Combination Transactions With Non-Credit Unions; Credit Union Asset Acquisitions
| Published date | 30 January 2020 |
| Citation | 85 FR 5336 |
| Record Number | 2020-01538 |
| Section | Proposed rules |
| Court | National Credit Union Administration |
Federal Register, Volume 85 Issue 20 (Thursday, January 30, 2020)
[Federal Register Volume 85, Number 20 (Thursday, January 30, 2020)]
[Proposed Rules]
[Pages 5336-5342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01538]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 85, No. 20 / Thursday, January 30, 2020 /
Proposed Rules
[[Page 5336]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 708a and 741
RIN 3313-AF10
Combination Transactions With Non-Credit Unions; Credit Union
Asset Acquisitions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
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SUMMARY: The NCUA Board (Board) proposes to add subpart D to part 708a
of its regulations. This will clarify and make transparent the
procedures and requirements currently in place related to combination
transactions. Combination transactions include those where a federally
insured credit union (FICU) proposes to assume liabilities from a non-
credit union, including a bank. They also include a FICU's merger or
consolidation with a non-credit union entity. Further, the proposed
rule clarifies the scope of section 741.8 of the NCUA's regulations,
which currently requires the NCUA to grant approval before a FICU may
purchase loans or assume an assignment of deposits, shares, or
liabilities from any institution that is not insured by the National
Credit Union Share Insurance Fund (NCUSIF).
DATES: Comments must be received by March 30, 2020.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only). Please note that the NCUA is
now accepting electronic comments only through the Federal eRulemaking
portal, Regulations.gov:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Fax: (703) 518-6319. Use the subject line ``[Your name]
Comments on Combination Transactions'' on the transmission cover sheet.
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: All public comments are available on the
agency's website at http://www.ncua.gov/RegulationsOpinionsLaws/comments as submitted, except as may not be possible for technical
reasons. Public comments will not be edited to remove any identifying
or contact information. Paper copies of comments may be inspected in
NCUA's law library, at 1775 Duke Street, Alexandria, Virginia 22314, by
appointment weekdays between 9:00 a.m. and 3:00 p.m. To make an
appointment, call (703) 518-6540 or send an email to [email protected].
FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Senior Staff
Attorney, Office of General Counsel, 1775 Duke Street, Alexandria,
Virginia 22314, or by telephone at (703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
II. Legal Authority
III. Summary of the Proposed Rule
IV. Section-by-Section Analysis
V. Regulatory Procedures
I. Background
The NCUA has historically seen a relatively small but consistent
number of applications from FICUs seeking to engage in merger or
purchase and assumption transactions with banks or other types of
financial institutions. As the table below shows, the number of these
transactions the NCUA approved each year \1\ was small and fairly
constant from 2013 to 2017 with a modest uptick in 2018 and 2019.
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\1\ The numbers reported in this table are based on the date of
the NCUA's approval of the transaction, not the closing date.
Accordingly, other publicly reported data may have slightly
different figures by year, if they track by transaction close date.
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NCUA-approved transactions between FICUs and other types of
institutions for calendar years 2013-2019 are as follows. None of these
transactions involve the purchase of, or operation under, a bank's
charter.
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\2\ These are transactions where the non-FICU remains in
business, such as when a FICU acquires the loans and deposits of
only certain branches of a bank.
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Transactions that Transactions that
include all of a non- include part of a
FICU's assets and non-FICU's assets
liabilities and liabilities \2\
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2020........................ 0 approved, 9 0 approved, 8
pending. pending.
2019........................ 11.................. 4.
2018........................ 7................... 1.
2017........................ 3................... 1.
2016........................ 2................... 4.
2015........................ 2................... 1.
2014........................ 1................... 1.
2013........................ 2................... 3.
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Because these transactions occur in relatively small numbers, the
Board has not previously promulgated a detailed rule addressing
them.\3\ Even with the increase over the past two years, these
transactions still constitute only a small fraction of merger and
acquisition transactions involving banks.\4\ Nevertheless, because of a
desire to add even more transparency, and the questions the NCUA has
received recently from FICUs, the Board believes
[[Page 5337]]
it would be beneficial to clarify the processes and requirements
related to FICU applications for these transactions. This increased
transparency will assist FICUs seeking to engage in these transactions
to meet the NCUA's requirements.
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\3\ The NCUA's only regulation on point states that the NCUA's
approval is required before an FICU can purchase loans or assume
liabilities or deposits of a noninsured credit union or another type
of financial institution. 12 CFR 741.8.
\4\ See Robert Klingler, ``The So-Called Rise of Credit Union
Buyers'' (Sept. 24, 2019), https://bankbclp.com/2019/09/the-so-called-rise-of-credit-union-buyers.
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The experience the NCUA has gained in recent years while
considering each of these transactions on a case-by-case basis informs
this rulemaking. This experience has allowed the agency to identify the
various issues most frequently presented in these transactions and
develop processes for considering these applications. Accordingly, the
Board has determined to formalize some of these requirements in this
rulemaking.
During the process of developing this new regulatory language, the
Board has determined that Sec. 741.8 of the NCUA's regulations also
needs to be revised to update its scope and improve its clarity. The
Board is proposing to apply Sec. 741.8 to all asset purchases, not
only loan purchases and liability assumptions. The Board adopted the
regulatory language currently in Sec. 741.8 primarily to address
concerns about loan purchases from institutions not insured by the
NCUSIF; at the time it believed that encompassing all assets would be
unnecessarily burdensome.\5\ In the course of reviewing combination
transactions with non-FICUs, however, agency staff have occasionally
identified non-loan assets that are problematic, either because they
are impermissible for FICUs or because they would pose undue risk to
the FICU. In light of this experience, and the potential for risk to
the FICU or the NCUSIF, the Board proposes to extend the scope of Sec.
741.8 to all assets purchased from entities other than FICUs. When
impermissible assets are identified, the FICU proposing the transaction
must explain how the parties to the transaction plan to exclude the
assets from the purchase transaction.
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\5\ 56 FR 35808, 35809 (July 29, 1991).
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II. Legal Authority
Section 205 of the Federal Credit Union Act (FCU Act) permits FICUs
to engage in merger and purchase and assumption transactions with other
types of financial institutions, as follows: Except as provided in a
separate paragraph,\6\ no FICU shall, without the prior approval of the
Board merge or consolidate with any noninsured credit union or
institution; assume liability to pay any member accounts in, or similar
liabilities of, any noninsured credit union or institution; \7\
transfer assets to any noninsured credit union or institution in
consideration of the assumption of liabilities for any portion of the
member accounts in such insured credit union; or convert into a
noninsured credit union or institution.\8\
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\6\ This paragraph, added to the Act in 1998, governs the
process for FICUs to convert to mutual savings banks.
\7\ The FCU Act defines a ``noninsured credit union'' as a
credit union not insured by the NCUSIF. 12 U.S.C. 1752(1). The NCUA
interprets the similar phrase ``noninsured credit union or
institution'' to mean one not insured by the NCUSIF.
\8\ 12 U.S.C. 1785(b)(1).
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In granting or withholding this approval, the Board must consider
six factors, which are the history, financial condition, and management
policies of the credit union; the adequacy of the credit union's
reserves; the economic advisability of the transaction; the general
character and fitness of the credit union's management; the convenience
and needs of the members to be served by the credit union; and whether
the credit union is a cooperative association organized for the purpose
of promoting thrift among its members and creating a source of credit
for provident or productive purposes.\9\
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\9\ Id. 1785(c).
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Under the authority of this section, the NCUA has already issued
detailed regulations governing the merger of a FICU into a bank other
than a mutual savings bank \10\ and conversion of a FICU into a
noninsured credit union.\11\ The Board has delegated some authority to
approve and disapprove certain combination transactions to Regional
Directors and the Director of the Office of National Examinations and
Supervision.\12\
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\10\ 12 CFR part 708a, subpart C.
\11\ Id. part 708b, subparts B-C.
\12\ The Board has delegated approval and disapproval authority
to Regional Directors and the Director of the Office of National
Examinations and Supervision for transactions in which both the fair
market value of the acquired shares or deposits and the fair market
value of the purchased loans and other assets are each less than
$500 million. If the fair market value of the acquired shares or
deposits and the fair market value of the purchased loans and other
assets are each greater than $100 million, the Director of the
Office of Examination and Insurance must concur. NCUA Delegations of
Authority, SUP 24.
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III. Summary of the Proposed Rule
The proposed rule adds new subpart D to part 708a. The new subpart
specifies the basic requirements applicable to the above-referenced
combination transactions between a FICU and another type of financial
institution. All transactions require NCUA approval, and state-
chartered FICUs must also obtain their state regulator's approval. The
proposed rule also includes provisions ensuring that the directors of a
FICU proposing a combination transaction understand the nature and
ramifications of the proposed transaction. Finally, the proposed rule
amends Sec. 741.8 of the NCUA's regulations. The proposed amendments
to Sec. 741.8 make the regulation's provisions applicable to all asset
purchases and list the other NCUA regulations that apply to each
particular type of transaction.
Section-by-Section Summary
708a.401, Definitions
This section defines several terms used in subpart D. The term
``combination transaction'' includes several of the types of
transactions authorized by Section 205(b)(1) of the FCU Act including
the following: (1) A merger or consolidation with anon-credit union;
(2) the assumption of liabilities from anon-credit union; or (3) the
transfer of assets to anon-credit union in consideration of the
assumption of certain of its liabilities. The use of the distinct term
``combination transaction'' differentiates these transactions from
other types of transactions such as mergers between FICUs, mergers
between FICUs and noninsured credit unions, FICU conversions to banks,
and FICU purchases of loans that are not part of a merger or
consolidation.\13\
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\13\ New Subpart D does not address the requirements for FICU
purchases of loan assets from institutions that are not FICUs when
the proposed purchase is not part of a merger or consolidation.
Section 205(b)(1) of the Act does not include authority to purchase
assets, such as loans, other than as part of a merger or
consolidation. A merger or consolidation generally means that at
least one entity's charter is extinguished in the transaction.
Accordingly, FICUs seeking to purchase loans from entities other
than FICUs, where the other entity is not merging or consolidating
with the FICU, must do so under other authorities. For FISCUs, state
law or regulation may permit these purchases. For FCUs, this
authority would be the NCUA's eligible obligations rule, 12 CFR
701.23. Generally, if an FCU is purchasing loans from an entity
other than a FICU, the eligible obligations rule requires the
borrower to be a member of the purchasing credit union before the
purchase is made. Id. Just as in the deposit context, the NCUA has
historically interpreted this provision to mean that the borrower
must have taken some affirmative action to join the FCU before the
transaction closes. Purchases of student loans or mortgages to
complete a pool of loans for sale on the secondary market are exempt
from the membership requirement. The eligible obligations rule also
allows FCUs to purchase eligible obligations from FICUs ``without
regard to whether they are obligations of its members.'' Id.
701.23(a)(2)(i).
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The Board has determined to exclude mergers where one party is a
FICU and one party is a noninsured credit union from the definition of
combination transaction because part 708b of the NCUA's regulations
already addresses these mergers.
[[Page 5338]]
The term ``credit union'' means any credit union insured by the
NCUSIF, so the rule generally applies to both federally insured state-
chartered credit unions (FISCUs) and federal credit unions (FCUs).\14\
The rule text in the proposal uses this term and definition to be
consistent with the rest of Part 708a, but it has the same meaning as
FICU as used in other parts of the NCUA's regulations.
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\14\ Section 708a.405 of the proposed rule applies to FCUs only,
because it addresses FCU membership requirements. The state
supervisory agencies, not the NCUA, determine membership eligibility
and status for state-chartered credit unions.
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The term ``non-credit union'' means any institution that is not an
FCU or a state credit union (whether or not federally insured), as
those terms are defined in the FCU Act. Most of the combination
transactions contemplated under this proposal have been between FICUs
and other depository institutions, such as banks. In a few cases,
however, FICUs have proposed a transaction with a non-depository
financial company, such as a mortgage bank. The plain language of the
FCU Act does not limit the types of institutions with which FICUs can
combine, but allows transactions with any ``noninsured credit union or
institution.'' \15\ Accordingly, as long as such acquisitions comply
with all other legal standards and limitations, there is no legal bar
to, for example, a combination transaction between a FICU and a
mortgage bank.
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\15\ 12 U.S.C. 1785(b)(1)(A)-(D).
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The Board invites comments on the terms it proposes to use to
address the transactions and the parties to these transactions under
Section 205(b) of the FCU Act. The Board particularly solicits comments
regarding the comprehensiveness and scope of the various terms, and
whether commenters would recommend alternative, or additional, defined
terms.
708a.402, Approval Required for Combination Transactions
Paragraph (a) of this section requires the NCUA's advance approval
of combination transactions, and it requires a FICU proposing a
combination transaction to submit its request to the Regional Director.
FISCUs must obtain the advance approval of their state regulator in
addition to the NCUA's approval.
Paragraph (b) of this section recites the statutory factors the
NCUA must weigh in its consideration of a combination transaction
application. While the first four of the six statutory factors relate
to safety and soundness, the list also includes other considerations.
In particular, the last two factors on the list require the NCUA to
consider the proposed transaction's effect on FICU members and
potential FICU members and whether the proposed transaction is in
keeping with the FICU's mission. Accordingly, the NCUA reserves the
right to object to a transaction, or portions of a transaction, even
absent safety and soundness concerns.
Paragraph (c) of this section clarifies that the FICU's board of
directors must vote to approve a proposed combination transaction
before the FICU submits its application package. While board of
directors' votes are a common practice in these transactions, the NCUA
believes that an explicit requirement will ensure that FICU management
continues to keep the FICU's directors informed. In similar
circumstances, the FICU-to-FICU merger rule in part 708b requires a
vote of the board of directors of the continuing credit union.\16\ The
Board believes a proposed transaction with an institution other than a
FICU should receive at least the same level of review from a credit
union's board of directors as a proposed merger with a FICU.
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\16\ 12 CFR 708b.104(a)(2). Additionally, the other rules
promulgated under the authority of section 205 of the FCU Act
require board of directors' votes. 12 CFR 708a.103, 303 (board of
credit union converting to bank); 12 CFR 708b.202(a) (board of
directors of FICU converting to noninsured status).
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The proposal does not impose a limit on the length of time the NCUA
may take to consider combination transactions. While the agency
continues to gain experience with these transactions, it may be
preferable to approach each transaction without a deadline that could
impede the NCUA's full understanding of the transaction's potential
consequences. In this regard, the Board notes there is also no deadline
for agency action in the FICU-to-FICU merger rule. Because, however,
the Board is also aware that a specified timeline can be helpful for
planning purposes, the Board seeks comment on whether there should be a
deadline for agency action after receipt of a complete application
package and, if so, what would be the appropriate period for agency
action.
The Board also invites comment on the other requirements for
approval of a combination transaction. In particular, the Board asks
commenters to consider whether the proposed requirements provide
sufficient detail for applicants to understand the process and the
criteria by which the NCUA evaluates applications.
708a.403, Submission to the NCUA
This section highlights critical elements of the application
package. In particular, it addresses requirements related to features
that distinguish FICUs from other types of financial institutions.
These features include FICU membership, permissible powers, and the
duties of FICU boards.
The applying FICU must specify how it plans to make non-credit
union customers FICU members. Membership is important because, with
limited exceptions, FICUs may only serve members. The Board determined
to include this reminder in the regulatory text so that FICUs do not
lose sight of the importance of membership, particularly in light of
NCUSIF insurance coverage limitations discussed later in this proposal.
Even where the FCU Act would permit service to non-members, such as the
acceptance of public unit deposits or the acceptance of non-member
deposits by low-income designated FICUs, the FICU's goal should always
be to make the customers of the other institution members.\17\
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\17\ The NCUA's Chartering and Field of Membership Manual
discusses FCU membership requirements. In addition, the Office of
Credit Union Resources and Expansion can provide additional guidance
on membership for FCUs.
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The applying FICU must provide basic information about the
transaction that enables NCUA staff to evaluate it. NCUA Regional
Office staff involved in evaluating these transactions have observed
that an application often lacks a succinct summary of very basic
information. The NCUA's National Supervision and Policy Manual will
detail more specific requirements in this regard, but the Board agrees
with NCUA staff that the regulation should list the minimum information
required to be disclosed in connection with every transaction. This
information includes the balance sheet and income statements for both
institutions; a combined financial statement showing the transaction's
potential impact on the FICU's net worth; information about the FICU's
due diligence assessment of the proposed transaction, including
analysis to support the proposed transaction price; a delinquent loan
summary; analysis of the adequacy of the FICU's allowance for loan and
lease losses; and a list of the other institution's assets that would
be impermissible for the FICU to hold under the FCU Act or state law,
with the plan for excluding these assets.
This section also includes a requirement that each member of the
FICU's board of directors that votes in favor of the combination
transaction
[[Page 5339]]
must certify that the FICU's management has explained how the
combination transaction will affect the FICU's net worth and balance
sheet, as well as how the FICU determined the purchase price. This
board member certification must also state that management explained to
the board of directors how the transaction would benefit the current
members of the FICU as well as the prospective members to be gained in
the transaction. Finally, the board member certification mirrors the
conflict of interest provision of the FCU bylaws and requires directors
to certify that they do not have a personal or pecuniary interest in
the transaction.
The Board seeks comment on all aspects of the requirements for
combination transaction applications set forth in this section. The
Board particularly solicits commenters' views on whether it would be
helpful to have more detailed information in the regulation.
708a.404, Insurance of Deposits
Paragraph (a) of this section requires a FICU proposing a
combination transaction to demonstrate that any customer deposits it
assumes will be insured by the NCUSIF as of the transaction close. With
certain limited exceptions, FICUs do not have authority to hold non-
insured deposits. Further, the NCUA understands that the Federal
Deposit Insurance Corporation will not approve a transaction in which a
bank transfers customer deposits to a FICU unless it ascertains that
the deposits transferred will have immediate NCUSIF coverage. The
availability of federal insurance is a critical consideration in
determining whether a proposed transaction meets the ``convenience and
needs of the members.''
Paragraph (b) of this section describes methods by which a FICU
proposing a combination transaction can ensure consumer deposits will
have NCUSIF coverage. First, a FICU with a low-income designation may
hold non-member deposits from any source and they are insured up to
applicable limits. FICUs may also hold public unit deposits that are
insured up to applicable limits, to the extent permitted by state law
for state-chartered FICUs. Also, the state regulator of a state-
chartered FICU can provide a statement confirming that the customers of
the institution will become members of the FICU, pursuant to state law,
at the transaction close. Finally, an FCU that does not have a low-
income designation must demonstrate that the depositors are within its
field of membership and that they have taken action to become members
of the FCU.
708a.405, Federal Credit Union Membership
This section reiterates the two-step process for joining an FCU.
The first step, covered in paragraph (a), is determining that a
potential member falls within the FCU's field of membership. The second
step, covered in paragraph (b), is how the potential member becomes an
actual member.
The NCUA's long held position has generally required that to become
a member of the FCU the other entity's customer must affirmatively act
through an authoritative vote or individual consent before the closing
of a combination transaction. In the case of a vote, the other entity's
regulator, charter and bylaws must permit such a process, whereby the
vote of a certain percentage of customers will demonstrate affirmative
approval for all affected customers and thereby meet the requirement to
subscribe to FCU membership. This approach is analogous to the voting
required in FICU-to-FICU merger transactions, where a majority vote of
the whole allows the transaction to proceed without an affirmative act
by each individual. The Board invites comments on this aspect of the
proposed rule.
Section 741.8
Section 741.8 is the implementing regulation for some of the
transactions permitted by Sec. 205(b) of the FCU Act. Section 741.8
also addresses loan purchases, as permitted for FCUs under Sec.
107(13) of the FCU Act. The proposal amends paragraph (a) to include
purchases of assets other than loans to the list of authorized
transactions. The proposal also revises paragraph (c) to delineate the
other NCUA regulations that apply to each particular type of
transaction. The NCUA's longstanding position is that Sec. 741.8, on
its own, is not additional or separate authority, but simply states
that the NCUA must approve certain types of transactions that are
otherwise permitted by the FCU Act and other NCUA regulations.\18\ The
revisions to Sec. 741.8(c) will make it clear to FICUs considering a
transaction which additional regulations may apply.
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\18\ As stated in a previous rulemaking regarding Part 741.8,
``other regulations may limit or otherwise regulate those
transactions, for example, the member business lending rule, the
fixed asset rule, the eligible obligations rule, and so forth.'' 70
FR 75723 (Dec. 21, 2005).
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The proposal also adds a paragraph (d) to Sec. 741.8 to enumerate
the statutory factors the NCUA must consider when evaluating
transactions. The FCU Act requires the NCUA to consider these factors
when evaluating transactions authorized under Sec. 205(b) of the FCU
Act. The loan and asset purchase transactions addressed in Sec. 741.8,
which are authorized by the investment and eligible obligations
authority of the FCU Act, do not currently require analysis of these
factors. Nonetheless, these factors address the two major issues at
stake in any transaction: (1) Whether it is safe and sound, and (2)
whether it helps the credit union serve its members. Accordingly, the
Board has determined that it is prudent and appropriate to use these
factors in evaluating all transactions under Sec. 741.8.
The Board seeks comment on all aspects of the proposed amendments
to Sec. 741.8, including whether additional amendments to Sec. 741.8
would improve transparency or clarity.
V. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act requires the NCUA to prepare an
analysis to describe any significant economic impact a regulation may
have on a substantial number of small entities.\19\ For purposes of
this analysis, the Board considers small credit unions to be those
having under $100 million in assets.\20\ This rule will affect only
those FICUs that propose to engage in certain transactions with non-
FICUs. The NCUA's records indicate none of the FICUs proposing such
transactions from 2013 to the present had less than $100 million in
assets. In fact, the smallest FICU making such a request had $258
million in assets. Accordingly, the NCUA certifies the rule will not
have a significant economic impact on a substantial number of small
credit unions.
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\19\ 5 U.S.C. 603(a).
\20\ Interpretive Ruling and Policy Statement 15-1, 80 FR 57512
(Sept. 24, 2015).
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B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) \21\ applies to
rulemakings in which an agency by rule creates a new paperwork burden
on regulated entities or modifies an existing burden. For purposes of
the PRA, a paperwork burden may take the form of a reporting,
recordkeeping, or a third-party disclosure requirement, referred to as
an information collection.
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\21\ 44 U.S.C. 3501 et seq.
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NCUA proposes to add new Subpart D to Part 708a to clarify and make
transparent the procedures and requirement currently related to
combination transactions with an institution other than a FICU and
[[Page 5340]]
specifies the basic requirements for these type of transactions. All
transactions require NCUA approval, and state-chartered FICUs must also
obtain their state regulator's approval. The NCUA estimates there will
be approximately 20 transactions under this rule every year. While the
NCUA currently requires affected FICUs to submit all of the information
required in the rule as part of an application, the NCUA is requesting
a new OMB control number to cover information collection requirements
proposed by new Subpart D to Part 708a.
Current Sec. 741.8 prescribes that a credit union must submit a
request to NCUA for approval to purchase assets and assumption of
liabilities. This section is being revised to delineate the other NCUA
regulations that apply to each particular type of transaction. The
information collection requirements associated the submission of a
request under subpart D will be covered by the new OMB control number.
The information collection requirements currently cleared under OMB
control number 3133-0169 will continue to address of the reporting
requirement outside of those covered by subpart D, with no changes at
this time.
This is a request for a new OMB control number to cover the
information collection requirements of Subpart D to Part 708a.
OMB Control Number: 3133-NEW.
Title of information collection: Combinations of Credit Unions and
Other Types of Financial Institutions, Subpart D to Part 708a.
Estimated number of respondents: 20.
Estimated number of responses per respondent: 2.7.
Estimated total annual responses: 54.
Estimated burden per response: 74.37.
Estimated total annual burden: 4,016.
The NCUA invites comments on: (a) Whether the proposed collection
of information is necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility and clarity of the information to be collected; and (d) ways to
minimize the burden of the collection of information on those who are
to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology; and (e) estimates of capital or
start-up costs and cost of operation, maintenance, and purchase of
services to provide information.
All comments are a matter of public record. Comments regarding the
information collection requirements of this rule should be sent to (1)
Dawn Wolfgang, NCUA PRA Clearance Officer, 1775 Duke Street, Suite
6032, Alexandria, VA 22314, or email at [email protected] and the
(1) Office of Information and Regulatory Affairs, Office of Management
and Budget, Attention: Desk Officer for NCUA, New Executive Office
Building, Room 10235, Washington, DC 20503, or email at
[email protected].
C. 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. The proposed rule does 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.
D. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this rule will not affect family well-
being within the meaning of Sec. 654 of the Treasury and General
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681
(1998).
List of Subjects
12 CFR Part 708a
Charter conversions, Credit unions.
12 CFR Part 741
Bank deposit insurance, Credit unions.
By the National Credit Union Administration Board on January 23,
2020.
Gerard Poliquin,
Secretary of the Board.
For the reasons stated above, the NCUA proposes to amend 12 CFR
parts 708a and 741 as follows:
PART 708a--BANK CONVERSIONS AND MERGERS
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1. The authority citation for part 708a continues to read as follows:
Authority: 12 U.S.C. 1766, 1785(b), and 1785(c).
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2. Add subpart D, consisting of Sec. Sec. 708a.401 through 708a.405,
to read as follows:
Subpart D--Combinations of Credit Unions and Other Types of
Financial Institutions
Sec.
708a.401 Definitions.
708a.402 Approval Required for Combination Transactions.
708a.403 Submission to the NCUA.
708a.404 Assumption of Deposits; Federal Share Insurance Required.
708a.405 Federal Credit Union Membership
Sec. 708a.401 Definitions.
As used in this subpart D:
Combination transaction means any transaction in which a credit
union does one or more of the following: Merges or consolidates with
any non-credit union; assumes liability to pay any deposits in, or
similar liabilities of, any non-credit union; or transfers assets to
any non-credit union in consideration of the assumption of liabilities
for any portion of the member accounts in the insured credit union.
Credit union has the same meaning as insured credit union in
section 101 of the Federal Credit Union Act, 12 U.S.C. 1752.
Non-credit union means any financial institution that is not a
Federal credit union or a State credit union, as those terms are
defined in section 101 of the Federal Credit Union Act, 12 U.S.C. 1752.
Regional director means the director of the NCUA Regional Office
for the region where a natural person credit union's main office is
located. For corporate credit unions and natural person credit unions
with $10 billion or more in assets at the time of application, Regional
Director means the Director of NCUA's Office of National Examinations
and Supervision.
Sec. 708a.402 Approval Required for Combination Transactions.
(a) General. The NCUA's prior approval is required before a credit
union may engage in a combination transaction. A state-chartered credit
union must also obtain the prior approval of its State Supervisory
Authority to engage in a combination transaction.
(b) Factors. The NCUA will assess each of the below factors in
considering applications for combination transactions:
(1) The history, financial condition, and management policies of
the credit union;
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(2) The adequacy of the credit union's reserves;
(3) The economic advisability of the transaction;
(4) The general character and fitness of the credit union's
management;
(5) The convenience and needs of the members to be served by the
credit union; and
(6) How the transaction fits into the credit union's purpose as a
cooperative association organized for the purpose of promoting thrift
among its members and creating a source of credit for provident or
productive purposes.
(c) Credit union board of directors. A credit union proposing a
combination transaction must conduct a vote of its board of directors
on the proposed transaction before submitting a request under paragraph
(a) of this section.
Sec. 708a.403 Submission to the NCUA.
(a) General. A credit union proposing a combination transaction
must submit its request to the Regional Director.
(b) Credit union membership. The request to the NCUA must explain
the credit union's plan for obtaining credit union membership for the
customers of the non-credit union.
(c)(1) Information required. The request to the NCUA must, at a
minimum, include the following items:
(i) A balance sheet and income statement for each institution;
(ii) A combined financial statement showing the transaction's
potential impact on the credit union's net worth;
(iii) A summary of the credit union's due diligence assessment
process for the proposed transaction, including analysis to support the
proposed transaction price;
(iv) A delinquent loan summary for any assets involved in the
transaction;
(v) An analysis of the adequacy of the credit union's allowance for
loan and lease losses;
(vi) A list of the other institution's assets that would be
impermissible for a credit union to hold under the Act and, for state-
chartered credit unions, state law, and an explanation of the plan to
dispose of these assets in advance of, or separately from, the
transaction; and
(vii) A list of bank shareholders.
(2) Other information. Notwithstanding paragraph (c)(1) of this
section the Regional director may also request any additional
information the Regional director, in his or her discretion, deems
necessary to evaluate the proposed transaction.
(d) Certification of board of directors. The request to the
Regional director must include a certification, signed by each member
of the credit union's board of directors that voted in favor of the
proposed transaction, that contains the following:
(1) A statement that each director signing the certification
supports the proposed combination transaction and believes the proposed
combination transaction is in the best interests of the current and
potential members of the credit union;
(2) A statement that credit union management has adequately
explained the transaction's expected effect on the credit union's net
worth and balance sheet, as well as how the purchase price was
determined;
(3) A description of all materials submitted to the Regional
Director with the notice and certification;
(4) A statement that each director signing the certification had
the opportunity to review all relevant facts about the transaction
before voting on it; and
(5) A statement that each director signing the certification, as
well as any corporation, partnership or association (other than the
credit union) in which the director has a direct or indirect interest,
does not have a pecuniary or personal interest in the transaction.
Sec. 708a.404 Assumption of Deposits; Federal Share Insurance
Required.
(a) Share insurance required. A credit union proposing to engage in
a combination transaction under this subpart must demonstrate to the
NCUA that any customer deposits that the credit union is seeking to
assume will qualify for coverage up to applicable limits under the
National Credit Union Share Insurance Fund (NCUSIF) immediately upon
the transaction close.
(b) Qualifications for share insurance. Deposits that the credit
union is seeking to assume qualify for NCUSIF coverage up to applicable
limits in any of the following instances:
(1) The credit union has a low-income designation, as permitted by
Sec. 701.34 of this chapter.
(2) The deposits are from a public unit or a political subdivision
thereof, as those terms are defined in Sec. 745.1 of this chapter.
(3) The State Supervisory Authority of a state-chartered credit
union provides a written statement confirming, subject to the NCUA's
satisfaction, that the depositors will be credit union members at the
transaction close under the relevant state law.
(4) A federal credit union demonstrates, pursuant to Sec.
708a.405, that the depositors are within the federal credit union's
field of membership and that the depositors have consented to become
members of the federal credit union.
Sec. 708a.405 Federal Credit Union Membership.
Requirements. The following requirements apply to federal credit
union membership:
(a) Eligibility. The federal credit union must confirm that each
customer of the non-credit union involved in the proposed transaction
is within the federal credit union's field of membership. A federal
credit union may not assume the deposits of a customer that is outside
the federal credit union's field of membership, except as permitted by
Sec. 701.32 of this chapter and Sec. 708a.404(b)(1) and (2). A
federal credit union may not acquire the loans of a customer that is
outside the federal credit union's field of membership, except as
permitted by Sec. 701.23 of this chapter.
(b) Consent to federal credit union membership. The federal credit
union must confirm that the customers of the non-credit union who are
within the federal credit union's field of membership have consented to
become members of the federal credit union.
PART 741--REQUIREMENTS FOR INSURANCE
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3. The authority citation for part 741 continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31
U.S.C. 3717.
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4. Amend Sec. 741.8 by revising paragraph (a) introductory text,
paragraph (c) and adding paragraph (d) to read as follows:
Sec. 741.8 Purchase of assets and assumption of liabilities.
(a) Except as provided in paragraph (b) of this section, any credit
union insured by the National Credit Union Share Insurance Fund
(NCUSIF) must receive approval from the NCUA before purchasing assets,
including loans, or assuming an assignment of deposits, shares, or
liabilities from:
* * * * *
(c) General. A credit union proposing a transaction under paragraph
(a) of this section must submit its request to the Regional Director. A
credit union must also comply with all requirements of other applicable
portions of this chapter, as noted below. A state-chartered federally
insured credit union must also comply with any applicable state law or
regulations.
(1) For a transaction that is a merger or consolidation with an
institution of the type listed in paragraph (a)(2) of this section, the
credit union must comply with subpart D of part 708a of this chapter.
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(2) For a transaction that is a merger or consolidation with an
institution of the type listed in paragraph (a)(1) of this section, the
credit union must comply with part 708b of this chapter.
(3) For assumptions of deposits or other liabilities, not part of a
merger or consolidation, from an institution of the type listed in
paragraph (a)(2) of this section, the credit union must comply with
subpart D of part 708a.
(4) For purchases of loans, not part of a merger or consolidation,
from an institution of the type listed in paragraphs (a)(1) and (a)(2)
of this section, the credit union must comply with Sec. 701.23 of this
chapter.
(5) For purchase of other assets, not part of a merger or
consolidation, from an institution of the type listed in paragraphs
(a)(1) and (a)(2) of this section, the credit union must comply with
parts 703 or 721 of this chapter, as applicable.
(d) Factors. The NCUA will assess each of the below factors in
considering applications for transactions under this section:
(1) The history, financial condition, and management policies of
the credit union;
(2) The adequacy of the credit union's reserves;
(3) The economic advisability of the transaction;
(4) The general character and fitness of the credit union's
management;
(5) The convenience and needs of the members to be served by the
credit union; and
(6) How the transaction fits into the credit union's purpose as a
cooperative association organized for the purpose of promoting thrift
among its members and creating a source of credit for provident or
productive purposes.
[FR Doc. 2020-01538 Filed 1-29-20; 8:45 am]
BILLING CODE 7535-01-P
