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CFR Part: "12 CFR Parts 702, 741 and 791"
RIN Number: "RIN 3133-AE07"
Citation: "78 FR 4032"
"Rules and Regulations"
SUMMARY: The NCUA Board (Board) is issuing a final rule to amend Interpretive Ruling and Policy Statement (IRPS) 87-2, as amended by IRPS 03-2, and two NCUA regulations that apply asset thresholds to grant relief from risk-based net worth and interest rate risk requirements. The amended IRPS increases the asset threshold that identifies credit unions to which NCUA will give more robust consideration of regulatory relief in future rulemakings. The amended regulations similarly include increased asset thresholds, granting immediate and prospective relief from existing regulatory burden to a larger group of small credit unions.
EFFECTIVE DATE: This rule is effective
FOR FURTHER INFORMATION CONTACT:
II. Summary of Public Comments
III. Final Rule
IV. Regulatory Procedures
What changes does this final rule make?
The Regulatory Flexibility Act, Public Law 96-354, as amended (RFA), generally requires federal agencies to determine and specially consider the impact of proposed and final rules on small entities. Since 2003, NCUA has defined "small entity" in this context as a credit union with less than
FOOTNOTE 1 IRPS 03-2, 68 FR 31949 (
What changes were proposed?
FOOTNOTE 2 The proposal also included a technical amendment to 12 CFR 791.8. END FOOTNOTE
What is the history and purpose of the RFA?
FOOTNOTE 3 5 U.S.C. 603, 604, 605(b). The term "small entity" as used in the RFA includes small businesses, small organizations, and small government jurisdictions. 5 U.S.C. 601(6). Credit unions fall within the definition of organization. 5 U.S.C. 601(4). The RFA gives agencies authority, under certain conditions, to establish their own definition of "small entity." Id. END FOOTNOTE
FOOTNOTE 4 Id. END FOOTNOTE
FOOTNOTE 5 Id. END FOOTNOTE
In IRPS 81-4, the Board initially defined "small entity" for purposes of the RFA as any credit union with less than
FOOTNOTE 6 46 FR 29248 (
FOOTNOTE 7 52 FR 35231 (
FOOTNOTE 8 68 FR at 31949. END FOOTNOTE
FOOTNOTE 9 12 CFR 791.8(a). END FOOTNOTE
When the Board updated its RFA threshold to
FOOTNOTE 10 68 FR at 31950. END FOOTNOTE
FOOTNOTE 11 12 U.S.C. 1782(a)(6); 1790d. END FOOTNOTE
II. Summary of Public Comments
The public comment period for the proposed rule and IRPS ended on
Almost all commenters expressly supported the Board's efforts to relieve regulatory burden, with just over half advocating for changes to the proposed asset threshold, the criteria NCUA uses to define small entity, and/or the proposed three-year review period. In addition to resource concerns, multiple commenters drew comparisons between FICUs and non-credit union institutions with which they compete to advocate for a higher RFA threshold. The general comments on the proposal are described in detail below.
What were the general comments supporting the proposed rule or advocating for a higher asset threshold?
Commenters generally fell into groups that supported or advocated three different asset thresholds or ranges, including (a)
A second group of six commenters advocated for a threshold between
A third group, comprised of 16 commenters, suggested NCUA reference the
FOOTNOTE 12 13 CFR 121.201. END FOOTNOTE
FOOTNOTE 13 One commenter that advised referencing the SBA's threshold suggested
FOOTNOTE 14 77 FR 55737, 55747 (
What were the general comments on the three-year review period and criteria for defining small entities?
Eleven commenters thought NCUA's RFA threshold should be reviewed or automatically adjusted every 18 months, or at least more frequently than every three years, asserting that the SBA reviewed its threshold on such a schedule. The other supportive commenters (over two-thirds of all commenters) either expressed support for the three-year review period or did not mention the review period in their comments supporting the proposal. A few commenters suggested using one or more additional or alternative criteria to define small entity, including number of branches, number of employees, relative risk, and gross revenues.
What were the comments opposing or not expressly supporting the proposed rule?
One commenter stated that the RFA is bad policy for financial institutions and that smaller institutions have more risk and should be subject to equally or more stringent standards and oversight. This commenter thought the proposed rule would create a tiered regulatory system and impede consolidation and efficiency that benefits members. One commenter noted the challenge and expense of regulatory compliance but did not expressly support or oppose any aspect of the proposed rule. Finally, one commenter advocated for three groups of small credit unions: A micro small group (less than
What other comments did NCUA receive?
A few commenters made suggestions that no other commenters proposed or made suggestions on matters the Board did not address in the proposed rule. One commenter, who otherwise supported reference to the SBA's threshold, suggested NCUA use an alternative threshold of
One commenter criticized NCUA for requiring compliance with the interest rate risk rule on the rule's
FOOTNOTE 15 The Board understands that some FICUs exempt from interest rate risk rule requirements because of this final rule nevertheless adopted an interest rate risk policy and program as of
FOOTNOTE 16 The Board will consider regulatory burden in the emergency liquidity rule in a manner consistent with the principles expressed here and seeks to avoid blending parallel, ongoing rulemakings. Further, the Board believes a discussion of unaffected thresholds would make this rulemaking confusing and more cumbersome without contributing to its clarity. This final rule and IRPS will affect only the thresholds it expressly addresses. END FOOTNOTE
FOOTNOTE 17 The term "complex" appears in the FCU Act in connection with risk-based net worth requirements. See 12 U.S.C. 1790d(d). Only
Multiple commenters stated that NCUA's complexity index from the proposed rule's preamble was not a reliable indicator of risk and would unnecessarily reduce the scope of regulatory relief and become a disincentive to diversify products and services. /18/ A couple commenters also requested more rigorous RFA analysis for NCUA regulations. /19/
FOOTNOTE 18 The complexity index is only one reference point that helped the Board develop a proposed threshold. While the index is a good indicator of a FICU's relative risk, it does not necessarily measure whether a particular risk presented by an exemption from a specific rule is acceptable. END FOOTNOTE
FOOTNOTE 19 The Board welcomes general comments in this respect and also particular comments on ensuring an effective RFA analysis in future regulations. END FOOTNOTE
The Board has carefully considered all the public comments it received in response to the proposed rule and IRPS. Recognizing the concerns and suggestions the above commenters raised, the Board has made a substantial adjustment in the final rule. The final rule and the Board's response to the public comments are discussed below.
III. Final Rule
What changes does this final rule make?
a. The RFA Asset Threshold
This final rule and IRPS 13-1 amends IRPS 87-2 and partially supersedes IRPS 03-2 by changing the definition of "small entity" to include credit unions with less than
As shown in the table below, FICUs with less than
FOOTNOTE 20 The table also shows percentages for various other asset thresholds, based on the most recent Call Report, for comparison to the 1998 percentages. The percentages for FICUs with less than
Threshold % Units % System % System net % NCUSIF # Units ( $M) assets worth < $10 60.4 5.5 6.9 561.2 6,637 (1998) < $10 34.9 1.0 1.3 80.4 2,402 < $25 54.2 3.1 4.0 264.3 3,731 < $30 58.0 3.8 4.8 325.5 3,997 < $35 61.2 4.5 5.6 384.2 4,213 < $40 63.5 5.1 6.2 434.7 4,374 < $45 65.8 5.8 7.0 490.9 4,532 < $50 67.8 6.4 7.7 569.6 4,672 < $175 86.0 18.1 19.7 1534.5 5,925 < $500 94.2 34.5 36.3 2931.4 6,485
Commenters advocating that the Board set the threshold higher than
FOOTNOTE 21 See 12 U.S.C. 601(4) (permitting agencies to establish one or more definitions that "are appropriate to the activities of the agency"). END FOOTNOTE
In the context of the SBA's broad mandate covering a host of industries, a
FOOTNOTE 22 77 FR 55747. END FOOTNOTE
With respect to commenters advocating alternative criteria for the RFA definition, the Board continues to believe that an asset threshold is the best and most transparent measurement for NCUA's RFA definition. Using an asset threshold is consistent with size standards that appear elsewhere in the FCU Act and NCUA regulations. Further, regardless of a FICU's business model, the Board believes the total assets measurement remains the principal comparative tool that the industry uses to determine a FICU's relative size.
b. The Review Period
The final rule sets an initial review period of two years, but it retains the three-year period from the proposed rule for subsequent reviews. The majority of commenters either expressly supported the proposed review period or did not advocate for an alternative period. As stated in the proposal, a three-year review period provides a reasonable time within which to discern new trends in percentage, loss, and risk data. In addition, a three-year period is consistent with the longstanding review period NCUA uses for all its regulations. It provides sufficient time to avoid the uncertainty of a continuous cycle of rulemakings and policy adjustments that a shorter period could create.
Finally, a three-year period will provide more frequent review than that required of the SBA, which several commenters referenced. Under the Small Business Jobs Act of 2010 (Jobs Act), the SBA must review at least one-third of its size standards in 18-month intervals, starting from date the Jobs Act was enacted, with no longer than five-year review periods thereafter. /23/ Reviewing one-third of size standards at 18-month intervals would bring each standard up for SBA review every 4.5 years. The Board will initially review the size standards in this rule, however, within two years of its effective date. After that, the Board will review the standards every three years. The Board believes a shorter initial review period is appropriate given the time passed since the threshold was last reviewed and updated.
FOOTNOTE 23 77 FR 55737. END FOOTNOTE
c. The Interest Rate Risk and Risk-Based Net Worth Rules
This final rule adopts a
In addition, the final rule exempts FICUs of
In general, incremental risk elevation will accompany the exclusion of more FICUs from regulations aimed principally at reducing risk. The Board believes the incremental risk presented by raising the regulatory thresholds to
The proposed rule's preamble acknowledged that FICU loss history since 1998 shows that even FICUs with somewhat more than
Assets Number of failures NCUSIF Loss ( $M) Percentage of total ( $M) NCUSIF losses Failures Cumulative Loss for Cumulative Percent Cumulative for asset asset for asset (%) range range range (%) < $10 205 205 $138.5 $138.5 14.3 14.3 $10 to < 12 217 31.0 169.5 3.2 17.5 $20 $20 to < 8 225 22.8 192.2 2.4 19.9 $30 $30 to < 9 234 36.2 228.4 3.7 23.6 $40 $40 to < 4 238 11.3 239.7 1.2 24.8 $50 $50 to < 1 239 3.3 243.1 0.3 25.1 $60 $60 to < 0 239 0.0 243.1 0.0 25.1 $70 $70 to < 2 241 11.3 254.4 1.2 26.3 $80 $80 to < 4 245 22.4 276.8 2.3 28.6 $90 $90 to < 3 248 66.1 342.9 6.8 35.4 $100 $100 to < 10 258 76.3 419.2 7.9 43.3 $200 $200 to < 7 265 512.7 931.9 53.0 96.3 $500 >/= $500 1 266 36.1 968.0 3.7 100.0
As reflected in the table below, almost half of total losses over the last ten years for FICUs under
Asset size < $10M < $20M < $30M < $40M < $50M # Failures Last 132 143 151 160 162 10 years Losses ( $M) Last $104.4 $150.3 $171.7 $207.9 $212.8 10 years Avg. # Failures 12.3 13.3 14 14.9 15.1 Per Year
More specifically, NCUA determined that, as of the last Call Report, only one credit union between the proposed <money>$30 million threshold and a
For the interest rate risk rule, 56.3 percent of the approximately 2,270 FICUs between
How does the final rule and IRPS affect FICUs?
The change to the RFA threshold will ensure that regulatory burden will be more consistently and robustly considered for approximately 2,270 additional FICUs. Around 4,670 FICUs with less than
FOOTNOTE 24 12 CFR 702.202(a). END FOOTNOTE
IV. Regulatory Procedures
A. Regulatory Flexibility Act
The RFA requires NCUA to prepare an analysis to describe any significant economic impact a final rule may have on a substantial number of small entities (defined in this final rule and IRPS as credit unions with under
With respect to additional FICUs covered by the RFA for future regulations, the final rule and IRPS provides prospective relief in the form of special and more robust consideration of their ability to handle compliance burden. This prospective relief is not quantifiable. Accordingly, NCUA has determined and certifies that the final rule and IRPS will not have a significant economic impact on a substantial number of small entities. No regulatory flexibility analysis is required.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995, Public Law 104-13 (PRA), applies to rulemakings in which an agency creates a new paperwork burden on regulated entities or modifies an existing burden. For purposes of the PRA, a paperwork burden may take the form of either a reporting or a recordkeeping requirement, both referred to as information collections. This final rule's changes to 12 CFR 702.103 and 741.3(b)(5) will cause an immediate and prospective reduction in paperwork burden related to PCA requirements and interest rate risk policies for FICUs between
C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the Executive Order to adhere to fundamental federalism principles. This final rule and IRPS does not have a substantial direct effect on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this final rule does not constitute a policy that has federalism implications for purposes of the Executive Order.
D. Assessment of Federal Regulations and Policies on Families
NCUA has determined that this final rule and IRPS will not affect family well-being within the meaning of Section 654 of the Treasury and General Government Appropriations Act of 1999, Public Law 105-277.
E. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 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 in the Administrative Procedure Act. /25/ NCUA believes this final rule is not a major rule for purposes of the Small Business Regulatory Enforcement Fairness Act, but a determination from the
FOOTNOTE 25 5 U.S.C. 551. END FOOTNOTE
List of Subjects
12 CFR Part 702
Credit unions, Reporting and recordkeeping requirements.
12 CFR Part 741
Credit unions, Requirements for insurance.
12 CFR Part 791
Administrative practice and procedure, Sunshine Act.
By the National Credit Union Administration Board on
Secretary of the Board.
Interpretive Ruling and Policy Statement 87-2
For the reasons stated above, IRPS 13-1 amends IRPS 87-2 (52 FR 35231,
II. Procedures for the Development of Regulations
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2. * * * NCUA will designate credit unions with less than
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Conforming Amendments to NCUA Regulations
For the reasons discussed above, the Board amends 12 CFR parts 702, 741 and 791 as follows:
PART 702--PROMPT CORRECTIVE ACTION
1. The authority citation for part 702 continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1790d.
a. Removing "ten" and adding in its place "fifty", and
b. Removing "
PART 741--REQUIREMENTS FOR INSURANCE
3. The authority citation for part 741 continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781-1790 and 1790d; 31 U.S.C. 3717.
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(b) * * *
(5) The existence of a written interest rate risk policy ("IRR policy") and an effective interest rate risk management program ("effective IRR program") as part of asset liability management. Federally insured credit unions ("FICUs") with assets of more than
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PART 791--RULES OF NCUA BOARD PROCEDURES; PROMULGATION OF NCUA RULES AND REGULATIONS; PUBLIC OBSERVATION OF NCUA BOARD MEETINGS
5. The authority citation for part 791 continues to read as follows:
Authority: 12 U.S.C. 1766, 1789 and 5 U.S.C. 552b.
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(a) NCUA's procedures for developing regulations are governed by the Administrative Procedure Act (5 U.S.C.
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[FR Doc. 2013-00864 Filed 1-17-13;
BILLING CODE 7535-01-P
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