Eligible Obligations, Charitable Contributions, Nonmember Deposits, Fixed Assets, Investments, Member Business Loans, and Regulatory Flexibility…
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Eligible Obligations, Charitable Contributions, Nonmember Deposits, Fixed Assets, Investments, Member Business Loans, and Regulatory Flexibility Program
Proposed rule with request for comments.
CFR Part: "12 CFR Parts 701, 703, 723, and 742"
RIN Number: "RIN 3133-AD98"
Citation: "76 FR 81421"
"Proposed Rules"
SUMMARY: NCUA proposes to eliminate the Regulatory Flexibility Program (RegFlex) to provide regulatory relief to Federal credit unions. NCUA also proposes to remove or amend related rules to ease compliance burden while retaining certain safety and soundness standards. Those rules pertain to eligible obligations, charitable contributions, nonmember deposits, fixed assets, investments, and member business loans.
EFFECTIVE DATE: Send your comments to reach us on or before
ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only):
* Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. NCUA Web Site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx Follow the instructions for submitting comments.
* E-mail: Address to [email protected]. Include "[Your name] Comments on Proposed Rule 742, Regulatory Flexibility Program" in the e-mail subject line.
* Fax: (703) 518-6319. Use the subject line described above for e-mail.
* Mail: Address to
* Hand Delivery/Courier: Same as mail address.
Public Inspection: You can view all public comments on NCUA's Web site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA's law library at
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
I. Background
II. The Rule as Proposed
III. Section-by-Section Analysis
IV. Regulatory Procedures
I. Background
a. Why is NCUA proposing this rule?
On
FOOTNOTE 1
b. What is RegFlex?
RegFlex relieves FCUs from certain regulatory restrictions and grants them additional powers if they have demonstrated sustained superior performance as measured by CAMEL rating and net worth classification. 12 CFR 742.1. An FCU may qualify for RegFlex treatment automatically or by application to the appropriate regional director. 12 CFR 742.2. Specifically, an FCU automatically qualifies when it has received a composite CAMEL rating of "1" or "2" during its last two examinations and has maintained a net worth classification of "well capitalized" under part 702 of NCUA's rules for the last six quarters. If an FCU is subject to a risk-based net worth (RBNW) requirement under part 702, it also qualifies for RegFlex treatment when it has remained "well capitalized" for the last six quarters after applying the applicable RBNW requirement. An FCU that does not automatically qualify may apply for a RegFlex designation with the appropriate regional director. 12 CFR 742.2(a) and (b).
The Board established RegFlex in 2002. 66 FR 58656 (
The current RegFlex rule provides RegFlex FCUs with relief from restrictions in the following six areas or "flexibilities": (1) Charitable contributions; (2) nonmember deposits; (3) fixed assets; (4) zero-coupon investments; (5) borrowing repurchase transactions; and (6) commercial mortgage related securities. It also provides an additional flexibility by specifically authorizing the purchase of obligations from federally insured credit unions beyond those an FCU may purchase under the NCUA's eligible obligations rule,
II. The Rule as Proposed
a. How would this rule change RegFlex and reduce regulatory burden on FCUs?
NCUA proposes to eliminate RegFlex and the charitable contributions rule, and amend the rules that apply to eligible obligations, nonmember deposits, fixed assets, and investments. With this proposal, the Board intends to enable FCUs to engage in the activities permitted by the existing RegFlex rule. As of
The proposed rule places most of the six flexibilities of the RegFlex rule into the subject-specific rules that apply to all FCUs. Under the existing rule, RegFlex FCUs do not have to comply with the charitable contributions rule. The proposed rulemaking, therefore, removes the charitable contributions rule so that all FCUs may make donations based on sound judgment and business practices without regulatory restrictions. At present, RegFlex FCUs do not have to comply with the limits on nonmember deposits. The NCUA Board has reviewed the amount of nonmember deposits currently held by FCUs and proposes an adjustment to the nonmember deposits rule to allow FCUs to accept more nonmember deposits. Likewise, the proposed rulemaking extends the amount of time in which FCUs must occupy unimproved property to six years, as currently permitted for RegFlex FCUs. Finally, the proposed amendments to the investment rule permit extended maturities for zero-coupon investments and borrowing repurchase transactions as well as the ability to purchase commercial mortgage related securities under similar conditions to the existing RegFlex rule. In addition, the proposed rule moves the provisions to buy nonmember and other obligations currently found in the RegFlex rule, into the eligible obligations rule,
This proposal closely follows the analyses the Board previously used when it adopted the various flexibilities in the RegFlex rule. While the proposed rule extends relief to FCUs, the Board recognizes the relief granted by this proposal may not be appropriate for every FCU. Only FCUs with the requisite expertise and policies to engage in the activities addressed in this rulemaking, as well as the financial condition necessary for particular activities, should avail themselves of the proposed new authorities. Each FCU's board of directors bears the ultimate responsibility for its FCU's direction and control. NCUA may also take appropriate supervisory action to address unsafe and unsound practices or conditions.
b. Does this rule create greater restrictions than the current rules?
No, although the proposal modifies some of the RegFlex flexibilities. The Board proposes to establish a maximum maturity of 30 years for zero-coupon investments even though the RegFlex rule does not currently subject RegFlex FCUs to a maturity limit on these investments. The Board believes the maturity cap will have no negative impact on these FCUs. The proposed rule also removes the automatic exemption from the nonmember deposits limit, but the Board does not foresee any adverse impact on FCUs with the proposed change.
RegFlex FCUs currently operating under the automatic exemption criteria for a RegFlex designation will generally continue to be able to avail themselves of the flexibilities found in part 742. Under the proposal, FCUs that received a RegFlex designation from a regional director because they did not meet the standards for automatic qualification will now, like current non-RegFlex FCUs, have certain conditions placed on their previous RegFlex flexibilities, unless they receive approval for additional authority. The Board discusses these conditions further in the section-by-section analysis.
III. Section-by-Section Analysis
NCUA proposes to remove part 742 in its entirety to eliminate RegFlex. NCUA also proposes to remove or amend the related rules that apply to eligible obligations, charitable contributions, nonmember deposits, fixed assets, investments, and member business loans. As the Board noted when it first adopted RegFlex, the regulatory provisions covered in RegFlex are not specifically required by statute. This proposed rulemaking aims to ease compliance burden and permit greater flexibility for FCUs in managing their operations, while simultaneously retaining certain safety and soundness standards.
The Board also intends to delete an FCU's ability to appeal the revocation of its RegFlex designation to the NCUA's Supervisory Review Committee. NCUA Interpretive Ruling and Policy Statement (IRPS) 11-1, 76 FR 23871 (
a. Charitable Contributions
FCUs make charitable contributions under the provision in the FCU Act that authorizes an FCU "to exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated." 44 FR 56691 (
The current charitable contributions rule,
The Board proposes to eliminate the entire charitable contributions rule,
b. Nonmember Deposits
The FCU Act permits an FCU to receive shares from nonmember public units, political subdivisions /2/ and credit unions, but the FCU is subject to the limits in the nonmember deposits rule,
FOOTNOTE 2 The terms "public unit" and "political subdivision" in the nonmember deposit rule are defined in paragraphs (c) and (d) of
Currently, only four RegFlex FCUs exceed the limitation in
c. Fixed Assets
The FCU Act authorizes an FCU to purchase, hold, and dispose of property necessary or incidental to its operations. 12 U.S.C. 1757(4). Generally, the fixed asset rule provides limits on fixed asset investments, establishes occupancy and other requirements for acquired and abandoned premises, and prohibits certain transactions. 12 CFR 701.36. Fixed assets are defined in
When an FCU acquires premises for future expansion and does not fully occupy the space within one year, the rule requires the FCU's board of directors to have a resolution in place by the end of that year with plans for full occupation. 12 CFR 701.36(b)(1). Additionally, the FCU must partially occupy the premises within three years, unless the FCU obtains a waiver within 30 months of acquiring the premises. 12 CFR 701.36(b)(1)-(2). Where an FCU is acquiring unimproved land, the partial occupancy requirement often is more difficult to satisfy than if the FCU were purchasing premises with an existing branch building. The existing fixed assets rule and the RegFlex rule extend the three-year time period to six years for RegFlex FCUs, but only with respect to the acquisition of unimproved land. 12 CFR 701.36(d), 742.4(a)(3).
The Board proposes to amend the fixed assets rule to extend the three-year time period to six years for any FCU that is acquiring unimproved land. This extension would not apply, however, to any other kind of premises. As it discussed in previous rulemakings, the Board is aware that the fixed asset rule's three-year partial occupancy requirement, even with a waiver option, may be burdensome for some FCUs. NCUA recognizes many real estate transactions are complex and time consuming. These transactions involve a full array of issues that an FCU must address before it is ready to occupy the premises. This is especially true in the unimproved land context with its construction-related issues. The Board believes it is appropriate to now extend relief from this compliance burden to all FCUs by allowing an FCU up to six years to partially occupy some of the space on a full-time basis if it initially acquired the property as unimproved land. Under the proposed change to paragraph (b)(2) in
d. Zero-Coupon Investments
Under SEC 703.16(b), an FCU may not purchase a zero-coupon investment with a maturity date that is more than 10 years from the related settlement date. The RegFlex rule exempts RegFlex FCUs from the maximum maturity length of 10 years in the investment rule. 12 CFR 742.4(a)(4). When creating the exemption for RegFlex FCUs, the Board determined it would not have a significant adverse impact on safety and soundness and would increase potential yield with prudent asset liability management. 66 FR 58656, 58659 (
Since the adoption of the RegFlex rule, however, NCUA has carefully reviewed the strategic and risk management considerations for permitting the use of long-term zero-coupon investments in credit union portfolios. NCUA has concluded that such long-term investments generally are not appropriate. Zero-coupon investments with maturities exceeding 10 years have higher price sensitivity than other securities, including shorter-term zero-coupon investments. This increased price sensitivity, together with the lack of interim cash flows, makes long-term zero-coupon investments inconsistent with the primary portfolio objectives of safety and liquidity.
The table below shows approximate percentage declines in the price of zero-coupon investments and coupon-bearing Treasury bonds from a 300 basis point increase in rates. The percentage loss on zero-coupon investments increases dramatically with maturity and greatly exceeds that on coupon-bearing Treasury bonds at maturities greater than 10 years. Losses of this magnitude could also make FCUs reluctant to sell zero-coupon investments and recognize losses during periods of liquidity stress.
Maturity % Change in Price (from % Change in Price (from (Years) +300 bps) Zero-Coupon +300 bps) Coupon Treasury Treasury 2 4 4 5 12 12 10 25 21 20 44 30 30 58 39 Source: Bloomberg--TRA function,October 7, 2011 .
To balance the risk management concerns inherent in zero-coupon investments with the flexibility previously granted to RegFlex FCUs, the Board proposes to establish the maximum maturity date of zero-coupon investments to 30 years for any FCU that meets a "well capitalized standard" for purposes of this rulemaking. An FCU meeting the "well capitalized standard" is an FCU that has received a composite CAMEL rating of "1" or "2" during its last two examinations and (1) has maintained a "well capitalized" net worth classification for the immediately preceding six quarters, or (2) has remained "well capitalized" for the immediately preceding six quarters after applying the applicable RBNW requirement. The Board expects that FCUs considering the purchase of zero-coupon investments will be familiar with the dramatic rise in percentage loss on these investments with maturity, as demonstrated in the table. Only FCUs with the appropriate level of expertise positioned to measure the safety and soundness of purchasing zero-coupons with extended maturities should consider such investments.
To ensure the proposed rule does not eliminate the flexibility currently enjoyed by RegFlex FCUs, the proposed rule "grandfathers" zero-coupon investments purchased in accordance with current
An FCU that does not meet the well capitalized standard will be held to the requirement currently found in
To achieve the Board's objectives, the Board proposes to remove the current prohibition from
e. Borrowing Repurchase Transactions
A borrowing repurchase transaction is a transaction in which an FCU agrees to sell a security to a counterparty and to repurchase the same or an identical security from that counterparty at a specified future date and at a specified price. 12 CFR 703.2. Subject to additional restrictions, an FCU may enter into a borrowing repurchase transaction so long as any investments the FCU purchases with borrowed funds mature no later than the maturity of the borrowing repurchase transaction. 12 CFR 703.13(d).
As stated, the investment rule prohibits an FCU from purchasing a security with the proceeds from a borrowing repurchase agreement if the purchased security matures after the maturity of the borrowing repurchase agreement. 12 CFR 703.13(d)(3). NCUA adopted this restriction because FCUs could incur significant interest rate risk by borrowing funds at short-term interest rates and investing in long-term fixed rate instruments. Interest rate risk results if an FCU invests the proceeds of the transaction significantly shorter or longer than the borrowing transaction.
NCUA, however, adopted a limited exemption for RegFlex FCUs from the maturity restriction. 68 FR 32958, 32959 (
The Board proposes to continue this flexibility of mismatched maturities for borrowing repurchase transactions for FCUs meeting the well capitalized standard. The Board also proposes extending relief from the maturity requirement to FCUs that do not meet the well capitalized standard. The proposal amends paragraph (d)(3) of
The proposed
The Board proposes that an FCU that does not meet the well capitalized standard enter a borrowing repurchase agreement with a maturity mismatch between the repurchase agreement and the reinvested funds not to exceed 30 days. The Board seeks comment on whether the regulation should specify minimum experience requirements for staff involved in the analysis and ongoing risk management of a repurchase-agreement book, especially in cases where maturities of sources and uses are mismatched.
f. Commercial Mortgage Related Security
Section 703.16(d) of NCUA's investment rule generally prohibits an FCU from purchasing commercial mortgage related securities (CMRS) of an issuer other than a government-sponsored enterprise. This prohibition is consistent with section 107(7)(E) of the FCU Act. 12 U.S.C. 1757(7)(E). Under
Based on its analysis of the interplay of these sections in the FCU Act and the development of the CMRS market, NCUA permitted RegFlex FCUs to purchase CMRS that are not otherwise permitted by section 107(7)(E) of the FCU Act, subject to certain safety and soundness related restrictions. 68 FR 32958 (
Under the existing RegFlex rule,
FOOTNOTE 3 As required by Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the Board issued a proposal on
The proposed rule removes the
Finally, the proposed rule adds a grandfather provision to
The Board acknowledges that the proposed authority, as with all of the flexibilities that would be granted under this proposed rulemaking, is not appropriate for every FCU. Selection of CMRS consistent with safety and soundness requires careful analysis of the underlying commercial mortgages and corresponding collateral, as well as analysis of the cash flow, credit structure, and market performance of the security. As with all investments, FCUs must understand and be capable of managing the risks associated with CMRS before purchasing them. The investment rule's
The Board also notes that the proposal does not diminish NCUA's authority to require an FCU to divest its investments or assets for substantive safety and soundness reasons. Divestiture is a safety and soundness remedy imposed on a case-by-case basis.
The Board seeks comment on whether the conditions for purchasing CMRS in the rule should be enhanced to encourage diversity and mitigate risk. NCUA is concerned from its recent experience that the current rule may contain inadequate limitations.
g. Eligible Obligations
The eligible obligations rule permits an FCU to purchase loans from any source, provided that two conditions are satisfied. 12 CFR 701.23. First, the borrower is a member of that FCU. Second, the loan is either of a type the FCU is empowered to grant or the FCU refinances the loan within 60 days of its purchase to meet that standard. 12 CFR 701.23(b)(1)(i). The phrase "empowered to grant" refers to an FCU's authority to make the type of loans permitted by the FCU Act, NCUA regulations, FCU Bylaws, and an FCU's own internal policies. NCUA OGC Op. 04-0713 (
The current RegFlex rule permits RegFlex FCUs to buy loans from other federally insured credit unions without regard to whether the loans are eligible obligations of the purchasing FCU's members or the members of a liquidating credit union. 12 CFR 742.4(b). Loans purchased from a liquidating credit union, however, are subject to the eligible obligations cap of 5 percent unimpaired capital and surplus. 12 CFR SEC 742.4(b)(4); 66 FR 15055, 15059 (
The proposed rule retains the flexibility provided currently in the RegFlex rule for FCUs meeting the well capitalized standard by transferring the provisions of current
The Board requests specific comment on whether it should extend the flexibility from the eligible obligations rule as discussed to all FCUs. Are there safety and soundness concerns that prevent the Board from extending this authority to all FCUs? Alternatively, should the final rule permit FCUs that do not meet the well capitalized standard to request approval from regional directors, similar to the proposed process for expanded investment authority?
h. Summary of Proposed Sections
In a further effort to comply with the Plain Writing Act of 2010 (Pub. L. 111-274), the Board includes the following table to assist readers in following the various proposed authorities for well capitalized FCUs and FCUs that do not meet the well capitalized standard. We are providing this table for your reference only. Please refer to the preamble and proposed regulatory text for specific information about the proposed rule.
Proposed rule authority FCUs meeting well FCUs not meeting well capitalized standard capitalized standard Charitable Contributions Well capitalized FCUs may This flexibility would be make donations consistent extended to all FCUs. with their incidental powers authority and board's fiduciary duties Non-member Deposits May accept up to the This flexibility would be greater of 20% total extended to all FCUs. shares or $3 million. (The proposed rule raises May request exemption the dollar threshold from from regional director $1.5 million to $3 for greater amount million. An FCU with less than $15 million in total shares may now accept up to $3 million in nonmember deposits.) Unimproved Property for May take up to six years This flexibility would be Future Expansion to partially occupy extended to all FCUs. unimproved property purchased for future expansion Zero-coupon Investments* May purchase Zero-coupon May purchase Zero-coupon investments with maturity investments with maturity dates up to 30 years dates up to 10 years. May request authority from regional director for maturities up to 30 years. Borrowing Repurchase May enter into Borrowing May enter into Borrowing Transaction* Repurchase Transactions Repurchase Transactions where the underlying where the underlying investments mature later investments mature no than the borrowing, up to later than 30 days after 100 percent of net worth the borrowing, up to 100 percent of net worth. May request authority from regional director for longer maturity mismatch. Private Label Commercial Not restricted to Similar flexibilities Mortgage Related Security purchasing only CMRS would be extended to all (CMRS)* issued by Fannie Mae or FCUs, under the following Freddie Mac. May purchase conditions: Private Label CMRS if: Requirements (i)-(iii) (i) the security is rated would be the same as for in one of the two highest Well Capitalized FCUs. rating categories by at The limit in requirement least one NSRO; (iv) would be 25 percent (ii) it is a "mortgage of net worth. May request related security" under approval from the the Securities Exchange regional director for Act of 1934 and S. 703.2; higher limit, up to 50 (iii) the pool of loans percent of net worth, if underlying the CMRS FCU has 3 consecutive contains more than 50 years of effective CMRS loans with no one loan portfolio management and representing more than 10 the ability to evaluate percent of the pool; and key risk factors. (iv) the FCU does not purchase an aggregate amount in excess of 50 percent of net worth. Purchase of Eligible In addition to the May purchase EOs under Obligations (EOs)* authority in the current the conditions in the S. 701.23, may buy loans current S. 701.23 from otherfederally (subject to membership or insured credit unions pooling requirements). without regard to whether the loans are EOsof the purchasing FCU's members. May also purchase nonmember student loans and real estate loans without the need to purchase them in order to facilitate a secondary market pool package. Also may purchase loans from a liquidating credit union regardless of whether the loans were made to liquidating CU's members, subject to the aggregate cap on eligible obligations of 5 percent of unimpaired capital and surplus * All authorized activity entered into before effective date is grandfathered.
i. Request for Comment
The Board asks for your comment on whether the proposed rulemaking accomplishes the following: (1) Reduces compliance burden for FCUs; (2) assists them in improving financial performance; and (3) better enables them to provide member services, including extensions of credit. The Board also asks for your comment as to whether FCUs without consistently strong examination ratings and levels of net worth have the ability to manage the risks of the proposed expanded authorities. For instance, if NCUA grants additional authority regarding the maturity limit restrictions on zero-coupon investments or borrowing repurchase transactions for FCUs, that either do not meet the well capitalized standard or lack demonstrated expertise in managing particular investment risk, does it raise significant liquidity or safety and soundness concerns?
IV. Regulatory Procedures
a. Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a proposed rule may have on a substantial number of small entities (primarily those under
b. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or modifies an existing burden. 44
The proposed rule contains an information collection in the form of a voluntary written request for additional authorities from a regional director under proposed
NCUA considers comments by the public on this proposed collection of information in:
* Evaluating whether the proposed collection of information is necessary for the proper performance of the functions of the NCUA, including whether the information will have a practical use;
* Evaluating the accuracy of the NCUA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
* Enhancing the quality, usefulness, and clarity of the information to be collected; and
* Minimizing the burden of collection of information on those who are required to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
The PRA requires the
Comments on the proposed information collection requirements should be sent to:
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 proposed rule would not have a substantial direct effect on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this proposed rule does not constitute a policy that has federalism implications for purposes of the executive order.
e. Agency Regulatory Goal
NCUA's goal is to promulgate clear and understandable regulations that impose minimal regulatory burden. We request your comments on whether this proposed rule is understandable and minimally intrusive if implemented as proposed.
List of Subjects
12 CFR part 701
Credit unions.
12 CFR part 703
Credit unions, Investments.
12 CFR part 723
Credit, Credit unions, Reporting and recordkeeping requirements.
12 CFR part 742
Credit unions, reporting and recordkeeping requirements.
By the National Credit Union Administration Board on
Secretary of the Board.
For the reasons discussed above, NCUA proposes to amend 12 CFR parts 701, 703, 723, and 742 as follows:
PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS
1. 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.
2. In
a. Redesignate paragraphs (b)(2) and (3) as paragraphs (b)(3) and (4);
b. Add new paragraph (b)(2);
c. In newly redesignated paragraph (b)(4) introductory text, remove the phrase "under paragraph (b) of this section" and add in its place "under paragraphs (b)(1) and (b)(2)(ii) of this section";
d. Add paragraph (b)(5) to read as follows:
The additions read as follows:
* * * * *
(b) * * *
(2) Purchase of obligations from a FICU. A Federal credit union that received a composite CAMEL rating of "1" or "2" for the last two (2) examinations and maintained a net worth classification of "well capitalized" under part 702 of this chapter for the six (6) immediately preceding quarters or, if subject to a risk-based net worth (RBNW) requirement under part 702 of this chapter, has remained "well capitalized" for the six (6) immediately preceding quarters after applying the applicable RBNW requirement may purchase and hold the following obligations, provided that it would be empowered to grant them:
(i) Eligible obligations. Eligible obligations pursuant to paragraph (b)(1)(i) of this section without regard to whether they are obligations of its members, provided they are purchased from a federally-insured credit union only;
(ii) Eligible obligations of a liquidating credit union. Eligible obligations of a liquidating credit union pursuant to paragraph (b)(1)(ii) of this section without regard to whether they are obligations of the liquidating credit union's members.
(iii) Student loans. Student loans pursuant to paragraph (b)(1)(iii) of this section, provided they are purchased from a federally-insured credit union only;
(iv) Mortgage loans. Real-estate secured loans pursuant to paragraph (b)(1)(iv) of this section, provided they are purchased from a federally-insured credit union only;
* * * * *
(5) Grandfathered purchases. Subject to safety and soundness considerations, a Federal credit union may hold any of the loans described in paragraph (b)(2) of this section provided it was authorized to purchase the loan and purchased the loan before [EFFECTIVE DATE OF FINAL RULE].
* * * * *
3. Remove and reserve
4. In
5. Amend
The revision reads as follows:
* * * * *
(b) * * *
(2) When a Federal credit union acquires premises for future expansion, it must partially occupy the premises within a reasonable period, not to exceed three years, unless the credit union has acquired unimproved real property for future expansion. The NCUA may waive this partial occupation requirement in writing upon written request. The request must be made within 30 months after the property is acquired. If the Federal credit union has acquired unimproved real property to develop for future expansion, it must partially occupy the premises within a reasonable period, not to exceed six years.
* * * * *
PART 703--INVESTMENTS AND DEPOSIT ACTIVITIES
6. The authority citation for part 703 continues to read as follows:
Authority: 12 U.S.C. 1757(7), 1757(8), 1757(15).
7. In
* * * * *
(d) * * *
(3) The investments referenced in paragraph (d)(2) of this section must mature under the following conditions:
(i) No later than the maturity of the borrowing repurchase transaction;
(ii) No later than thirty days after the borrowing repurchase transaction, unless authorized under
(iii) At any time later than the maturity of the borrowing repurchase transaction, provided the value of the investments does not exceed 100 percent of the Federal credit union's net worth and the credit union received a composite CAMEL rating of "1" or "2" for the last two (2) examinations and maintained a net worth classification of "well capitalized" under part 702 of this chapter for the six (6) immediately preceding quarters or, if subject to a risk-based net worth (RBNW) requirement under part 702 of this chapter, has remained "well capitalized" for the six (6) immediately preceding quarters after applying the applicable RBNW requirement.
* * * * *
8. Amend
* * * * *
(i) Zero-coupon investments. A Federal credit union may only purchase a zero-coupon investment with a maturity date that is no greater than 10 years from the related settlement date, unless authorized under
(j) Commercial mortgage related security (CMRS). A Federal credit union may purchase a CMRS permitted by Section 107(7)(E) of the Act; and, pursuant to Section 107(15)(B) of the Act, a CMRS of an issuer other than a government-sponsored enterprise enumerated in Section 107(7)(E) of the Act, provided:
(1) The CMRS is rated in one of the two highest rating categories by at least one nationally-recognized statistical rating organization;
(2) The CMRS meets the definition of mortgage related security as defined in 15 U.S.C. 78c(a)(41) and the definition of commercial mortgage related security as defined in
(3) The CMRS's underlying pool of loans contains more than 50 loans with no one loan representing more than 10 percent of the pool; and
(4) The aggregate amount of private label CMRS purchased by the Federal credit union does not exceed 25 percent of its net worth, unless authorized under
9. In
10. In
* * * * *
(b) A Federal credit union may hold a zero-coupon investment with a maturity greater than 10 years, a borrowing repurchase transaction in which the investment matures at any time later than the maturity of the borrowing, or CMRS that cause the credit union's aggregate amount of CMRS from issuers other than government-sponsored enterprises to exceed 25% of its net worth, in each case if it purchased the investment or entered the transaction under the Regulatory Flexibility Program before [EFFECTIVE DATE OF FINAL RULE].
11. Add
(a) Additional authority. A Federal credit union may submit a written request to its regional director seeking expanded authority above the following limits in this part:
(1) Borrowing repurchase transaction maximum maturity mismatch of 30 days under
(2) Zero-coupon investment 10-year maximum maturity under
(3) CMRS aggregate limit of 25% of net worth under
(b) Written request. A Federal credit union desiring additional authority must submit a written request to the NCUA regional office having jurisdiction over the geographical area in which the credit union's main office is located, that includes the following:
(1) A copy of your investment policy;
(2) The higher limit sought;
(3) An explanation of the need for additional authority;
(4) Documentation supporting your ability to manage the investment or activity; and
(5) An analysis of the credit union's prior experience with the investment or activity.
(c) Approval process. A regional director will provide a written determination on a request for expanded authority within 60 calendar days after receipt of the request; however, the 60-day period will not begin until the requesting credit union has submitted all necessary information to the regional director. The regional director will inform the requesting credit union, in writing, of the date the request was received and of any additional documentation that the regional director might require in support of the request. If the regional director approves the request, the regional director will establish a limit on the investment or activity as appropriate and subject to the limitations in this part. If the regional director does not notify the credit union of the action taken on its request within 60 calendar days of the receipt of the request or the receipt of additional requested supporting information, whichever occurs later, the credit union may proceed with its proposed investment or investment activity.
(d) Appeal to NCUA Board. A Federal credit union may appeal any part of the determination made under paragraph (c) to the NCUA Board by submitting its appeal through the regional director within 30 days of the date of the determination.
PART 723--MEMBER BUSINESS LOANS
12. The authority citation for part 723 continues to read as follows:
Authority: 12 U.S.C. 1756, 1757, 1757A, 1766, 1785, 1789.
13. In
* * * * *
(e) Purchases of nonmember loans and nonmember loan participations. Any interest a credit union obtains in a nonmember loan, pursuant to
PART 742--[REMOVED]
16. Under the authority of 12 U.S.C. 1756 and 1766, the
[FR Doc. 2011-33041 Filed 12-27-11;
BILLING CODE 7535-01-P
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