[Federal Register Volume 66, Number 245 (Thursday, December 20, 2001)]
[Rules and Regulations]
[Pages 65622-65624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31286]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 700, 701, 712, 715, 723, 725, and 790


Definitions; Organization and Operation of Federal Credit Unions; 
Credit Union Service Corporations; Supervisory Committee Audits and 
Verifications; Member Business Loans; Central Liquidity Facility; 
Description of NCUA

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is issuing a final rule to amend various rules to make 
technical corrections and add and revise certain definitions. The Board 
is adding a scope section and definitions of ``paid-in and unimpaired 
capital and surplus'' and ``unimpaired capital and surplus'' to its 
rule containing definitions. The Board also is removing obsolete 
references from this rule and updating the rule concerning changes in 
officials of newly chartered or troubled credit unions. The Board is 
correcting a citation in the supervisory committee rule and making 
clarifications to the credit union service organization (CUSO) rule and 
the member business loan rule. In addition, the Board is updating and 
clarifying the definition for ``paid-in and unimpaired capital and 
surplus'' in the Central Liquidity Facility (CLF) rule. Finally, the 
Board is changing a reference in Part 790 from the ``Office of 
Community Development Credit Unions'' to the ``Office of Credit Union 
Development.''

DATES: This rule is effective January 22, 2002.

FOR FURTHER INFORMATION CONTACT: Regina Metz, Staff Attorney, Division 
of Operations, Office of General Counsel, at the National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428, or 
telephone: (703) 518-6561; or Herbert S. Yolles, Deputy Director, 
Office of Examination and Insurance, at the same address or telephone: 
(703) 518-6360.

SUPPLEMENTARY INFORMATION:

Background

    On June 21, 2001, NCUA issued a proposed rule on definitions and 
technical corrections. 66 FR 33211, June 21, 2001. The proposed rule 
resulted from NCUA's policy of continually reviewing its regulations to 
``update, clarify and simplify existing regulations and eliminate 
redundant and unnecessary provisions.'' Interpretive Rulings and Policy 
Statement (IRPS) 87-2, Developing and Reviewing Government Regulations. 
The NCUA Board is issuing the final rule unchanged from the proposed 
rule.
    The proposed rule replaced obsolete references in two parts of 
NCUA's regulations related with new references to prompt corrective 
action, section 216 of the Federal Credit Union Act. 12 CFR 700.1, 
701.14. In the definitions part of the regulations, the proposed rule 
added a scope section and definitions for ``paid-in and unimpaired 
capital and surplus'' and ``unimpaired capital and surplus.'' 12 CFR 
part 700. The proposed rule conformed definitions of paid-in and 
unimpaired capital and surplus in the CUSO and CLF rules to the 
proposed definitions in the definitions part. 12 CFR 712.2(d); 12 CFR 
725.2(o). The proposed rule also corrected a citation in the 
supervisory committee audit rule and clarified the member business loan 
rule by changing a reference from ``federally insured credit unions'' 
to ``federally insured state-chartered credit unions.'' 12 CFR 
715.2(l), 723.4. The proposed rule also updated NCUA's regulations by 
changing a reference in Part 790 from the ``Office of Community 
Development Credit Unions'' to the office's new name, the ``Office of 
Credit Union Development.'' The NCUA Board is adopting all the proposed 
changes in the final rule.

Summary of Comments

    The NCUA Board requested comment on all aspects of the proposed 
rule and received three comment letters: One from a national trade 
association, one from a state trade association, and one from a federal 
credit union (FCU). The two trade associations supported the proposal 
without qualification. The FCU offered a substantive comment regarding 
the definition of ``paid-in and unimpaired capital and surplus,'' 
discussed below. NCUA received no comment on the other provisions in 
the proposed rule. This preamble does not repeat discussions from the 
proposal for those provisions and the NCUA Board has adopted them as 
proposed.

``Paid-in and Unimpaired Capital and Surplus'' and ``Unimpaired 
Capital and Surplus''

    To improve the clarity of NCUA's regulations, the Board proposed to 
include definitions for ``paid-in and unimpaired capital and surplus'' 
and ``unimpaired capital and surplus'' in the general definitions part 
of the regulations. The proposed rule defined ``unimpaired capital and 
surplus'' as meaning the same as ``paid-in and unimpaired capital and 
surplus'' and

[[Page 65623]]

cross-referenced its definition. The proposed definition for ``paid-in 
and unimpaired capital and surplus'' was a refined statement of the 
definitions currently in the FCU Bylaws, but did not change the meaning 
of those definitions or the agency's long-standing interpretation.
    The proposed definition for paid-in and unimpaired capital and 
surplus was shares plus post-closing, undivided earnings. The preamble 
to the proposed rule stated that the term ``post-closing'' was simpler 
terminology that a credit union person, an examiner, and an accounting 
professional would understand to encompass the closing of the books and 
posting of all relevant and required period losses to undivided 
earnings. Post-closing undivided earnings incorporates and means the 
same as the language in the Bylaw provisions that define surplus 
(``after all losses have been provided for and net earnings or net 
losses have been added thereto or deducted therefrom'') and define 
unimpaired capital (``less any losses that may have been incurred for 
which there is no reserve or which have not been charged against 
undivided earnings''). The proposed definition further clarified the 
meaning of paid-in and unimpaired capital and surplus by including the 
statement that: ``This does not include regular reserves or special 
reserves required by law, regulation or special agreement between the 
credit union and its regulator or share insurer.''

Amendment to Definition of ``Paid-in and Unimpaired Capital and 
Surplus'' in the CLF Rule

    As stated in the proposed rule, the CLF is a mixed-ownership 
government corporation created to improve the general financial 
stability of credit unions by meeting their liquidity needs. 12 CFR 
725.1. Both state-chartered and federally-chartered credit unions may 
become members. 12 CFR 725.3. The Board proposed to revise the current 
definition in the CLF rule for paid-in and unimpaired capital and 
surplus. The current CLF rule combines the definition for paid-in and 
unimpaired capital in the FCU Bylaws with the definition of surplus in 
the FCU Bylaws and is substantively identical to those provisions. 12 
CFR 725.2(o). The current definition includes deposits because some 
state-chartered credit unions are authorized to accept deposits.
    The proposed rule defined paid-in and unimpaired capital and 
surplus in the CLF rule as shares and deposits plus post-closing, 
undivided earnings. The proposed definition further stated that the 
term does not include regular reserves or special reserves required by 
law, regulation or special agreement between the credit union and its 
regulator or share insurer.

Comments on the Definitions of ``Paid-in and Unimpaired Capital and 
Surplus''

    One commenter expressed the view that the NCUA should simplify the 
general definition of ``paid-in and unimpaired capital and surplus'' to 
``shares and deposits plus unappropriated earnings,'' in order to 
include the concept of ``unrealized gains or losses on investments'' as 
part of ``unappropriated earnings.'' The Board disagrees. The Board's 
view is that ``unappropriated earnings'' are equivalent to ``undivided 
earnings,'' and neither term includes unrealized gains or losses on 
investments, since these amounts are not yet earned or realized. Thus, 
the final rule uses the term ``undivided earnings.''
    Regarding the commenter's suggestion that the general definition 
include deposits, for the reasons stated in the proposed rule, only the 
CLF definition of ``paid-in and unimpaired capital and surplus'' 
includes deposits. The general definition does not include them in the 
final rule.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small entities (primarily those under one million 
dollars in assets). The final rule will not have a significant economic 
impact on a substantial number of small credit unions, and therefore, a 
regulatory flexibility analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the final rule would not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget.

Executive Order 13132

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

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) provides generally for congressional review of agency 
rules. A reporting requirement is triggered in instances where NCUA 
issues a final rule as defined by Section 551 of the Administrative 
Procedures Act. 5 U.S.C. 551. The Office of Management and Budget 
concurred with NCUA's opinion that the final rule does not constitute a 
major rule, for purposes of the Small Business Regulatory Enforcement 
Fairness Act of 1996.

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. NCUA requested comments on 
whether its proposed rule was understandable and minimally intrusive, 
but received no comments in response to this request.

List of Subjects

12 CFR Part 700

    Credit unions, Definitions.

12 CFR Part 701

    Credit unions.

12 CFR Part 712

    Credit unions, Credit union service organizations.

12 CFR Part 715

    Audits, Credit unions, Supervisory committees.

12 CFR Part 723

    Credit, Credit unions.

12 CFR Part 725

    Credit unions, Liquidity.

12 CFR Part 790

    Credit unions.


[[Page 65624]]


    By the National Credit Union Administration Board on December 
13, 2001.
Becky Baker,
Secretary of the Board.
    Accordingly, the NCUA amends 12 CFR parts 700, 701, 715, 723, 725, 
and 790 as follows:

PART 700--DEFINITIONS

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

    Authority: 12 U.S.C. 1752, 1757(6), 1766.


    2. Redesignate current Sec. 700.1 as Sec. 700.2 and add a new 
Sec. 700.1 to read as follows:


Sec. 700.1  Scope.

    The definitions in Sec. 700.2 apply to terms used in this chapter. 
Many additional definitions appear in the parts where the terms are 
used.

    3. In newly redesignated Sec. 700.2:
    A. Remove paragraphs (h) and (j);
    B. Redesignate paragraphs (e), (f), (g), and (i), as paragraphs 
(g), (h), (i), and (e) respectively; and
    C. Add new paragraphs (f) and (j), to read as follows:


Sec. 700.2  Definitions.

* * * * *
    (f) Paid-in and unimpaired capital and surplus means shares plus 
post-closing, undivided earnings. This does not include regular 
reserves or special reserves required by law, regulation or special 
agreement between the credit union and its regulator or share insurer. 
``Paid-in and unimpaired capital and surplus'' for purposes of the 
Central Liquidity Facility is defined in Sec. 725.2(o) of this chapter.
* * * * *
    (j) Unimpaired capital and surplus means the same as ``paid-in and 
unimpaired capital and surplus,'' as defined in paragraph (f) of this 
section.
* * * * *

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

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

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, and 1789. Section 701.6 is also 
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by 
15 U.S.C. 1601 et seq., 42 U.S.C. 1861 and 42 U.S.C. 3601-3610. 
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

    5. In Sec. 701.14, revise paragraphs (b)(3)(ii) and (b)(4)(ii) to 
read as follows:


Sec. 701.14  Change in official or senior executive officer in credit 
unions that are newly chartered or are in troubled condition.

* * * * *
    (b) * * *
    (3) * * *
    (ii) Has been granted assistance as outlined under sections 208 or 
216 of the Federal Credit Union Act.
    (4) * * *
    (ii) Has been granted assistance as outlined under sections 208 or 
216 of the Federal Credit Union Act.
* * * * *

PART 712--CREDIT UNION SERVICE ORGANIZATIONS (CUSOs)

    6. The authority citation for part 712 continues to read as 
follows:

    Authority: 12 U.S.C. 1756, 1757(5)(d) and (7)(I), 1766, 1782, 
1784, 1785, and 1786.


    7. Amend Sec. 712.2 by revising paragraph (d) to read as follows:


Sec. 712.2  How much can an FCU invest in or loan to CUSOs, and what 
parties may participate?

* * * * *
    (d) Measurement for calculating regulatory limitation. For purposes 
of paragraphs (a) and (b) of this section:
    (1) Paid-in and unimpaired capital and surplus means shares plus 
post-closing, undivided earnings (this does not include regular 
reserves or special reserves required by law, regulation or special 
agreement between the credit union and its regulator or share insurer); 
and
    (2) Total investments in and total loans to CUSOs will be measured 
consistent with GAAP.
* * * * *

PART 715--SUPERVISORY COMMITTEE AUDITS AND VERIFICATIONS

    8. Revise the authority citation for part 715 to read as follows:

    Authority: 12 U.S.C. 1761(b), 1761d, 1782(a)(6).

    9. Amend Sec. 715.2(l) by revising the first sentence to read as 
follows:


Sec. 715.2  Definitions used in this part.

* * * * *
    (l) Supervisory committee refers to a supervisory committee as 
defined in Section 111(b) of the Federal Credit Union Act, 12 U.S.C. 
1761(b). * * *
* * * * *

PART 723--MEMBER BUSINESS LOANS

    10. The authority citation for part 723 continues to read as 
follows:

    Authority: 12 U.S.C. 1756, 1757, 1757A, 1766, 1785, 1789.


    11. Amend Sec. 723.4 by revising the second sentence to read as 
follows:


Sec. 723.4  What are the other applicable regulations?

* * * Except as required by part 741 of this chapter, federally insured 
state-chartered credit unions are not required to comply with the 
provisions of Sec. 701.21(a) through (g) of this chapter.

PART 725--NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY 
FACILITY

    12. The authority citation for part 725 continues to read as 
follows:

    Authority: 12 U.S.C. 1795-1795f.


    13. Amend Sec. 725.2 by revising paragraph (o) to read as follows:


Sec. 725.2  Definitions.

* * * * *
    (o) Paid-in and unimpaired capital and surplus means shares and 
deposits plus post-closing, undivided earnings. This does not include 
regular reserves or special reserves required by law, regulation or 
special agreement between the credit union and its regulator or share 
insurer.
* * * * *

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

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

    Authority: 12 U.S.C. 1766, 1789, 1795f.

    15. Amend Sec. 790.2(b)(13) by revising the heading to read as 
follows:


Sec. 790.2  Central and regional office organization.

* * * * *
    (b) * * *
    (13) Office of Credit Union Development. * * *
* * * * *
[FR Doc. 01-31286 Filed 12-19-01; 8:45 am]
BILLING CODE 7535-01-U