[Federal Register Volume 79, Number 154 (Monday, August 11, 2014)]
[Proposed Rules]
[Pages 46727-46732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18524]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AE39
Federal Credit Union Ownership of Fixed Assets
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The NCUA Board (Board) proposes to amend its regulation
governing federal credit union (FCU) ownership of fixed assets to
provide regulatory relief and to help FCUs better manage their fixed
assets. The proposed rule provides greater flexibility to FCUs by
removing the waiver requirement for FCUs to exceed the five percent
aggregate limit on investments in fixed assets. An FCU that chooses to
exceed the five percent aggregate limit may do so without prior NCUA
approval, provided it implements a fixed assets management (FAM)
program that
[[Page 46728]]
demonstrates appropriate pre-acquisition analysis to ensure the FCU can
afford any impact on earnings and net worth levels. An FCU's FAM
program is subject to supervisory scrutiny and must provide for close
ongoing oversight of fixed assets levels and their effect on the
financial performance of the FCU. It must also include a written policy
that sets an FCU board-established limit on the aggregate amount of the
FCU's fixed assets. In addition, the proposal simplifies the partial
occupancy requirement for premises acquired for future expansion.
DATES: Comments must be received on or before October 10, 2014.
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/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the
instructions for submitting comments.
Email: Address to [email protected]. Include ``[Your
name] Comments on Notice of Proposed Rulemaking for Part 701, FCU
Ownership of Fixed Assets'' in the email subject line.
Fax: (703) 518-6319. Use the subject line described above
for email.
Mail: Address to Gerard Poliquin, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
Public Inspection: You may 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 1775 Duke Street, Alexandria, Virginia 22314, by
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment,
call (703) 518-6546 or send an email to [email protected].
FOR FURTHER INFORMATION CONTACT: Pamela Yu, Senior Staff Attorney,
Office of General Counsel, at the above address or telephone (703) 518-
6540, or Jacob McCall, Program Officer, Office of Examination and
Insurance, at the above address or telephone (703) 518-6360.
SUPPLEMENTARY INFORMATION:
I. Background
II. Summary of the Proposed Rule
III. Regulatory Procedures
I. Background
The Federal Credit Union Act (FCU Act) authorizes an FCU to
purchase, hold, and dispose of property necessary or incidental to its
operations.\1\ NCUA's fixed assets rule interprets and implements this
provision of the FCU Act.\2\ NCUA's current fixed assets rule: (1)
Limits FCU investments in fixed assets; (2) establishes occupancy,
planning, and disposal requirements for acquired and abandoned
premises; and (3) prohibits certain transactions.\3\ Under the current
rule, fixed assets are defined as premises, furniture, fixtures, and
equipment, including any office, branch office, suboffice, service
center, parking lot, facility, real estate where a credit union
transacts or will transact business, office furnishings, office
machines, computer hardware and software, automated terminals, and
heating and cooling equipment.\4\
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\1\ 12 U.S.C. 1757(4).
\2\ 12 CFR 701.36.
\3\ Id.
\4\ 12 CFR 701.36(c).
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A. Why is NCUA proposing this rule?
Executive Order 13579 provides that independent agencies, including
NCUA, should consider if they can modify, streamline, expand, or repeal
existing regulations to make their programs more effective and less
burdensome.\5\ Additionally, the Board has a policy of continually
reviewing NCUA's regulations to ``update, clarify and simplify existing
regulations and eliminate redundant and unnecessary provisions.'' To
carry out this policy, NCUA identifies one-third of its existing
regulations for review each year and provides notice of this review so
the public may comment. In 2012, NCUA reviewed its fixed assets rule as
part of this process. As a result of that review, in March 2013, the
Board issued proposed amendments to the fixed assets rule to make it
easier for FCUs to understand it.\6\ The proposed amendments did not
make any substantive changes to the regulatory requirements. Rather,
they only clarified the rule and improved its overall organization,
structure, and readability.
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\5\ E.O. 13579 (July 11, 2011).
\6\ 78 FR 17136 (Mar. 20, 2013).
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The March 2013 proposal was published with a 60-day public comment
period. In response to the Board's request for feedback, several
commenters offered suggestions for substantive changes to the
regulatory requirements in the fixed assets rule. For example, a number
of commenters urged the Board to consider increasing or eliminating the
aggregate limit on fixed assets, or to allow FCUs to establish their
own written policies to set limits on their investments in fixed
assets. One commenter suggested that, as an alternative to the
aggregate cap, certain FCUs should have the option to submit periodic
fixed assets management plans to NCUA. Several commenters also
recommended changes to NCUA's current waiver process. In addition, one
commenter suggested that the Board should extend the time frames for
partially occupying improved premises and unimproved premises acquired
for future expansion, which under the current rule, are three years and
six years, respectively. These comments, however, were beyond the scope
and intent of the March 2013 proposal, which only reorganized and
clarified the rule. Therefore, the Board was prevented by the
provisions of the Administrative Procedure Act from making such
substantive changes at that time.\7\ Accordingly, in September 2013,
the Board adopted the March 2013 proposed rule as final without change
except for one minor modification.\8\ In finalizing the rule, however,
the Board indicated it would take those substantive comments into
consideration if it considered making substantive changes to NCUA's
fixed assets rule in the future.
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\7\ 5 U.S.C. 553.
\8\ 78 FR 57250 (Sept. 18, 2013).
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The Board has determined that making the referenced substantive
amendments to the fixed assets rule will allow FCUs more flexibility in
managing their fixed assets, while maintaining NCUA's ability to
supervise FCUs' management of fixed assets in order to protect safety
and soundness. This proposed rule reflects these substantive
amendments. The Board also believes this proposal is consistent with
the spirit of Executive Order 13579.
B. How would the proposed rule change the current rule?
The Board proposes to provide regulatory relief to FCUs by: (1)
Allowing FCUs to exceed the current five percent aggregate limit on
fixed assets, without prior NCUA approval, provided FCUs do so safely
and soundly by establishing their own FAM policies and programs; and
(2) simplifying the partial occupancy requirement for premises acquired
for future expansion. The proposed rule also eliminates or streamlines
certain aspects of the fixed assets waiver requirements in various
circumstances.
[[Page 46729]]
II. Summary of the Proposed Rule
A. FCU Investments in Fixed Assets Above Five Percent of Shares and
Retained Earnings
Section 701.36(c) of the current rule establishes an aggregate
limit on investments in fixed assets for FCUs with $1,000,000 or more
in assets.\9\ For an FCU meeting this threshold asset amount, the
aggregate of all its investments in fixed assets is limited to five
percent of its shares and retained earnings, unless NCUA grants a
waiver establishing a higher limit.\10\
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\9\ This proposed rule does not amend the $1,000,000 asset
threshold. Thus, FCUs under $1,000,000, which are currently exempt
from the regulatory limit on aggregate investments in fixed assets,
will be also exempt from the proposed FAM requirements. The Board,
however, emphasizes that investments in fixed assets by FCUs under
$1,000,000 are, and will continue to be, subject to supervisory
review. FCUs exempt from FAM program requirements must invest in
fixed assets safely and soundly.
\10\ 12 CFR 701.36(c).
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In the past few years, and most recently in response to the March
2013 proposed rule, FCUs have asked the Board to consider increasing or
eliminating the current five percent aggregate limit on fixed assets,
or to allow FCUs to establish their own written policies to set limits
on their investments in fixed assets.\11\ Some credit unions have
mentioned that the limit is too low for FCUs to effectively manage
their investments in fixed assets and to achieve growth. They have
argued that a higher limit is necessary to allow FCUs adequate
flexibility in acquiring fixed assets to serve their members' needs.
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\11\ See, e.g., 75 FR 66295, 66297 (Oct. 28, 2010); 78 FR 57250,
57250 (Sept. 18, 2013).
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The Board has long stated that the purpose of the fixed assets rule
is to provide control on the risk of excess or speculative acquisition
of fixed assets.\12\ In explaining the need for the aggregate limit on
fixed assets, the Board noted in 1978 that ``[i]t is the aggregate
amount invested in non-income producing assets that is of critical
importance.'' \13\ Past experience has shown that excessive levels of
non-income producing assets may lead to financial difficulties. While
the Board continues to believe that the five percent aggregate limit
functions as a reasonable benchmark for safety and soundness, the Board
recognizes that some relief in this regard should be provided to ensure
FCUs can accomplish their growth strategies and provide the services
their members demand. Accordingly, the Board proposes to allow FCUs the
discretion to exceed the five percent aggregate limit, without the need
for a waiver, provided they implement a FAM program that provides
appropriate pre-acquisition analysis to ensure the FCU can afford any
impact on its earnings and net worth levels, and they maintain close
ongoing oversight of how fixed assets levels are affecting the
financial performance of the FCU.
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\12\ See 43 FR 26317, 26317 (June 19, 1978) (``This regulation
is intended to ensure that the officials of FCUs' have considered
all relevant factors prior to committing large sums of members'
funds to the acquisition of fixed assets.''); 49 FR 50365, 50366
(Dec. 28, 1984) (``The intent of the regulation is to prevent, or at
least curb, excessive investments in fixed assets and the related
costs and expenses that may be beyond the financial capability of
the credit union.''); 54 FR 18466, 18467 (May 1, 1989) (``[T]he
purpose of the regulation is to provide some control on the
potential risk of excess investment and/or commitment to invest
substantial sums in fixed assets.'').
\13\ 43 FR 58176, 58177 (Dec. 13, 1978).
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An FCU's FAM program, at a minimum, must include three elements:
(1) A written board policy; (2) board oversight; and (3) ongoing
internal controls. These elements are discussed in more detail below.
The proposed rule eliminates the current waiver process for FCUs that
wish to exceed the five percent aggregate limit, but an FCU's actions
in this regard are subject to supervisory scrutiny.\14\
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\14\ The Board notes that the majority of FCU requests for
waiver of the five percent aggregate limit are approved by NCUA. In
2013, for example, 54 percent of waiver requests for all parts of
Sec. 701.36 were for a waiver of the aggregate limit. Of those, 88
percent were approved by NCUA.
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Written Board Policy
An FCU's board-approved written FAM policy must establish a
reasonable limit on the aggregate amount of the FCU's total investments
in fixed assets. The policy and the board-established aggregate limit
must demonstrate adequate consideration for preserving the FCU's
earnings and net worth. NCUA will consider policies which represent a
threat to earnings and net worth unsafe and unsound. The policy must be
consistent with the FCU's overall strategic plan, risk tolerance, and
financial condition. The policy must also state actions and authorities
required for exceptions to policy, limits, and authorizations. An FCU
may adopt a separate FAM policy or it may incorporate a FAM policy into
an existing asset liability management or other risk management policy.
In any case, however, the policy must be written and approved by the
FCU's board of directors.
FCU Board Oversight
An FCU that wishes to make an investment in fixed assets that would
exceed, in the aggregate, five percent of its shares and retained
earnings must obtain prior approval from its board of directors. Any
board resolution, either approving the investment or disapproving the
investment, at a minimum, must clearly document the board's analysis of
the FCU's purpose for the investment. This analysis must demonstrate,
for example, the board's full consideration of whether the investment
in fixed assets represents a routine replacement, a necessary
investment or purchase in the normal course of business, or an effort
to expand the FCU's services. The degree and detail of the board's
analysis must be commensurate with the FCU's stated purpose for the
investment. The FAM may include a delegated authority to the CEO or
operational management to make acquisitions of equipment within board
specified limits, which would relieve the board of a requirement to
approve each individual purchase of equipment.
The board resolution must also reflect its analysis of the FCU's
pro-forma balance sheet and income statement projections, as well as
its sensitivity to material assumptions. This analysis must be
supported by reasonable growth projections that are consistent with
contemporary observed trends.
For investments in real property, the board must consider the
future marketability of the premises should it decide to dispose of the
asset in the future, including reasonable recovery expectations based
on the location of the premises and other relevant factors. The board
must consider similar factors for any other unique or special-purpose
fixed assets.
The board must annually review the FCU's FAM program and update it
as necessary. If the board determines that no changes to the FAM
program are necessary, it must appropriately document that
determination.
Internal Controls
An FCU with an aggregate investment in fixed assets that exceeds
five percent of its shares and retained earnings must establish, as a
part of its FAM program, strong internal controls to effectively
monitor and measure its investments in fixed assets. These controls
must be ongoing and appropriate to the total amount of the FCU's fixed
assets investments. Internal controls must include, for example,
periodic physical inventories of the FCU's fixed assets.
Overall, an FCU's FAM program must demonstrate adequate protections
to the FCU's net worth and earnings, or it will be considered unsafe
and unsound. An FCU with an unsafe and unsound FAM program or that does
not comply with its FAM program may be subject to
[[Page 46730]]
supervisory action, including prohibition of additional investments in
fixed assets or divestiture of fixed assets.
Grandfathering
Should this rule become finalized as proposed, FCUs with an
existing waiver of the five percent aggregate limit on fixed assets
will be grandfathered at the approved limit and may continue to rely on
the waiver until its expiration. The Board emphasizes, however, an FCU
with an existing waiver will be required to implement a FAM program
prior to making any future investment in fixed assets which exceeds the
amount approved. Moreover, if, subsequent to the effective date of a
final rule, the level of the FCU's investments in fixed assets falls
below the regulatory five percent limit, the waiver will cease and the
FCU will be required to implement a FAM program prior to making any
future investment in fixed assets which exceeds five percent of its
shares and retained earnings.
B. Partial Occupancy of Premises Acquired for Future Expansion
The Board also proposes to clarify the provision in the fixed
assets rule that requires an FCU to partially occupy property acquired
for future expansion within a time period set by the rule.\15\
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\15\ 12 CFR 701.36(d)(2).
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Under the current rule, if an FCU acquires premises for future
expansion and does not fully occupy them within one year, it must have
a board resolution in place by the end of that year with definitive
plans for full occupation.\16\ There is no set time period within which
an FCU must achieve full occupation, giving FCUs significant leeway and
flexibility in managing real property acquired for future use. An FCU,
however, may not hold (or lease to unrelated third parties) real
property indefinitely without fully occupying the premises.\17\ The
rule requires an FCU to show that it will fully occupy the premises
within a reasonable time, and consistent with its usage plan, by
requiring the FCU's partial occupancy of the premises within a time
period set by the rule. Specifically, for improved premises acquired
for future expansion, an FCU is currently permitted up to three years
from the date it obtains the property to meet the partial occupancy
requirement, unless NCUA grants a waiver. If the premises are
unimproved land or unimproved real property, however, the time period
is extended to six years from the date of acquisition.\18\ As noted
above, in response to the March 2013 proposal, one commenter suggested
that the Board extend the time frames for the partial occupation
requirement.
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\16\ 12 CFR 701.36(d)(1).
\17\ Section 107(4) of 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, an FCU may only invest
in property it intends to use to transact credit union business or
in property that supports its internal operations or member
services. There is no authority for an FCU to invest in real estate
for speculative purposes or to otherwise engage in real estate
activities that do not support its purpose of providing financial
services to its members.
\18\ 12 CFR 701.36(d)(2); see also 12 CFR 701.36(b) (``Partially
occupy means occupation, on a full-time basis, of a portion of the
premises that is: (1) Consistent with the federal credit union's
usage plan for the premises; (2) significant enough that the federal
credit union is deriving practical utility from the occupied
portion, relative to the scope of the usage plan; and (3) sufficient
to show that the federal credit union will fully occupy the premises
within a reasonable time.'')
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The Board proposes to simplify this aspect of the fixed assets rule
by establishing a single time period for partial occupancy of any
premises acquired for future expansion. The proposed rule would permit
FCUs up to five years from the date of acquisition to meet the partial
occupancy requirement, regardless of whether the premises are improved
or unimproved property. This extends the current time period for
improved premises by two years. This reduces the current time period
for unimproved land or unimproved real property by one year, but the
Board believes that five years is sufficient time to meet this
requirement even for raw land. The Board notes that the proposed five-
year time frame is consistent with requirements for real estate
acquired by banks for future expansion.\19\
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\19\ See 12 CFR 34.84.
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The proposed rule retains the current waiver process for FCUs that
require additional time to partially occupy premises acquired for
future expansion. The Board, however, proposes to streamline one aspect
of the current waiver process. Currently, an FCU must submit its
request for a waiver from the partial occupancy requirement within 30
months after the property is acquired. The Board, however, understands
that in some circumstances it may be difficult for FCUs to satisfy this
requirement, particularly in the unimproved land context as
construction-related delays are difficult to anticipate and could occur
after the 30 months have expired. Accordingly, the Board proposes to
eliminate the 30-month requirement for partial occupancy waiver
requests and allow FCUs to apply for a waiver beyond that time frame as
appropriate.
Request for Comment on Full Occupancy of Premises Acquired for Future
Expansion
As discussed above, the current rule does not set a specific time
period within which an FCU must achieve full occupation of premises
acquired for future expansion. However, partial occupancy of the
premises is required within five years (as proposed) and must be
sufficient to show, among other things, that the FCU will fully occupy
the premises within a reasonable time and consistent with its plan for
the premises. This proposal does not amend the full occupancy provision
of the current rule, but the Board welcomes public comment on this
aspect of the fixed assets rule.
C. NCUA's Supervisory Review
Should this rule become finalized as proposed, when NCUA examines
an FCU with fixed assets in excess of five percent of its shares and
retained earnings, NCUA will evaluate whether or not the FCU's FAM
program is sound. This analysis will be similar to that conducted
during the current waiver process, but will instead become part of the
routine examination of the FCU. NCUA's supervisory review of an FCU's
FAM program may include the following considerations:
To determine if an FCU has established a reasonable policy
limit on the aggregate amount of its fixed assets, NCUA will evaluate
the impact on earnings and net worth levels. High levels of non-earning
assets may lower income and increase operating expenses (such as
depreciation and maintenance expenses). Reduced earnings, in turn, can
jeopardize the FCU's ability to establish or maintain sound net worth
levels. FCUs are not in compliance with the provisions of this rule if
they cannot demonstrate that operating at higher levels of fixed assets
to expand the FCU's services does not pose a material reduction to the
FCU's ability to establish or maintain sound net worth levels. Minor
acquisitions of equipment in the normal course of business will not
result in supervisory scrutiny even for FCUs that exceed the five
percent aggregate limit, unless the FCU is otherwise experiencing
significant earnings problems.
The FCU's FAM policy must be consistent with the FCU's
overall strategic plan, risk tolerance, and financial condition. The
FCU's policy and associated financial projections and board resolutions
must also document sensitivity to material assumptions. This analysis
must be supported by reasonable growth projections that are
[[Page 46731]]
consistent with contemporary observed growth trends.
NCUA will consider it unsafe and unsound if an FCU's
investments in unique or special-purpose real property with very
limited marketability result in it operating at fixed assets levels
above the five percent aggregate limit.
If an FCU does not meet the requirements of the rule, fails to
comply with its FAM program, or has an unsafe program or levels of
fixed assets, NCUA may, in the discretion of the appropriate Regional
Director,\20\ prohibit an FCU from making any further fixed assets
acquisitions and require the FCU to reduce fixed assets levels if doing
so would not pose a safety and soundness concern.
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\20\ ``Regional Director'' means the representative of the
Administration in the designated geographical area in which the
office of the FCU is located or, for FCUs with $10 billion or more
in assets, the Director of the Office of National Examinations and
Supervision. 12 CFR 700.2.
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III. Regulatory Procedures
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
$50,000,000 in assets). This proposed rule would provide regulatory
relief to help FCUs better manage their investments in fixed assets.
NCUA has determined this proposed rule will not have a significant
economic impact on a substantial number of small credit unions.
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.\21\ 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.
NCUA recognizes that this proposed rule requires FCUs to comply with
certain requirements that constitute an information collection within
the meaning of the PRA. Under this rule, FCUs that wish to exceed the
five percent aggregate limit on investments in fixed assets may do so
provided they implement a FAM program which includes a written policy.
However, the proposed amendments would also relieve FCUs from the
current requirement to obtain a waiver to exceed the five percent
aggregate limit on investments in fixed assets.
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\21\ 44 U.S.C. 3507(d); 5 CFR part 1320.
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According to NCUA records, in 2013, there were 259 FCUs subject to
the fixed assets rule with a fixed assets ratio above five percent. Of
those, 83 requests sought a waiver of the five percent aggregate limit
in 2013. For purposes of this analysis, based on 2013 experience, NCUA
believes it is reasonable to estimate 83 FCUs will be required to draft
a fixed assets policy each year in lieu of creating a waiver request,
and an average of 176 FCUs (259 minus the 83 which would be drafting a
policy) would have a requirement to review a fixed asset policy each
year.
Accordingly, information collection obligations imposed by the
proposed rule are analyzed below:
Estimate of initial burden for implementing written fixed assets
policy.
Number of FCUs requesting a waiver of the 5% limit in 2013: 83
Frequency for creating fixed asset policy: Annual
Initial hour burden: 24
83 FCUs x 24 hours = 1,992 hours initial burden
Estimate of ongoing burden to maintain written fixed assets policy.
FCUs needing to review/update existing fixed asset policies: 176
Frequency for reviewing fixed asset policy: Annual
Review hour burden: 2
176 FCUs x 2 hours = 352 hours annual burden
However, the proposed amendments would also relieve FCUs from the
current requirement to request a waiver if the FCU exceeds the five
percent aggregate limit on fixed assets. NCUA estimates the reduced
burden by eliminating the waiver requirement will more than offset the
annual burden imposed by implementing and maintaining a fixed assets
policy. The research and documentation required under the current
regulation is substantially the same as the proposed regulation (both
require approximately 24 hours). Under both the current and proposed
regulations, FCUs are required to project future fixed asset ratios
resulting from the fixed asset purchases, evaluate the changes to
balance sheet and income projections and demonstrate prudence in
securing the asset at a reasonable cost. These activities would be
substantially unchanged through the proposed revision, with the
exception that the final document of record will be a policy instead of
a waiver request. In addition, the current regulation also requires the
FCU to draft a waiver request memo which would be used to submit the
waiver for NCUA's consideration. This effort, which is estimated to
create 4 hours burden, would no longer be required under the proposed
regulation.
Estimate the reduced burden by eliminating the waiver requirement.
Estimated FCUs which will no longer be required to prepare a waiver
request and file a waiver request: 83
Frequency of waiver request: Annual
Reduced hour burden: 4
83 FCUs x 4 hours = 332 hours annual reduced burden
In accordance with the requirements of the PRA, NCUA intends to
obtain a modification of its OMB Control Number, 3133-0040, to support
these changes. NCUA is submitting a copy of the proposed rule to OMB,
along with an application for a modification of the OMB Control Number.
The PRA and OMB regulations require that the public be provided an
opportunity to comment on the paperwork requirements, including an
agency's estimate of the burden of the paperwork requirements. The
Board invites comment on: (1) Whether the paperwork requirements are
necessary; (2) the accuracy of NCUA's estimates on the burden of the
paperwork requirements; (3) ways to enhance the quality, utility, and
clarity of the paperwork requirements; and (4) ways to minimize the
burden of the paperwork requirements.
Comments should be sent to the NCUA Contact and the OMB Reviewer
listed below:
NCUA Contact: Tracy Crews, National Credit Union Administration,
1775 Duke Street, Alexandria, Virginia 22314-3428, Fax No. 703-837-
2861, Email: [email protected].
OMB Contact: Office of Management and Budget, ATTN: Desk Officer
for the National Credit Union Administration, Office of Information and
Regulatory Affairs, Washington, DC 20503.
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. Because the fixed assets regulation
applies only to federal credit unions, 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
[[Page 46732]]
responsibilities among the various levels of government. As such, NCUA
has determined that this rule does not constitute a policy that has
federalism implications for purposes of the executive order.
Assessment of Federal Regulations and Policies on Families
NCUA has determined that this rule will not affect family well-
being within the meaning of Section 654 of the Treasury and General
Government Appropriations Act of 1999.\22\
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\22\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 701
Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board, on July 31,
2014.
Gerard Poliquin,
Secretary of the Board.
For the reasons stated above, NCUA proposes to amend 12 CFR part
701 as follows:
PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section
701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also
authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610.
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.
0
2. In Sec. 701.36, revise paragraphs (c) and (d)(2) to read as
follows:
Sec. 701.36 Federal credit union ownership of fixed assets.
* * * * *
(c) Limits on investment in fixed assets. If a federal credit union
has $1,000,000 or more in assets, the aggregate of all its investments
in fixed assets must not exceed five percent of its shares and retained
earnings, unless it has implemented an effective fixed assets
management (FAM) program, and the federal credit union's board of
directors has analyzed and determined that the investment in fixed
assets in excess of the five percent limit is appropriate, safe and
sound, and supported by its FAM program. An aggregate investment in
fixed assets that exceeds five percent of a federal credit union's
shares and retained earnings is generally considered unsafe and unsound
and requires a sufficiently robust FAM program to mitigate supervisory
concerns. A federal credit union that does not meet the requirements of
this paragraph or fails to comply with its FAM program may, in the
discretion of the Regional Director, be subject to the full extent of
NCUA's supervisory authority, including prohibition of any additional
investments in fixed assets or divestiture of fixed assets. A federal
credit union's FAM program must be annually reviewed by its board of
directors and include the following:
(1) Written board policy. The federal credit union's board of
directors must adopt a written FAM policy, which, at a minimum, must:
(i) Establish a prudent limit on the aggregate amount of the
federal credit union's investments in fixed assets;
(ii) Demonstrate adequate consideration for preserving the federal
credit union's earnings and net worth; and
(iii) Demonstrate consistency with the federal credit union's
overall strategic plan, risk tolerance, and financial condition.
(2) Board oversight. Except for minor acquisitions of equipment in
the normal course of business, the federal credit union must obtain
approval from its board of directors prior to making an investment in
fixed assets that would exceed, in the aggregate, five percent of its
shares and retained earnings. A board resolution approving or
disapproving the investment, at a minimum, must reflect:
(i) The board's analysis of the purpose for the investment;
(ii) The board's analysis, supported by reasonable growth
assumptions, of the federal credit union's pro-forma balance sheet and
income statement projections; and
(iii) For an investment in real property, the board's consideration
of the future marketability of the premises, in the event the federal
credit union needs or wants to sell the premises in the future.
(3) Internal controls. The federal credit union must establish
ongoing internal controls to monitor and measure its investments in
fixed assets.
(d) * * *
(1) * * *
(2) If a federal credit union acquires premises for future
expansion, including unimproved land or unimproved real property, it
must partially occupy them within a reasonable period, but no later
than five years after the date of acquisition. NCUA may waive the
partial occupation requirements. To seek a waiver, a federal credit
union must submit a written request to its Regional Office and fully
explain why it needs the waiver. The Regional Director will provide the
federal credit union a written response, either approving or
disapproving the request. The Regional Director's decision will be
based on safety and soundness considerations.
* * * * *
[FR Doc. 2014-18524 Filed 8-8-14; 8:45 am]
BILLING CODE 7535-01-P