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Proposed Rule2022-03846

Asset Threshold for Determining the Appropriate Supervisory Office

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Published

March 3, 2022

Issuing agencies

National Credit Union Administration

Abstract

The NCUA Board (Board) is proposing to amend its regulations to revise the $10 billion asset threshold used for assigning supervision of consumer federally insured credit unions (FICUs) to the Office of National Examinations and Supervision (ONES). The proposed rule would only apply to FICUs whose assets are $10 billion or more (covered credit unions). The proposed rule would provide that covered credit unions with less than $15 billion in total assets (tier I covered credit unions) not currently supervised by ONES will be supervised by the appropriate NCUA Regional Office. Tier I covered credit unions currently supervised by ONES and covered credit unions with $15 billion and more in total assets (tier II and tier III covered credit unions) would continue to be supervised by ONES. The proposed rule would not alter any regulatory requirements for covered credit unions.

Full Text

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<title>Federal Register, Volume 87 Issue 42 (Thursday, March 3, 2022)</title>
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[Federal Register Volume 87, Number 42 (Thursday, March 3, 2022)]
[Proposed Rules]
[Pages 11996-12000]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-03846]

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 700, 701, 702, 708a, 708b, 750 and 790

[NCUA-2022-0008]
RIN 3133-AF41

Asset Threshold for Determining the Appropriate Supervisory
Office

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The NCUA Board (Board) is proposing to amend its regulations
to revise the $10 billion asset threshold used for assigning
supervision of consumer federally insured credit unions (FICUs) to the
Office of National Examinations and Supervision (ONES). The proposed
rule would only apply to FICUs whose assets are $10 billion or more
(covered credit unions). The proposed rule would provide that covered
credit unions with less than $15 billion in total assets (tier I
covered credit unions) not currently supervised by ONES will be
supervised by the appropriate NCUA Regional Office. Tier I covered
credit unions currently supervised by ONES and covered credit unions
with $15 billion and more in total assets (tier II and tier III covered
credit unions) would continue to be supervised by ONES. The proposed
rule would not alter any regulatory requirements for covered credit
unions.

DATES: Comments must be received by May 2, 2022.

ADDRESSES: You may submit written comments, identified by RIN 3133-
AF41, by any of the following methods (please send comments by one
method only):
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
The docket

[[Page 11997]]

number for this direct final rule is NCUA-2022-0008. Follow the
instructions for submitting comments.
<bullet> Fax: (703) 518-6319. Include ``[Your Name]--Comments on
Asset Threshold for Determining the Appropriate Supervisory Office'' in
the transmittal.
<bullet> Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
<bullet> Hand Delivery/Courier: Same as mail address.
Public inspection: You may view all public comments on the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. Due to social distancing measures in effect, the
usual opportunity to inspect paper copies of comments in the NCUA's law
library is not currently available. After social distancing measures
are relaxed, visitors may make an appointment to review paper copies by
calling (703) 518-6540 or emailing <a href="/cdn-cgi/l/email-protection#a7e8e0e4eac6cecbe7c9c4d2c689c0c8d1"><span class="__cf_email__" data-cfemail="80cfc7c3cde1e9ecc0eee3f5e1aee7eff6">[email&#160;protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Yvonne Applonie, Director of
Supervision, Office of National Examinations and Supervision; or Rachel
Ackmann, Senior Staff Attorney, Office of General Counsel, 1775 Duke
Street, Alexandria, VA 22314-3428. Yvonne Applonie can also be reached
at (703) 518-6595, and Rachel Ackmann can be reached at (703) 548-2601.

SUPPLEMENTARY INFORMATION:

I. Background

Part 702 Capital Planning and Stress Testing Requirements

Part 702, subpart C, of the NCUA's regulations (part 702)
implements the NCUA's capital planning and stress testing requirements
for consumer FICUs.\1\ As discussed above, a consumer FICU is defined
as a covered credit union, and subject to capital planning and stress
testing requirements, if it has $10 billion or more in total assets.\2\
Covered credit unions are then further divided into three tiers, and
varying levels of regulatory requirements are imposed based on those
asset tiers. For example, tier I credit unions are not subject to
stress testing requirements, however tier II and tier III credit unions
are subject to stress testing requirements. Under part 702:
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\1\ 12 CFR 702.301. The term consumer FICU is being used instead
of the term natural person FICU. This terminology is being used for
clarity, however, the term natural person FICU will continued to be
used for the accompanying regulatory text changes for consistency
with other sections of the NCUA's regulations.
\2\ 12 CFR 702.302.
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<bullet> A tier I credit union is a covered credit union that has
less than $15 billion in total assets;
<bullet> A tier II credit union is a covered credit union that has
$15 billion or more in total assets, but less than $20 billion in total
assets, or is otherwise designated as a tier II credit union by the
NCUA; and
<bullet> A tier III credit union is a covered credit union that has
$20 billion or more in total assets, or is otherwise designated as a
tier III credit union by the NCUA.

Agency Structure

In 2012, the NCUA established a new office, the Office of National
Examinations and Supervision (ONES), and reorganized its central and
field office structure. As part of its internal restructuring, the NCUA
transferred the responsibility for supervising covered credit unions to
ONES from the Regional Offices.\3\ Initially, covered credit unions
were transferred to ONES on January 1, 2014. Annually thereafter FICUs
newly reporting assets of $10 billion or more on March 31 of a given
calendar year are reassigned to ONES on the first day of the following
calendar year.
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\3\ In general, Regional Office means the office of NCUA located
in the designated geographical areas in which the office of the FICU
is located.
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COVID-19 Pandemic

Many FICUs have experienced significant balance sheet growth as a
result of the COVID-19 Pandemic and the corresponding policy
response.\4\ For example, FICUs with just below $10 billion in total
assets incurred balance sheet growth of about 14 percent on average
during the COVID-19 Pandemic, and in one case more than 34 percent. In
contrast, FICUs with assets just below the $10 billion threshold had an
average asset growth of only 9 percent in 2019.
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\4\ See generally, 86 FR 15397 (Mar. 23, 2021).
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In March 2021, the Board provided regulatory relief to FICUs
meeting certain asset thresholds through an interim final rule (Asset
Threshold IFR).\5\ The Asset Threshold IFR permitted FICUs to continue
to use financial data as of March 31, 2020, to determine the
applicability of certain regulations for calendar years 2021 and 2022,
instead of assets reported as of March 31, 2021. The Asset Threshold
IFR also made a conforming amendment to the measurement date for
determining ONES supervision. Under the Asset Threshold IFR, the NCUA
used financial data as of March 31, 2020, instead of March 31, 2021, to
determine the appropriate supervisory office of FICUs for calendar year
2022. As a result, no FICU was transitioned to ONES supervision for
calendar year 2022, even if the FICU had $10 billion or more in total
assets as of March 31, 2021.
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\5\ Id.
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The next effective measurement period to determine whether a FICU
is subject to capital planning and stress testing requirements and ONES
supervision is March 31, 2022. Unless the threshold is changed, the
Board anticipates at least nine new FICUs will meet or exceed the $10
billion threshold as of March 31, 2022, and would become subject to
ONES supervision beginning January 1, 2023.

II. The Proposed Rule

The Board has reconsidered its policy of assigning all covered
credit unions to ONES supervision. Under the proposed rule, tier II and
tier III covered credit unions would remain subject to ONES
supervision. The Board, however, would not assign tier I covered credit
unions to ONES supervision.\6\ Tier I covered credit unions would
generally remain subject to Regional Office supervision until they
become tier II covered credit unions.\7\
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\6\ As discussed in the Reservation of Authority section, the
Board has the option of using its existing reservation of authority
in part 702 to transfer a tier I covered credit union to ONES
supervision before it becomes a tier II or tier III covered credit
union.
\7\ The proposed rule would also revise the authority citation
in part 702 to cite 12 U.S.C. 1784(a) and 1786(e), which were
previously added but inadvertently removed from the Code of Federal
Regulations.
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Tier I covered credit unions that are currently supervised by ONES,
however, would be grandfathered under the proposed rule and remain
subject to ONES supervision.\8\ The proposed rule would grandfather
tier I covered credit unions currently subject to ONES supervision to
provide continuity for institutions that are already accustomed to ONES
supervision. The Board believes that most grandfathered tier I covered
credit unions would likely become tier II credit unions, and subject to
ONES supervision, due to organic

[[Page 11998]]

growth within a short timeframe. Given these covered credit unions
would once again be subject to ONES supervision as tier II credit
unions within a short timeframe, the Board believes transitioning the
grandfathered credit unions to Regional Office supervision is
unnecessary. The Board, however, invites comments on whether
grandfathered credit unions should be subject to Regional Office
supervision until they become tier II covered credit unions.
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\8\ Accordingly, if a FICU had $10 billion or more in total
assets on or before March 31, 2020, then it is currently subject to
ONES supervision. If a FICU has crossed the $10 billion threshold
since March 31, 2020, then it is not currently subject to ONES
supervision due to the Asset Threshold IFR and, under this proposed
rule, would not be subject to ONES supervision until it is a tier II
covered credit union.
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The Board has reconsidered its position that all covered credit
unions should transition to ONES for two reasons. First, the agency can
more effectively manage its resources by continuing to supervise most
tier I covered credit unions through the Regional Offices. Without
delaying the transition of tier I covered credit unions to ONES
supervision, the number of covered credit unions supervised by ONES
would approximately double in calendar year 2023, which would require a
substantial reallocation of agency resources.
Second, the Board has reconsidered the level of risk to the
National Credit Union Share Insurance Fund (NCUSIF) posed by tier I
covered credit unions. Applying a historical loss factor of 30 percent
on a FICU failure to the NCUSIF's equity suggests that a $15 billion
credit union presents the same relative risk at the end of 2020 as an
approximately $10 billion FICU did at the beginning of 2013 when
covered credit unions were first transitioned to ONES supervision.
The Board also does not believe that altering tier I covered credit
unions' transition to ONES supervision results in undue risk to the
NCUSIF. Regulatory requirements for covered credit unions are not
affected by the proposed rule. For example, capital planning and stress
testing requirements are initially triggered at $10 billion in
assets.\9\ These requirements will remain in effect for all covered
credit unions regardless of a covered credit union's supervisory
office.\10\
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\9\ 12 CFR 702.302.
\10\ Tier I covered credit unions' capital plans would be
subject to Regional Office review (provided the tier I covered
credit union is not grandfathered under ONES supervision).
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Additionally, the NCUA has implemented various supervisory tools
which enhance offsite monitoring of covered credit union risk. Under
the proposed rule, these tools would remain in use for the supervision
of covered tier I credit unions regardless of their supervisory office.
Specifically, all covered credit unions would continue to be required
to submit data to the NCUA under the capital planning and stress test
rule.\11\ Data collection is part of the NCUA's strategic initiative to
enhance supervision and is used to inform qualitative and quantitative
assessments and ratings of covered credit unions. Further, this data
provides insight for offsite supervision and enable timely risk
identification and mitigation. The NCUA shares the results of this
information collection and collaborates with applicable state
supervisory authorities on joint supervisory efforts.
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\11\ 12 CFR 702.306(d).
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Finally, as discussed above, ONES was formed, in part, to provide
enhanced supervision of FICUs systemically important to the NCUSIF. And
while regulatory requirements remain the same for tier I covered credit
unions under the proposed rule, certain aspects of ONES enhanced
supervision may vary for covered credit unions supervised by Regional
Offices. The Board believes this difference, along with other more
technical procedures unique to ONES supervision, is not necessary to
adequately supervise tier I covered credit unions given the mitigating
factors discussed above.
Therefore, the Board does not believe that altering tier I covered
credit unions' transition to ONES supervision results in undue risk to
the NCUSIF.

Reservation of Authority

The proposed change to the threshold for FICUs being supervised by
ONES would generally apply to new tier I covered credit unions.
However, there may be rare instances that warrant a FICU with assets
between $10 billion and $15 billion to be assigned to ONES. To address
such situations, the Board may use existing reservations of authority
in part 702 to transfer a tier I covered credit union to ONES
supervision before it becomes a tier II or tier III covered credit
union.\12\ When making any such determination, the Board would consider
all relevant factors affecting the covered credit union's safety and
soundness, such as its activities, business model, risk-management
practices, and the types of assets held. Any exercise of authority
under this section by the NCUA would be in writing and would consider
the financial condition, size, complexity, risk profile, scope of
operations, and level of net worth of the covered credit union, in
addition to any other relevant factors. The Board solicits comments on
its proposed use of the reservation of authority to transfer a tier I
covered credit to ONES supervision.
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\12\ 12 CFR 702.301.
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III. Legal Authority

The Board is issuing this proposed rule pursuant to its authority
under the Federal Credit Union Act (FCU Act).\13\ Under the FCU Act,
the NCUA is the chartering and supervisory authority for federal credit
unions (FCUs) and the federal supervisory authority for FICUs. The FCU
Act grants the NCUA a broad mandate to issue regulations governing both
FCUs and FICUs. Section 120 of the FCU Act is a general grant of
regulatory authority and authorizes the Board to prescribe regulations
for the administration of the FCU Act.\14\ Section 209 of the FCU Act
is a plenary grant of regulatory authority to the NCUA to issue
regulations necessary or appropriate to carry out its role as share
insurer for all FICUs.\15\ Accordingly, the FCU Act grants the Board
broad rulemaking authority to ensure that the credit union industry and
the NCUSIF remain safe and sound.
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\13\ 12 U.S.C. 1751 et seq.
\14\ 12 U.S.C. 1766(a).
\15\ 12 U.S.C. 1789.
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IV. Request for Comments

The Board seeks comment on all aspects of this proposed rule. In
particular, the Board seeks comment on the advantages and disadvantages
of adjusting the threshold for determining which credit unions are
supervised by ONES. Should the Board consider other amendments to its
supervisory process for covered credit unions? Is the definition of
ONES credit union sufficiently clear? Should the definition state
explicitly that it does not include tier I covered credit unions that
are not grandfathered?

V. Regulatory Procedures

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 U.S.C. 3507(d)). For
purposes of the PRA, a paperwork burden may take the form of a
reporting, recordkeeping, or a third-party disclosure requirement,
referred to as an information collection. The proposed rule will not
affect any existing or impose any new information collection
requirements.
The information collection requirement under Office of Management
and Budget (OMB) No. 3133-0199, Capital Planning and Stress Testing,
that tier I covered credit unions retain a record of their annual
capital

[[Page 11999]]

plan will remain in effect regardless of a covered credit union's
supervisory office.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule or a final rule pursuant to the
Administrative Procedure Act or another law, the agency must prepare a
regulatory flexibility analysis that meets the requirements of the RFA
and publish such analysis in the Federal Register. Specifically, the
RFA normally requires agencies to describe the impact of a rulemaking
on small entities by providing a regulatory impact analysis. For
purposes of the RFA, the Board considers credit unions with assets less
than $100 million to be small entities.\16\ A regulatory flexibility
analysis is not required, however, if the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities and publishes its certification and a short,
explanatory statement in the Federal Register together with the rule.
The proposed rule affects the supervisory office assigned to oversee
large FICUs with $10 billion or more in total assets. Therefore, the
Board certifies that it would not have a significant economic impact on
a substantial number of small credit unions.
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\16\ NCUA Interpretive Ruling and Policy Statement 15-1, 80 FR
57512 (Sept. 24, 2015).
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Executive Order 13132

Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. The
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 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. The NCUA has therefore 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

The NCUA has determined that this proposed rule would not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999.\17\
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\17\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects

12 CFR Part 700

Credit unions.

12 CFR Part 701

Credit, Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 702

Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 708a

Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 708b

Bank deposit insurance, Credit unions, Reporting and recordkeeping
requirements.

12 CFR Part 750

Credit unions, Golden parachute payments, Indemnity payments.

12 CFR Part 790

Organization and functions (Government agencies).

By the NCUA Board on February 17, 2022.
Melane Conyers-Ausbrooks,
Secretary of the Board.

For the reasons discussed in the preamble, the Board proposes to
amend 12 CFR parts 700, 701, 702, 708a, 708b, 750, and 790 as follows:

PART 700--DEFINITIONS

0
1. The authority citation for part 700 continues to read as follows:

Authority: 12 U.S.C. 1752, 1757(6), 1766.
0
2. In Sec. 700.2, revise the definitions of ``Regional Director'' and
``Regional Office'' to read as follows:

Sec. 700.2 Definitions.

* * * * *
Regional Director means the representative of NCUA in the
designated geographical area in which the office of the federally
insured credit union is located or, for ONES credit unions under part
702 of this chapter, the Director of the Office of National
Examinations and Supervision.
Regional Office means the office of NCUA located in the designated
geographical areas in which the office of the federally insured credit
union is located or, for ONES credit unions under part 702 of this
chapter, the Office of National Examinations and Supervision.
* * * * *

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
3. 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, 1785, 1786, 1787, 1788, 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
4. In Sec. 701.14, revise paragraph (c)(3)(i) 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.

* * * * *
(c) * * *
(3) * * *
(i) Where to file. Notices will be filed with the appropriate
Regional Director or, in the case of a corporate credit union or a ONES
credit union under part 702 of this chapter, with the Director of the
Office of National Examinations and Supervision. All references to
Regional Director will, for corporate credit unions and ONES credit
unions under part 702 of this chapter, mean the Director of Office of
National Examinations and Supervision. State-chartered federally
insured credit unions will also file a copy of the notice with their
state supervisor.
* * * * *

PART 702--CAPITAL ADEQUACY

0
5. The authority citation for part 702 is revised to read as follows:

Authority: 12 U.S.C. 1766(a), 1784(a), 1786(e), 1790d.

0
6. In Sec. 702.302, add a definition of ``ONES credit union,'' in
alphabetical order, to read as follows:

Sec. 702.302 Definitions.

* * * * *
ONES credit union means a credit union subject to supervision by
the Office of National Examinations and Supervision and includes tier I
covered credit unions that had $10 billion or more in total assets as
of March 31, 2020, and tier II and tier III covered credit unions.
* * * * *

PART 708a--BANK CONVERSIONS AND MERGERS

0
7. The authority citation for part 708a continues to read as follows:

Authority: 12 U.S.C. 1766, 1785(b), and 1785(c).

[[Page 12000]]

0
8. In Sec. 708a.101, revise the second sentence of the definition of
``Regional Director'' to read as follows:

Sec. 708a.101 Definitions.

* * * * *
Regional Director * * * For corporate credit unions and natural
person credit unions defined as ONES credit unions under part 702 of
this chapter, Regional Director means the Director of NCUA's Office of
National Examinations and Supervision.
* * * * *
0
9. In Sec. 708a.301, revise the second sentence of the definition of
``Regional Director'' to read as follows:

Sec. 708a.301 Definitions.

PART 708b--MERGERS OF INSURED CREDIT UNIONS INTO OTHER CREDIT
UNIONS; VOLUNTARY TERMINATION OR CONVERSION OF INSURED STATUS

0
10. The authority citation for part 708b continues to read as follows:

Authority: 12 U.S.C. 1752(7), 1766, 1785, 1786, 1789.

0
11. In Sec. 708b.2, revise the second sentence of the definition of
``Regional Director'' to read as follows:

Sec. 708b.2 Definitions.

PART 750--GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS

0
10. The authority citation for part 750 continues to read as follows:

Authority: 12 U.S.C. 1786(t).
0
11. In Sec. 750.6, revise the third sentence of paragraph (a) to read
as follows:

Sec. 750.6 Filing instructions; appeal.

(a) * * * In the case of a Federal or state-chartered corporate
credit union or ONES credit union under part 702 of this chapter, such
written requests must be submitted to the Director of the Office of
National Examinations and Supervision. * * *
* * * * *

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

0
12. The authority citation for part 790 continues to read as follows:

Authority: 12 U.S.C. 1766, 1789, 1795f.
0
13. In Sec. 790.2, revise the first sentence of paragraph (c)(2) to
read as follows:

Sec. 790.2 Central and field office organization.

* * * * *
(c) * * *
(2) * * * Similar to a Regional Director, the Director of the
Office of National Examinations and Supervision manages NCUA's
supervisory program over credit unions; however, it oversees the
activities for corporate credit unions and of natural person credit
unions defined as ONES credit unions under part 702 of this chapter, in
accordance with established policies. * * *

[FR Doc. 2022-03846 Filed 3-2-22; 8:45 am]
BILLING CODE 7535-01-P

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