for corporate credit unions help 
to reduce risk within the industry. However, the Board believes the 
risk profile of the credit union system continues to evolve with 
existing or known risks being replaced by new and emerging risks. From 
a risk management perspective, the Board believes it is prudent to 
consider both current and future risks and hold equity sufficient to 
mitigate the negative impact on credit unions--such as having to pay 
premiums when their financial position is not as strong.
    In response to commenters that question the accuracy of loss 
estimates related to the Legacy Assets, the Board notes that the range 
of estimated aggregate resolution costs is lower than original 
estimates due to a number of factors, including the following:
    <bullet> Better than expected recovery in the housing market;
    <bullet> A sustained low interest rate environment; and
    <bullet> Legal recoveries.
    Resolution costs have declined significantly due to legal 
recoveries, which were not and could not be included in projections 
because they are inherently inestimable. The potential for legal 
recoveries increased materially when the NCUA initiated the Corporate 
System Resolution Program, which gave the asset management estates the 
benefit of the Act's extender statute. The extender statute preserved 
and strengthened a substantial portion of legal claims that otherwise 
may have expired. In addition, the NCUA's coordinated recovery efforts 
across the five failed corporates and its ability to coordinate with 
other government-related plaintiffs substantially increased recovery 
potential.
    The impact legal recoveries had on the estimated resolution costs 
is significant. If legal recoveries are excluded, over the seven years 
since the NGNs were issued, the top of the projected range of costs has 
improved about 14 percent. The bottom of the projected range of costs 
has worsened by close to 3.8 percent. In light of their complexity and 
after adjustment for exogenous factors like legal recoveries, the cost 
projections have proven relatively accurate over a seven-year period. 
The legal recoveries allowed for full repayment of the U.S. Treasury 
borrowing. Without the legal recoveries, the NCUA would not have been 
able to fully repay the U.S. Treasury until 2021. Also, based on 
current estimates, without the legal recoveries there would be no 
surplus to fund a distribution.
    The Board agrees with the commenter that pointed out that even a 
normal operating level of 1.39 percent would not have been sufficient 
to weather the Great Recession and absorb the losses from the failed 
corporate credit unions without assessing premiums. This fact only 
supports an increase. Determining the appropriate amount of capital to 
hold in the Insurance Fund is a risk management decision where the 
Board balances the need to maintain sufficient equity with the desire 
to keep money at work in the credit union community. While a normal 
operating level of 1.39 percent may not be sufficient for the Insurance 
Fund to withstand a severe recession without assessing premiums to 
credit unions or developing a restoration plan, it does align with the 
Board's objective of not having to assess premiums or develop a 
restoration plan during a moderate recession.
    Additionally, if the Insurance Fund's equity ratio going into the 
Great Recession had been 1.39 percent instead of 1.30 percent, it may 
not have eliminated the need for premiums, but could have resulted in 
credit unions paying nearly $1 billion less in premiums during the 
middle of the financial crisis. The Board believes managing the 
Insurance Fund to be counter-cyclical by building up equity during 
prosperous times and allowing the equity to draw down during adverse 
economic conditions will enable credit unions to use funds at that time 
to serve members when they are needed the most.
    The Board also agrees with those commenters that stated the assets 
transferred from the Stabilization Fund currently offset the 
liabilities transferred. For all intents and purposes, the net position 
of the Stabilization Fund is the difference between the book value of 
the assets and the book value of the liabilities--which is currently 
near $2.0 billion. Even if the Stabilization Fund is not closed, the 
value of the assets would decline in a moderate recession, while the 
value of the liabilities would remain the same or increase, resulting 
in a decrease to the net position under even a moderate recession.
    Thus, once the Stabilization Fund is closed, the Insurance Fund's 
net position would decrease if the value of the transferred assets 
decreased. Therefore, the Board believes it is prudent to reserve $400 
million (or approximately 4 basis points) of the existing $2.0 billion 
of the Stabilization Fund's equity to cover a potential decrease in the 
Insurance Fund's net position under a moderate recession.
    A significant number of commenters attributed downward trends in 
the Insurance Fund's equity ratio to the cost of the NCUA's operations, 
recent increases in the NCUA's operating budget, and excessive 
Insurance Fund loss reserves. Operating expenses are not one of the 
three primary factors affecting the Insurance Fund's equity ratio--
insured share growth, interest income on the fund's investment 
portfolio, and insurance losses. Operating expenses charged to the 
Insurance Fund have a significantly lower potential for altering the 
trend in the equity ratio. Without sacrificing the

[[Page 46307]]

agency's mission, the NCUA has limited ability to make operating 
expense reductions that would have a material impact on the equity 
ratio.
    Given the Insurance Fund's current size, a $100 million change in 
the numerator of the ratio (made up of retained earnings and 
contributed capital) will change the equity ratio by approximately one 
basis point. This means that if the NCUA's operating expenses charged 
to the fund decreased by $100 million, the equity ratio would increase 
by one basis point. For context, the NCUA's entire 2017 budget is 
$298.2 million, of which approximately $200 million is projected to be 
charged to the Insurance Fund. The Board would need to cut operating 
expenses charged to the Insurance Fund by 50 percent to offset a one 
basis point annual reduction in the equity ratio, all other things 
being equal. While the Board strives to minimize all costs related to 
agency operations, indiscriminately reducing the operating budget for 
the purpose of preserving Insurance Fund equity would be ill-advised 
and counterproductive. The bulk of NCUA's budget, in fact, goes to 
supporting one of the most important aspects of the agency's mission: 
Reducing the likelihood of catastrophic Insurance Fund losses.
    Increasing the normal operating level is an action separate and 
distinct from approving the agency's operating budget and overhead 
transfer rate. The Board carefully balances the need to manage the 
agency's expenses with the need to ensure a safe-and-sound credit union 
system. During the last NCUA budget briefing on October 27, 2016, staff 
outlined various initiatives to increase efficiency and operational 
improvements. The most significant is the adoption of the 
recommendations of the NCUA's Examination Flexibility Initiative 
working group as part of the agency's 2017 and 2018 budgets. Among 
other things, this initiative will extend the examination cycle for 
eligible credit unions--those that have less than $1 billion in assets 
and are considered well-run and well-capitalized--resulting in a 
reduction of 47 full-time equivalent positions by the end of 2018.
    Additionally, at the Board's July 20, 2017 closed meeting, it 
approved a long-range agency restructuring plan to enhance efficiency, 
responsiveness, and cost-effectiveness. Under the plan, the NCUA will 
consolidate the agency's five regional offices into three, eliminate 
four of the agency's five leased spaces, eliminate offices, and reduce 
the workforce through attrition. The Board has recently announced the 
process for another public budget briefing to be held in October 2017 
and looks forward to receiving stakeholder input.
    The Board disagrees with commenters that state the Insurance Fund's 
performance horizon should be two years instead of five. As outlined in 
the July 2017 Notice and discussed at the July 2017 Board meeting, a 
five-year horizon for modeling the Insurance Fund was selected for a 
number of reasons. One compelling reason is that the National Bureau of 
Economic Research--the not-for-profit research organization that 
establishes the beginning and end of U.S. business cycles--has 
calculated that the United States has averaged 69 months from the peak 
of one business cycle to the next. The Board elected to use a five-year 
horizon because it covers most of the business cycle, aligns with the 
remaining life of the NGN Program, and is consistent with the agency's 
strategic plan time horizon.
    Though a recession may end, the economy may remain very weak during 
the recovery period. A struggling economy also poses risks to credit 
unions, and a thorough analysis of the Insurance Fund's equity position 
needs to account for the period of continued economic weakness, which 
more realistically reflects a recession's effects on the credit union 
industry.
    The Board agrees with commenters that noted the agency has various 
options available to manage the Insurance Fund. The Board continues to 
believe the most desirable option is to maintain a counter-cyclical 
posture for the Insurance Fund, which reduces the likelihood of 
burdening insured credit unions with premium expenses during an 
economic downturn. Requiring credit unions to pay premiums in the midst 
of a financial crisis is generally undesirable because many credit 
unions are facing earnings and other operational issues, and 
extraordinary premium expenses could increase failure rates. It is 
during the bottom of an economic cycle that it is most important to 
keep funds at work in the credit union system so they can continue to 
serve their members.
    As outlined in the July 2017 Notice, the Board believes its 
authority to establish a Fund restoration plan in lieu of mandatory 
premiums should only be used for severe, unexpected circumstances. 
While the Board can develop a restoration plan to restore the Insurance 
Fund's equity ratio to 1.20 percent within eight years (or longer in 
extraordinary circumstances), this could necessitate one or more 
relatively large premiums. It could also extend over multiple business 
cycles, resulting in a further extended effort to rebuild Insurance 
Fund equity. These circumstances could significantly erode public 
confidence in federal share insurance.
    Some commenters supported a temporary increase to 1.34 percent to 
cover exposure to Legacy Assets, while others suggested an increase to 
1.35 percent. The Board notes that both of these suggestions ignore 
that exposures to the Insurance Fund must be considered in total.
    Because a moderate recession would affect both the traditional 
primary drivers of the Insurance Fund (yield on investments, insurance 
losses, and insured share growth) and the value of the Legacy Assets, 
the Board must account for both of these exposures. Therefore, it would 
be inconsistent to only account for the potential decline in value of 
the Legacy Assets under a moderate recession, and not the traditional 
exposures to the Insurance Fund, by setting the normal operating level 
at 1.34 percent. Conversely, setting the normal operating level at 1.35 
percent would only account for the traditional exposures of the 
Insurance Fund. However, if the Stabilization Fund were closed, the 
Insurance Fund would be exposed to additional risk from the potential 
decline in the value of the Legacy Assets.\31\
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    \31\ During a recession, the value of the Legacy Assets is 
expected to decline, while the liabilities associated with these 
assets would remain the same or potentially increase. This would 
reduce the net position of the Insurance Fund and the equity ratio.
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    Many commenters urged the Board to set a defined schedule or 
express specific intent to move the normal operating level back to 1.30 
percent as exposure to Legacy Assets decreases. As outlined in the July 
2017 Notice, the Board acknowledges that additional risk exposure from 
the Legacy Assets will only be present until the end of the NGN 
Program, assuming expedient Legacy Asset sales thereafter. Therefore, 
once the Insurance Fund's exposure to this risk expires, additional 
equity for the Legacy Assets will no longer be necessary.\32\ As 
outlined in the July 2017 Notice, the Board believes the NCUA should 
periodically review the equity needs of the Insurance Fund and provide 
this analysis to stakeholders. Thus, the Board intends for the normal 
operating level to be re-assessed periodically.
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    \32\ If the Stabilization Fund is not closed, and the Board 
adopted this methodology for setting the normal operating level, 
staff would recommend the Board set the normal operating level at 
1.33 percent.
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    However, the Board believes it would be imprudent to arbitrarily 
set a future normal operating level based on current data. Instead, it 
is reasonable for a future

[[Page 46308]]

Board to set the normal operating level to meet the objectives outlined 
in the Board's policy for setting the normal operating level based on 
contemporary data. Further, while the normal operating level has 
historically been 1.30 percent, it would be arbitrary to retain that 
number as the current or future normal operating level just because 
that is the number it has always been. Instead, the Board has elected 
to set the normal operating level by considering recent history and 
using a documented, consistent methodology to enhance transparency of 
the process.
    One commenter supported a temporary increase of the Insurance 
Fund's equity ratio to 1.30 percent but only for so long as Legacy 
Asset exposure remained. This commenter stated that all equity related 
to the Stabilization Fund should be distributed once Legacy Asset 
exposure subsided, including funds needed to increase the Insurance 
Fund's equity ratio to 1.30 percent. Thus, this commenter implied the 
Board should decrease the normal operating level below 1.30 percent to 
meet the equity ratio at the time of the Stabilization Fund's closure 
to permit distribution of all equity received from the Stabilization 
Fund.
    In the Board's understanding, following the position of this 
commenter would require the Board to commit to reducing the normal 
operating level in 2021 to equal the Insurance Fund's sub-1.30 percent 
equity ratio as of October 1, 2017, the date of the Stabilization 
Fund's closing. This would, at the end of 2021, trigger a distribution 
of whatever amounts, if any, remained in the Insurance Fund above the 
newly lowered normal operating level. While the Board has the legal 
authority to make such a commitment, it could not bind future Boards to 
follow it. Further, this approach would only result in a distribution 
of equity to the extent insurance losses or other impacts on the 
Insurance Fund had not lowered the equity ratio below what it was at 
the Stabilization Fund's closure.
    While the Board could reduce the normal operating level to as low 
as 1.20 percent to orchestrate a distribution, it could not, due to 
statutory constraints, lower the normal operating level below 1.20 
percent to accommodate a certain distribution amount that might relate 
back to Stabilization Fund equity.\33\ Thus, this commenter's 
suggestion provides no guarantee that a certain amount of equity can be 
returned in 2021. Finally, even if circumstances in 2021 are such that 
a distribution could be triggered, the Board thinks a reduction in the 
normal operating level at that time for the sole purpose of triggering 
a defined distribution amount would be an unwise policy choice. The 
Board believes the prudent approach at that time would be to consider 
where the normal operating level should be designated based on all 
relevant and contemporary data.
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    \33\ Additionally, projections show the equity ratio will 
decline based on current trends. If the Board set the normal 
operating level at 1.20 percent and the equity ratio fell to 1.20 
percent because of a distribution, the equity ratio would 
immediately be projected to fall below 1.20 percent, triggering a 
premium or restoration plan in accordance with the Act. 12 U.S.C. 
1782(c)(2).
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C. Additional Comments

    In response to those commenters that requested additional time to 
review and respond to the July 2017 Notice, the Board acknowledges the 
comment period was less than the customary 60 days (the actual comment 
period was 48 days). The comment period was accelerated to provide the 
Board enough time to consider comments and make a final determination 
of closing the Stabilization Fund by year-end 2017, to make it possible 
for a distribution to insured credit unions in 2018.\34\ The Board made 
substantial efforts to ensure stakeholders were provided with 
sufficient support and data regarding the NCUA's proposal to close the 
Stabilization Fund and set the normal operating level at 1.39 percent. 
Further, some credit unions and trade organizations have been 
requesting the NCUA consider closing the Stabilization Fund for at 
least a year. The Board noted on multiple occasions since the beginning 
of 2017 that NCUA staff were researching the process and timing for 
prudently closing the Stabilization Fund. Thus, the proposal was not 
unexpected.
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    \34\ In accordance with the Act, the Insurance Fund shall effect 
a pro rata distribution to insured credit unions after each calendar 
year if, as of the end of that calendar year, the equity ratio 
exceeds the normal operating level. 12 U.S.C. 1782(c)(3).
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    If the Board puts off the proposal further, equity will continue to 
build in the Stabilization Fund. Thus, the Board agrees with most 
commenters that see no reason to delay the proposal until a future 
date. As long as the NCUA maintains sufficient equity in the Insurance 
Fund to cover the remaining obligations from the Corporate System 
Resolution Program on top of its ongoing obligations, closing the 
Stabilization Fund now makes sense.
    The Board acknowledges the commenters' emphasis on transparency and 
agrees that the agency has a responsibility to provide stakeholders 
with as much information as possible without disclosing confidential 
supervisory information. This applies not only to the Stabilization 
Fund's operations, but also to how the corporate credit union asset 
management estates are administered. Because of the complexity and 
extent of information regarding the Legacy Assets, NGNs, and asset 
management estates, the NCUA has developed Web pages on its public Web 
site dedicated to the corporate resolution and NGNs. The agency 
transparently described the equity ratio calculations, normal operating 
level, and Corporate System Resolution Program status in staff's 
presentations to the NCUA Board at its November 2016, December 2016, 
and July 2017 open meetings, in the request for comment published in 
the Federal Register in July 2017, during a webinar the NCUA hosted on 
this subject in August 2017, and in all the related materials that are 
posted on the NCUA's Web site.\35\
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    \35\ See https://www.ncua.gov/regulation-supervision/Pages/stabilization-fund-closure.aspx.
_____________________________________-

    Subsequent to the July 2017 Notice, the NCUA enhanced its reporting 
to show the transactions and projections related to each corporate 
credit union asset management estate. The information on legal 
recoveries also receives regular updates, including information on how 
legal recoveries are allocated to each asset management estate.
    The Board continually seeks ways to ensure the information 
presented is clear, comprehensive, and useful. If stakeholders have 
questions or suggestions regarding the information available, the Board 
invites them to contact the NCUA at <a href="/cdn-cgi/l/email-protection#95fbf2fbe4e0f0e6e1fcfafbe6d5fbf6e0f4bbf2fae3"><span class="__cf_email__" data-cfemail="aac4cdc4dbdfcfd9dec3c5c4d9eac4c9dfcb84cdc5dc">[email protected]</span></a>.
    Some commenters expressed a preference that the Board consider an 
increase to the Insurance Fund's normal operating level in a proposal 
completely separate from any related to closing the Stabilization Fund. 
Because closing the Stabilization Fund increases the risk to the 
Insurance Fund, evaluating the normal operating level is a necessary 
component of the decision to close the Stabilization Fund. Proposing 
both actions together in a fully transparent manner gave credit unions 
the opportunity to review and comment on the entire scope of the NCUA's 
plan related to closing the Stabilization Fund.
    Contrary to what some comments seem to imply, the Board is not 
aware of any credit unions that would fail based simply on not 
receiving an Insurance Fund distribution next year.

[[Page 46309]]

When Stabilization Fund assessments were collected, they were accounted 
for as expenses to credit unions and income to the Stabilization Fund. 
As the performance of the Legacy Assets improved and the NCUA collected 
legal recoveries, the projected assessment range became negative for 
the first time in 2013, indicating projected assessment rebates and 
recoveries of depleted corporate capital. At no time did the NCUA 
guarantee that assessment rebates would be made.\36\
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    \36\ The agency is under no legal obligation to distribute any 
funds to insured credit unions other than amounts above where the 
NCUA Board sets the normal operating level. In accordance with the 
Act, the Board can only set the normal operating level as high as 
1.50 percent. 12 U.S.C. 1782(h)(4).
---------------------------------------------------------------------------

    Rather, the Board noted that the assessment rebates were 
projections and subject to change. Therefore, credit unions should not 
have been relying on a possible refund for managing their financial 
condition.\37\
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    \37\ Credit unions must be able to operate under a business 
model that provides for positive earnings and the accumulation of 
net worth irrespective of potential one-time increases in income. By 
their nature, one-time payouts such as a distribution from the 
Insurance Fund, are unpredictable and non-recurring. Therefore, 
credit unions must be able to operate in a safe and sound manner 
through normal, routine operations.
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    A few commenters stated the ``proposed method for closing the 
[Stabilization Fund] does nothing to address the excessive $1B charged 
since its creation to the [Asset Management Estates] by the NCUA.'' It 
is unclear what expenses these commenters are referring to. The losses 
related to the corporate credit unions are described on the NCUA's Web 
site. They include, among others, losses on investment securities 
(Legacy Assets), as well as costs of funding other pre-liquidation 
obligations the corporate credit unions had incurred. Every effort was 
made to keep the costs of resolving the failed corporate credit unions 
as low as possible.\38\ However, the resolution of the corporate credit 
unions was necessary and allowed the NCUA and credit union community to 
contain the financial and operational impact of the crisis. In 
addition, without being conserved and liquidated, the corporate credit 
unions (1) would have been unable to extend operations for the time 
required to realize uncertain legal recoveries; and (2) would have been 
unable to recover the material amounts the Board was able to recover 
without the benefit of the Act's extender statute. Funds now available 
for distribution to credit unions are due principally to legal 
recoveries that enabled the asset management estates to repay some of 
the losses the Stabilization Fund incurred.
---------------------------------------------------------------------------

    \38\ NCUA has provided details of the liquidation expenses and 
costs associated with each asset management estate on its Web site. 
See NCUA's Q4 2016 Costs and Assessments Q&A (response to question 
15) and the Stabilization Fund's financial statements for additional 
information.
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    The Board appreciates commenters that considered how closing the 
Stabilization Fund might affect the NCUA's contingency funding. The 
Board reminds stakeholders that Public Law 111-22, Helping Families 
Save Their Homes Act of 2009, increased the NCUA's borrowing authority 
with the U.S. Treasury to $6 billion. This borrowing authority is 
shared by both the Stabilization Fund and the Insurance Fund. With 
closure of the Stabilization Fund, the Insurance Fund will retain the 
$6 billion borrowing authority. The Central Liquidity Facility's 
contingency funding ability is not altered by closure of the 
Stabilization Fund.
    The Board will address comments on its separate proposal to amend 
the Insurance Fund distribution method in 12 CFR 741.4 in a separate 
action.

IV. Final Action

    After considering the comments received, the Board approves the 
following:
    1. Closing the Stabilization Fund in 2017 and distributing its 
funds, property, and other assets and liabilities to the Insurance Fund 
on October 1, 2017.\39\
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    \39\ As noted in the July 2017 Notice, the Stabilization Fund 
will be audited as of September 30, 2017. The financial statements 
of the Insurance Fund will continue to be presented under standards 
promulgated by the Federal Accounting Standards Advisory Board and 
audited each calendar year. The post-closure financial statements 
and note disclosures for the Insurance Fund will continue to provide 
the same level of detail about the receivables from the corporate 
asset management estates and related fiduciary activities.
---------------------------------------------------------------------------

    2. Setting the normal operating level of the Insurance Fund to 1.39 
percent, effective September 28, 2017.\40\
---------------------------------------------------------------------------

    \40\ As explained in the July 2017 Notice, an equity ratio of 
1.39 percent will allow the Insurance Fund to withstand a moderate 
recession without the equity ratio falling below 1.20 percent over a 
five-year period.
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    3. Adopting the policy for setting the normal operating level, as 
outlined below.

Policy for Setting the Normal Operating Level

    Periodically, the NCUA will review the equity needs of the 
Insurance Fund and provide this analysis to stakeholders. Board action 
is only necessary when this review suggests that a change in the normal 
operating level is warranted. Any change to the normal operating level 
of more than 1 basis point shall be made only after a public 
announcement of the proposed adjustment and opportunity for comment. In 
soliciting comment, the NCUA will issue a public report, including data 
supporting the proposal.
    When setting the normal operating level, the Board will seek to 
satisfy the following objectives:
    <bullet> Retain public confidence in federal share insurance;
    <bullet> Prevent impairment of the one percent contributed capital 
deposit; and
    <bullet> Ensure the Insurance Fund can withstand a moderate 
recession without the equity ratio declining below 1.20 percent over a 
five-year period.

    By the National Credit Union Administration Board on September 
28, 2017.
Gerard S. Poliquin,
Secretary of the Board.
[FR Doc. 2017-21305 Filed 10-3-17; 8:45 am]
BILLING CODE 7535-01-P


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