FR Doc E9-17310

[Federal Register: July 24, 2009 (Volume 74, Number 141)]
[Proposed Rules]
[Page 36618-36628]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jy09-10]

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 741

RIN 3133-AD63

National Credit Union Share Insurance Fund Premium and One
Percent Deposit

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: Section 741.4 of NCUA's rules describes the procedures for the
capitalization and maintenance of the National Credit Union Share
Insurance Fund (NCUSIF). The current rule, however, does not adequately
address how credit unions that enter or depart the NCUSIF system in a
given calendar year are affected by any NCUSIF premium or deposit
replenishment assessments in that same year. Due to the unprecedented
level of NCUSIF expenses in 2009, which required the NCUA to announce
both such assessments, NCUA is now proposing amendments to Sec. 741.4
to clarify these procedures. The proposal makes other minor changes to
741.4 and conforming changes to Sec. 701.6 relating to the payment of
operating fees by Federal credit unions.

DATES: Comments must be received by August 24, 2009.

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.
E-mail: Address to regcomments@ncua.gov. Include ``[Your
name] Comments on Insurance Premium and One Percent Deposit'' in the e-
mail subject line.
Fax: (703) 518-6319. Use the subject line described above
for e-mail.
Mail: Address to Mary Rupp, 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 Web site 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 a.m. and 3 p.m. To make an appointment,
call (703) 518-6546 or send an e-mail to OGC Mail@ncua.gov.

FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Staff Attorney,
Office of General Counsel, National Credit Union Administration, 1775
Duke Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-
6540; and Paul Peterson, Director, Applications Section, Office of
General Counsel, National Credit Union Administration, at the same
address and telephone number.

SUPPLEMENTARY INFORMATION:

A. Background

Congress created the National Credit Union Share Insurance Fund
(NCUSIF) in 1970 to provide share insurance coverage to all Federal
credit unions and to those State chartered credit unions that apply and
meet minimum qualification standards. The NCUSIF provides insurance
coverage for each of an insured credit union's members, similar to the
coverage provided by the Federal Deposit Insurance Corporation's
(FDIC's) Deposit Insurance Fund (DIF).
Unlike the DIF, however, the NCUSIF was not capitalized at its
inception by tax revenues. From 1971 through 1980, the capital of the
NCUSIF was established solely through the annual insurance premium
contributions of insured credit unions. During the period from 1971
through the end of calendar year 1980, the capital of the fund (i.e.,

[[Page 36619]]

equity as a percentage of insured shares) grew, but the years 1981-1983
saw a reversal of this trend, due to both record share growth in
insured credit unions and liquidation and problem credit union
expenses. As an alternative to the premium approach to establishing a
strong and viable insurance fund, the NCUA Board developed a
legislative proposal which, with the support of the entire credit union
system, Congress enacted in 1984. The NCUSIF was then capitalized with
a deposit by each credit union of an amount equaling one percent of the
credit union's total insured shares.
As required by the 1984 legislation, and subsequent amendments in
1998, NCUA maintains the NCUSIF's equity ratio at a percentage between
1.2% and 1.5%, but no greater than the normal operating level as
established from time to time by the Board. If the NCUSIF's equity
ratio exceeds this normal operating level at the end of any given year,
NCUA will, generally, distribute any excess funds to insured credit
unions. If the NCUSIF's equity ratio falls below 1.2%, the NCUSIF must
assess a premium, and if the ratio falls below 1.0%, depleting the one
percent deposit provided by each credit union, the NCUSIF must also
assess an amount sufficient to replenish the one percent deposit.
In 1984, the Board adopted a rule establishing procedures for the
capitalization and maintenance of the NCUSIF. 49 FR 40561 (Oct. 17,
1984). The rule, originally codified at 12 CFR 741.5 but now located in
Sec. 741.4, dealt broadly with five issues: (1) The funding of the one
percent deposit, (2) the return of the deposit, (3) the use of the
deposit by the NCUSIF and its replenishment by insured credit unions,
(4) the insurance agreement, and (5) NCUA reports to Congress.
The content of Sec. 741.4 today is much the same as its 1984
counterpart, having been modified only slightly in the past 25 years.
For example, while the current rule addresses some issues associated
with the expense and replenishment of the one percent deposit, it does
not contain much detail on this issue.\1\ In addition, the current rule
does not adequately address how credit unions that enter or depart the
NCUSIF system, such as through insurance or bank conversions, are
affected by NCUSIF premium or deposit replenishment assessments in that
same calendar year. Due to the unprecedented level of NCUSIF expenses
in 2009, which required the NCUA to announce both premium and deposit
replenishment assessments, NCUA is now proposing amendments to Sec.
741.4 to clarify these issues and other related issues.
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\1\ The preamble to the proposed rule in 1984 stated:
The legislation provides that the NCUSIF may utilize the deposit
funds if necessary to meet its expenses, in which case the amount
used is to be expensed and replenished by insured credit unions in
accordance with procedures established by the Board. Given the
history of the Fund and the condition of insured credit unions, it
seems unnecessary to anticipate at this time any possible
utilization of the deposit funds to meet the Fund's expenses. This
authority is clearly intended to meet a catastrophic economic set of
circumstances, as evidenced by the fact that it can only be
exercised after the Fund has utilized all investment income and all
of its 0.3% nondeposit equity. Thus, ample time would exist for
development of expense and replenishment procedures and guidelines.
Accordingly, such procedures are not proposed at this time.
49 FR 30740 (Aug. 1, 1984).
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B. Relevant Statutory Provisions

The Federal Credit Union Act contains several relevant provisions
on the return and replenishment of the one percent deposit and the
timing and amount of NCUSIF premiums. These provisions are set forth
below.
With regard to the deposit, Section 202(c)(1)(A) of the Act states:

Each insured credit union shall pay to and maintain with the
National Credit Union Share Insurance Fund a deposit in an amount
equaling 1 per centum of the credit union's insured shares. * * *

12 U.S.C. 1782(c)(1)(A). Section 202(c)(1)(B) of the Act also states:

(i) The deposit shall be returned to an insured credit union in
the event that its insurance coverage is terminated, it converts to
insurance coverage from another source, or in the event the
operations of the fund are transferred from the National Credit
Union Administration Board.
(ii) The deposit shall be returned in accordance with procedures
and valuation methods determined by the Board, but in no event shall
the deposit be returned any later than one year after the final date
on which no shares of the credit union are insured by the Board.
(iii) The deposit shall not be returned in the event of
liquidation on account of bankruptcy or insolvency.
(iv) The deposit funds may be used by the fund if necessary to
meet its expenses, in which case the amount so used shall be
expensed and shall be replenished by insured credit unions in
accordance with procedures established by the Board.

12 U.S.C. 1782(c)(1)(B). With regard to the premium, Section 202(c)(2)
of the Act states:

(A) In general. Each insured credit union shall, at such times
as the Board prescribes (but not more than twice in any calendar
year), pay to the Fund a premium charge for insurance in an amount
stated as a percentage of insured shares (which shall be the same
for all insured credit unions).
(B) Relation of premium charge to equity ratio of fund. The
Board may assess a premium charge only if--
(i) the Fund's equity ratio is less than 1.3 percent; and
(ii) the premium charge does not exceed the amount necessary to
restore the equity ratio to 1.3 percent.
(C) Premium charge required if equity ratio falls below 1.2
percent. If the Fund's equity ratio is less than 1.2 percent, the
Board shall, subject to subparagraph (B), assess a premium charge in
such an amount as the Board determines to be necessary to restore
the equity ratio to, and maintain that ratio at, 1.2 percent.

12 U.S.C. 1782(c)(2). Section 206(d)(3) of the Act also states:

In the event of a conversion of a credit union from status as an
insured credit union under this Act under subsection (a)(2) of this
section, premium charges payable under section 202(c) of this Act
shall be reduced by an amount proportionate to the number of
calendar months for which the converting credit union will no longer
be insured under this Act . * * *

12 U.S.C. 1786(d)(3). Subsection (a)(2) in the quotation above refers
to the conversion from a federally-insured credit union to a
nonfederally-insured credit union.

C. Proposed Amendments to Section 741.4

The proposal includes several amendments to clarify the NCUSIF
premium and deposit replenishment obligations and procedures for credit
unions and other entities that enter or depart from NCUSIF coverage.
Most of these proposed amendments are located in Sec. 741.4(i),
Conversion to Federal insurance, and Sec. 741.4(j), Conversion from,
or termination of, Federal share insurance. The Board is, however, also
proposing minor changes to other paragraphs in Sec. 741.4. A
paragraph-by-paragraph description and discussion of all the proposed
amendments follows.

Paragraph (a)--Scope

Section 741.4 provides for the capitalization and maintenance of
the NCUSIF. The proposal does not change the scope of Sec. 741.4, and
the proposal does not amend this paragraph.

Paragraph (b)--Definitions

The proposal includes three amendments to the existing definitions.
The proposal amends the definition of insured shares to include,
for a credit union or other entity that is not federally insured, the
amount of deposits of shares that would have been insured by the NCUSIF
had the institution been federally insured on the date of measurement.
This amended definition is necessary for calculating

[[Page 36620]]

NCUSIF premiums, deposit replenishments, and equity distributions for
entities that enter the NCUSIF insurance system.
The proposal adds a definition of the term premium/distribution
ratio as the number of full remaining months in the calendar year
following the date of the institution's conversion or merger, divided
by 12. This term is used in the NCUSIF premium, deposit replenishment,
and equity distribution calculations involving credit unions and other
entities that enter the NCUSIF insurance system. The ratio represents
the fraction of the year that an institution entering the NCUSIF system
was insured by the NCUSIF.
The proposal also adds a definition of the term modified premium/
distribution ratio as one minus the premium/distribution ratio. This
term is used in the NCUSIF premium, deposit replenishment, and equity
distribution calculations involving credit unions that depart the
NCUSIF insurance system. This ratio represents the fraction of the year
that an institution departing the NCUSIF system was insured by the
NCUSIF.
Also, the proposal deletes the paragraph numbers in the current
version, consistent with Office of the Federal Register drafting
recommendations for definitions sections that list the terms defined in
alphabetical order.

Paragraph (c)--One Percent Deposit

This paragraph describes the one percent deposit requirement and
the periodic adjustments based on changes in insured shares. For credit
unions with less than $50 million in assets, the adjustments occur
after the annual reporting period ending on December 31. For credit
unions with $50 million or more in assets, the adjustments occur after
the semiannual reporting periods ending on June 30 and December 31 each
year.
The proposal does not amend this paragraph.

Paragraph (d)--Insurance Premium Charges

Paragraph (d)(1) provides that the Board may assess premium
charges, in an amount stated as a percentage of insured shares, no more
than twice annually. Subparagraph (d)(2)(i) states the relation of the
premium charge to the equity ratio. The proposal does not amend these
provisions.
Subparagraph (d)(2)(ii) states that if the ratio of the NCUSIF
falls below 1.2 percent, the NCUA Board is required to assess a premium
in an amount it determines necessary to restore the equity ratio to,
and maintain that ratio at, 1.2 percent. This provision is confusing
because it does not delineate between premium assessments and
assessments to replenish the one percent deposit as required by Sec.
202 of the Federal Credit Union Act. Accordingly, the proposal amends
subparagraph(d)(2)(ii) to read as follows:

If the equity ratio of the NCUSIF falls to between 1.0 and 1.2
percent, the NCUA Board is required to assess a premium in an amount
it determines is necessary to restore the equity ratio to, and
maintain that ratio at, at least 1.2 percent. If the equity ratio of
the NCUSIF falls below 1.0 percent, the NCUA Board is required to
assess a deposit replenishment charge in an amount it determines is
necessary to restore the equity ratio to 1.0 percent and to assess a
premium charge in an amount it determines is necessary to restore
the equity ratio to, and maintain the ratio at, at least 1.2
percent.

Paragraph (e)--Distribution of NCUSIF Equity

This paragraph describes the mandatory year-end distribution of
NCUSIF equity when the NCUSIF exceeds both its normal operating level
and its available assets ratio as described in Sec. 202(c)(3) of the
Federal Credit Union Act. The proposal does not amend this paragraph.

Paragraph (f)--Invoices

This paragraph describes invoices for premiums and deposit
adjustments. For clarity, the proposal amends this paragraph to
specifically include invoices for deposit replenishment.

Paragraph (g)--New Charters

This paragraph permits new charters to delay the funding of their
one percent deposit until the year following their chartering. The
proposal does not amend this paragraph.

Paragraph (h)--Depletion of One Percent Deposit

The proposal adds a new paragraph(h) to read as follows:

Depletion of one percent deposit. All or part of the one percent
deposit may be used by the NCUSIF if necessary to meet its expenses,
and the fund will expense the amount so used. The NCUSIF may invoice
credit unions in an amount necessary to replenish the one percent
deposit at any time following the effective date of the depletion,
but must invoice credit unions no later than the adjustment
described in paragraph (c) of this section based on insured shares
as of December 31 of the year of the depletion.

The first sentence of this provision restates the Board's authority
under Sec. 202(c)(1)(B)(iv) of the Federal Credit Union Act. The
second sentence clarifies that NCUA may invoice insured credit unions
for the deposit replenishment at any time after the deposit has been
depleted, but requires that NCUA send the invoice no later than the
date NCUA first adjusts the deposit for changes in insured share levels
in the year following the depletion.
The proposal takes the current paragraph (h), entitled Conversion
to Federal Insurance, expands on that paragraph, and incorporates it
into the proposed paragraph (i). This is discussed further below.

Paragraph (i)--Conversion to Federal Insurance

The proposal amends paragraph (i) to address, in detail, how a
nonfederally insured credit union that converts to Federal insurance is
affected by a NCUSIF declaration of a premium assessment, deposit
replenishment assessment, or an equity distribution. Paragraph (i)(1)
addresses a direct conversion to Federal insurance, and paragraph
(i)(2) addresses an indirect conversion through the merger of a
nonfederally insured credit union or entity into a federally insured
credit union. The term ``merger'' includes not only mergers but also
purchase and assumption transactions in which the continuing credit
union obtains all, or substantially all, of the assets of the other
entity. The current paragraph (i), entitled Mergers of nonfederally
insured credit unions, is expanded and subsumed into the proposed
paragraph (i)(2).
This proposed paragraph (i), along with the proposed paragraph (j),
constitute the most significant and complex of the proposed amendments
to Sec. 741.4. Accordingly, the discussion below is detailed and
includes hypotheticals illustrating each subparagraph.
Proposed paragraph (i)(1) addresses a direct conversion to NCUSIF
insurance. Proposed paragraph (i)(1)(i) provides that:

A credit union or other institution that converts to insurance
coverage with the NCUSIF will: (i) Immediately fund its one percent
deposit based on the total of its insured shares as of the last day
of the most recently ended reporting period prior to the date of
conversion. * * *

To illustrate the application of this provision, consider the
following hypothetical. Assume Main Street Credit Union completes its
conversion from nonfederal to Federal insurance on May 15 of Year One.
Assume further that Main Street credit union had 1,000 insured shares
for the end of month in December of the previous year (Year zero),
1,100 insured shares at the end of

[[Page 36621]]

May, the month of conversion, and 1,200 insured shares at the end of
June. This information is presented in this Table A: \2\
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\2\ Although Main Street Credit Union was not Federally insured
as of December 31 of Year Zero, proposed 741.4(b)(3) provides that
``For a credit union or other entity that is not Federally insured,
`insured shares' means, for purposes of this section only, the
amount of deposits or shares that would have been insured by the
NCUSIF under part 745 had the institution been Federally insured on
the date of measurement.''

Table A
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End of month,
End of month, May, Year One
December, Year (month End of month,
Zero conversion June, Year One
completed)
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Main Street Credit Union's Federally Insured Shares....... 1,000 1,100 1,200
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Proposed paragraph (i)(1)(i) requires that on the date of its
conversion, Main Street fund its one percent deposit based on ``the
total of its insured shares as of the last day of the most recently
ended reporting period prior to the date of conversion.'' Since Main
Street has less than $50,000,000 in assets, its reporting period is
annual, and ends on December 31. 12 CFR 741.4(b)(6) (definition of
``reporting period''). Main Street had $1,000 in insured shares on that
date, and one percent of that is $10, and so that is the amount Main
Street must immediately remit to the NCUSIF to establish its one
percent deposit.
Proposed paragraph (i)(1)(ii) provides that:

A credit union or other institution that converts to insurance
coverage with the NCUSIF will: * * * (ii) If the NCUSIF assesses a
premium in the calendar year of conversion, pay a premium based on
the institution's insured shares as of the last day of the most
recently ended reporting period preceding the invoice date times the
institution's premium/distribution ratio. * * *

To illustrate the application of paragraph (i)(1)(ii), take the
same facts in hypothetical A related to the conversion of Main Street
from nonfederal to Federal insurance. Now, further assume that on the
previous March 15, NCUA had declared a premium assessment, and on
September 15 following the conversion NCUA sent out the invoices for
the March 15 assessment. Also assume that Main Street had grown to
1,300 insured shares at the end of September, the month the invoices
were sent to Main Street and other credit unions. This information is
presented in this Table B:

Table B
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End of month,
End of month, May, Year One End of month
December, Year (month End of month, September, Year
Zero conversion June, Year One One (month
completed) invoice sent)
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Main Street Credit Union's Federally 1,000 1,100 1,200 1,300
Insured Shares.........................
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Paragraph (i)(1)(ii) requires Main Street pay a premium based on
the institution's ``insured shares as of the last day of the most
recently ended reporting period preceding the invoice date times the
institution's premium/distribution ratio.'' Again, because Main Street
is under $50 million in assets, the most recently ended reporting
period preceding the September 15 invoice date is all the way back to
December of Year Zero, when Main Street had $1,000 in shares. Main
Street's ``premium/distribution ratio,'' as defined in proposed Sec.
741.4(b)(5), is ``the number of full remaining months in the calendar
year following the date of the institution's conversion or merger
divided by 12.'' Since Main Street completed its conversion in May,
there are seven full months remaining in the calendar year (June
through December), and Main Street's premium/distribution ratio is
seven divided by 12. Accordingly, Main Street's premium will be
assessed on $1,000 times seven divided by 12, or about $583.\3\ Note
that if Main Street's assets had exceeded $50 million as of June 30, it
would have had semiannual reporting periods under Sec. 741.4(b)(6),
and its ``insured shares as of the last day of the most recently ended
reporting period preceding the invoice date'' would have been its
insured shares as of June 30, Year One, and not as of December 31, Year
Zero.
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\3\ Main Street's actual premium charge will be this $583
divided by the aggregate insured shares of all Federally insured
credit unions times the aggregate premium for all Federally insured
credit unions.
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Proposed paragraphs (i)(1)(iii) and (iv) describe the
responsibility of a credit union or other entity converting to Federal
insurance to replenish a depleted NCUSIF deposit, as follows:

A credit union or other institution that converts to insurance
coverage with the NCUSIF will * * * (iii) If the NCUSIF declares, in
the calendar year of conversion but on or before the date of
conversion, an assessment to replenish the one-percent deposit, pay
nothing related to that assessment; (iv) If the NCUSIF declares, at
any time after the date of conversion through the end of that
calendar year, an assessment to replenish the one-percent deposit,
pay a replenishment amount based on the institution's insured shares
as of the last day of the most recently ended reporting period
preceding the invoice date. * * *

Paragraph (i)(1)(iii) clarifies that a converting credit union has
no responsibility to pay anything toward the replenishment of a
depleted deposit that is declared on or before the date of conversion,
even if NCUA sends out invoices related to the depletion after the date
of conversion. Paragraph (i)(1)(iv) requires that a converting credit
union replenish its deposit with regard to a depletion declared after
the date of conversion through the end of the calendar year. Again,
assume the same facts for Main Street as in Table B, but that the
deposit depletion was announced in June, after Main Street converted,
and that NCUA sent the invoices in September.

[[Page 36622]]

Main Street would receive an invoice amount ``based on the [Main
Street's] insured shares as of the last day of the most recently ended
reporting period preceding the invoice date.'' Since Main Street has
less than $50 million in shares, the most recently ended reporting
period preceding the September invoice date was December 31, Year Zero,
and it would pay for the replenishment based on $1,000 in insured
shares. If Main Street, however, had had $50 million or more in assets
on June 30, its most recently ended reporting period preceding the
invoice date would have been the semiannual period ending on June 30,
and Main Street would have used its insured shares as of June 30 to
calculate the replenishment amount due to the NCUSIF.
Under the Federal Credit Union Act, distributions, if any, are
declared once a year, early in the year, based on excess funds in the
NCUSIF as of the prior December 31. Proposed paragraph (i)(1)(v)
describes the right of a credit union or other entity converting to
Federal insurance to receive a distribution from the NCUSIF,
specifically:

(1) A credit union or other institution that converts to
insurance coverage with the NCUSIF will: * * * (v) If the NCUSIF
declares a distribution in the year following conversion based the
NCUSIF's equity at the end of the year of conversion, receive a
distribution based on the institution's insured shares as of the end
of the year of conversion times the institution's premium/
distribution ratio. With regard to distributions declared in the
calendar year of conversion but based on the NCUSIF's equity at the
end of the preceding year, the converting institution will receive
no distribution.

To illustrate how proposed paragraph (i)(1)(v) works, assume that
Main Street Credit Union converts to Federal insurance in May of Year
One, and that the NCUA declares a distribution in January of Year Two
based on the NCUSIF equity as of December 31 of Year One. Then Main
Street will be entitled to a pro rata portion of the distribution,
calculated on its insured shares as of December 31 of Year One times
its premium/distribution ratio. Since it converted in May of Year One,
and there were seven full months remaining in Year One at on the date
of conversion, Main Street's premium/distribution ratio under proposed
Sec. 741.4(b)(6) equals seven divided by 12.
On the other hand, if the NCUA declared a distribution a year
earlier, that is, in January of Year One based on the NCUSIF's equity
ratio as of December 31 in Year Zero, then under proposed paragraph
(i)(1)(v) Main Street would receive no part of this distribution. Main
Street is not entitled to any part of this distribution because Main
Street, which completed its conversion in Year One, did not contribute
in any way to the excess funds in the NCUSIF as of the end of Year
Zero.
While proposed paragraph (i)(1), and the examples given above,
involve the conversion of a credit union or entity directly to Federal
insurance with the NCUSIF, such conversions can also happen indirectly
through the merger of a nonfederally insured credit union or entity
into a federally insured credit union.
Proposed paragraph (i)(2) addresses the NCUSIF premiums, deposit
replenishments, and distributions in this context.
Proposed paragraph (i)(2)(i) provides that:

(2) A federally insured credit union that merges with a
nonfederally-insured credit union or other non-federally insured
institution (the ``merging institution''), where the federally-
insured credit union is the continuing institution, will: (i)
Immediately on the date of merger increase the amount of its NCUSIF
deposit by an amount equal to one percent of the merging
institution's insured shares as of the last day of the merging
institution's most recently ended reporting period preceding the
date of merger * * *.

To illustrate this provision, and the other provisions of paragraph
(i)(2) related to mergers of nonfederally insured entities into
federally-insured credit unions, consider the following hypothetical.
Nonfederally-insured Credit Union A merges into federally-insured
Credit Union B on August 15 of Year One. The relevant insured shares of
Credit Union A and Credit Union B at various dates before and after the
merger are reflected in Table D:

Table D
----------------------------------------------------------------------------------------------------------------
End of month End of month
End of month End of month August, Year One September, Year
December, Year June, Year One (month merger One (month
Zero completed) invoice sent)
----------------------------------------------------------------------------------------------------------------
Credit Union A insured shares........... 1,000 1,100 N/A N/A
Credit Union B insured shares........... 9,000 9,900 12,900 14,000
----------------------------------------------------------------------------------------------------------------

Proposed paragraph (i)(2)(i) requires that Credit Union B, the
continuing credit union, immediately increase the amount of its deposit
with the NCUSIF in an amount ``equal to one percent of the merging
institution's insured shares as of the last day of the merging
institution's most recently ended reporting period preceding the date
of merger.'' Since Credit Union A, the merging institution, has less
than $50 million in assets, its reporting period is the calendar year,
and its most recently ended reporting period preceding the August
merger date is December 31 in Year Zero. Credit Union A had $1,000 in
insured shares on that date. Accordingly, Credit Union B, the
continuing credit union, must immediately increase the amount of its
deposit with the NCUSIF by one percent

[[Page 36623]]

of $1,000, or $10. Note that if Credit Union A had been a larger credit
union, with $50 million or more in assets on June 30 in Year One, then
Credit Union B would have used Credit Union A's insured shares as of
June 30 in this calculation.
Proposed paragraph (i)(2)(ii), relating to NCUSIF premium
assessments, provides that the continuing institution will:

(ii) With regard to any NCUSIF premiums assessed in the calendar
year of merger, pay a two-part premium, with one part calculated on
the merging institution's insured shares as described in
subparagraph (1)(ii) above, and the other part calculated on the
continuing institution's insured shares as of the last day of its
most recently ended reporting period preceding the date of merger. *
* *

Paragraph (i)(2)(ii) provides for a two-part calculation, with the
first part relating to the merging credit union and the second part
relating to the continuing credit union. If we assume the facts as in
Table D, and assume the premium is assessed sometime in Year One, then
we calculate the insured shares of Credit Union A, the merging credit
union, as we did in the example for paragraph (i)(1)(ii), which would
be $583. Then we calculate the insured shares of Credit Union B, the
continuing credit union, ``as of the last day of its most recently
ended reporting period preceding the merger date.'' Since Credit Union
B is also under $50 million in assets, ``the last day of the most
recently ended reporting period'' is also December 31 of Year Zero.
Credit Union B's insured shares on that date were $9,000, and so the
combined insured shares for purposes of the premium assessment is
$9,583. Note that if Credit Union B had $50 million or more in assets
on June 30 of Year One, then Credit Union B's ``most recently ended
reporting period preceding the merger date'' would have been June 30 of
Year One, and not December 31 of Year Zero. The Board is aware that the
NCUA might declare a NCUSIF premium, invoice it, and receive the
premiums in Year One from the continuing institution before the
continuing institution consummates its merger. In that case, the Board
would invoice the continuing credit union again after the merger, but
only for the difference between the amount previously invoiced and the
amount calculated under proposed paragraph (i)(2)(ii).
Proposed paragraph (i)(2)(iii) prescribes the procedures for
calculating the NCUSIF distribution when a nonfederally-insured credit
union or entity merges into a federally insured credit union. Proposed
paragraph (i)(2)(iii) provides that the federally-insured credit union
will:

[i]f the NCUSIF declares a distribution in the year following the
merger based on the NCUSIF's equity at the end of the year of
merger, receive a distribution based on the continuing institution's
insured shares as of the end of the year of merger. With regard to
distributions declared in the calendar year of merger but based on
the NCUSIF's equity from the end of the preceding year, the
institution will receive a distribution based on its insured shares
as of the end of the preceding year.

This formula recognizes that the merging institution did not
contribute to the NCUSIF equity as of the end of the year preceding the
merger and so no distribution is allotted against the merging
institution's shares. As for distributions based on the NCUSIF equity
at the end of the year of merger, this formula does not include any pro
rata reduction for the merging institution's contribution. The Board
determined that a pro rata reduction was unnecessary, given the
generally small relative size of merging institutions to continuing
institutions, and the fact that the Federal Credit Union Act does not
require any sort of pro rata reduction or other pro rata calculation
with regard to distributions.
For credit unions converting to NCUSIF coverage, the proposal
changes the date for calculating the one percent deposit from insured
shares as of the close of the month before conversion to insured shares
as of the most recently ended reporting period before conversion. NCUA
is proposing this change to make the calculation method for credit
unions entering NCUSIF consistent with the calculation method for
federally-insured credit unions' one percent deposit adjustment.
Likewise, for federally-insured credit unions merging with
nonfederally-insured credit unions, the proposal clarifies that the
date used for calculation of the merged credit union's increased one
percent is insured shares of the nonfederally-insured credit union as
of the most recently ended reporting period before conversion. Again,
this change makes the calculation method for credit unions increasing
insured shares by merger consistent with the calculation method for
federally-insured credit unions' one percent deposit adjustment.

Paragraph (j)--Conversion From, or Termination of, Federal Share
Insurance

The proposal amends paragraph (j) to address, in detail, how a
federally insured credit union that converts to insurance other than
that provided by the NCUSIF, or that loses or terminates its NCUSIF
insurance, is affected by a NCUSIF declaration of a premium assessment,
deposit replenishment assessment, or equity distribution. Proposed
subparagraph (j)(1) addresses direct insurance conversions and
conversions by merger. Proposed subparagraph (j)(2) addresses
liquidations and insurance termination.
Proposed paragraph (j)(1)(i) provides that:

A federally-insured credit union whose insurance coverage with
the NCUSIF terminates, including through a conversion to, or merger
into, a nonfederally insured credit union or a non-credit union
entity, will: (i) Receive the full amount of its NCUSIF deposit,
less any announced depletion, immediately after the final date on
which any shares of the credit union are NCUSIF-insured. * * *

The current paragraph (j) does not mention the possibility of
deposit depletion, and this has been clarified in the proposed
paragraph (j). To illustrate the application of this paragraph
(j)(1)(i), consider the following hypothetical. Assume Anytown Credit
Union, a credit union with $30 million in assets, converts from Federal
to nonfederal insurance on November 15. Also assume Anytown Credit
Union had $20 million in insured shares as of the previous December 31,
the end of its most recent reporting period. 12 CFR 741.4(b)(5), (c).
The NCUSIF would return one percent of $20 million, or $200,000 to
Anytown Credit Union immediately following the effective date of its
conversion. Note that, if Anytown Credit Union had reported $50 million
or more in assets on June 30, then June 30 would have been the end of
its most recent reporting period. Now further assume that, on July 15
of that same year, the NCUSIF had announced an expense that reduced the
equity ratio from 1.3 to .75, which would have included a write-off
(depletion) of 25 percent, or 25 basis points, of the one percent
deposit. The amount of the deposit returned to Anytown would be reduced
by 25 percent, from $200,000 to $150,000. If the NCUSIF had announced
expenses reducing the equity ratio to .75 after the November 15
conversion date, this announcement would have no effect on Anytown and
it would still receive $200,000 from the NCUSIF.
Proposed paragraph (j)(1)(ii) provides that:

[[Page 36624]]

of conversion, receive a distribution based on the institution's
insured shares as of the last day of the most recently ended
reporting period preceding the date of conversion times the
institution's modified premium/distribution ratio. * * *

To illustrate the application of this paragraph (j)(1)(ii), again
assume Anytown Credit Union converts to nonfederal insurance on
November 15, and in January of the following year, the NCUSIF declares
a distribution based on the NCUSIF's equity ratio as of December 31.
Anytown would receive a pro rata distribution calculated as its $20
million in insured shares multiplied by the modified premium/
distribution ratio. Anytown's modified premium/distribution ratio, from
the definition in Sec. 741.4(b)(5), is one minus Anytown's premium/
distribution ratio, which is one minus the ratio of the full number of
months remaining in the year divided by twelve, which is one minus (one
divided by twelve), which is eleven divided by twelve. So Anytown would
receive a pro rata distribution based on $20 million of insured shares
times eleven twelfths, or about $18.33 million in shares.\4\
---------------------------------------------------------------------------

\4\ Anytown's actual distribution would be $18.33 million times
the aggregate amount of the distribution divided by the aggregate
amount of all insured shares at all federally insured credit unions.
---------------------------------------------------------------------------

The current rule provides credit unions departing the NCUSIF system
with the option to leave ``a nominal sum on deposit with NCUSIF until
the next distribution from NCUSIF equity and will thus qualify for a
prorated share of the distribution.'' For several reasons, the proposal
eliminates this option. First, the current rule is ambiguous because it
does not specify how the requisite nominal sum is calculated or how the
prorated share of future distributions is calculated. Second, this
option, if exercised, imposes a lengthy recordkeeping burden on the
NCUSIF, as it can be many years between NCUSIF equity distributions.
Third, although several credit unions have departed the NCUSIF system
in recent years, the Board is not aware that any of these credit unions
exercised this option. Finally, the proposed amendments will allow
credit unions departing the NCUSIF to receive a pro rata share of any
future distribution without leaving any sum on deposit with the NCUSIF,
but only for a dividend declared on NCUSIF equity as of the close of
the year of departure. The Board believes this simplification is
appropriate, particularly since the contribution of a departing credit
union to future distributions diminishes with the passage of time.
Proposed paragraph (j)(1)(iii) provides that:

A federally-insured credit union whose insurance coverage with
the NCUSIF terminates, including through a conversion to, or merger
into, a nonfederally insured credit union or a non-credit union
entity, will: * * * (iii) If the NCUSIF assesses a premium in the
calendar year of conversion or merger on or before the day in which
the conversion or merger is completed, pay a premium based on the
institution's insured shares as of the last day of the most recently
ended reporting period preceding the conversion or merger date times
the institution's modified premium/distribution ratio. If the
institution has previously paid a premium based on this same
assessment that exceeds this amount, the institution will receive a
refund of the difference following completion of the conversion or
merger.

To illustrate these premium provisions, again assume Anytown Credit
Union is a credit union with $30 million in assets that converts from
Federal to nonfederal insurance on November 15 of Year One, and that
Anytown Credit Union had $20 million in insured shares as of the
previous December 31 (of Year Zero), the end of its most recent
reporting period. Further assume that NCUA declares a premium on
February 12 of Year One and invoices the premium on November 15. Since
the premium was declared ``on or before the day in which [Anytown's]
conversion [was] completed,'' Sec. 741.4(i)(1)(iii) applies. Anytown
would then pay a premium based on $20 million (its ``insured shares as
of the last day of the most recently ended reporting period preceding
the conversion or merger date'') times eleven twelfths (its ``modified
premium/distribution ratio''), or about $18.33 million. Note that NCUA
might have already have invoiced Anytown for the premium sometime
between February 12 and Anytown's merger on November 15. If so, Anytown
will likely receive a refund of some of this earlier premium, as
provided in the last sentence of Sec. 741.1(i)(1)(iii), since it may
have overpaid the earlier premium.
Proposed paragraph (j)(2), dealing with liquidations, states the
following:

Notwithstanding the requirements of paragraph (j)(1) of this
section: (i) Any insolvent credit union that is closed for
involuntary liquidation will not be entitled to a return of its
deposit; (ii) Any solvent credit union that is closed due to
voluntary or involuntary liquidation will be entitled to a return of
its deposit, less any announced depletion, prior to final
distribution of member shares; and (iii) The Board reserves the
right to delay return of the deposit to any credit union converting
from or terminating its Federal insurance, or voluntarily
liquidating, for up to one year if the Board determines that
immediate repayment would jeopardize the NCUSIF.

These provisions are identical to provisions in the current
paragraph (j), except that the proposal adds the phrase ``less any
announced depletion'' in paragraph (j)(2)(ii) for clarity.

Paragraph (k)--Assessment of Administrative Fee and Interest for
Delinquent Payment

This paragraph describes procedures for assessing fees for
delinquent payments of the capitalization deposit and insurance
premium. The proposal clarifies that paragraph (k) applies to
delinquent deposit replenishment payments as well as premium payments.
The proposal also deletes overlapping provisions for imposing both the
``costs of collection'' and an ``administrative fee'' in the current
rule and changes the interest rate to a fixed rate of six percent per
year. The delinquency fee will be calculated based on a 360-day year,
that is, six percent times the unpaid balance divided by 360 times the
number of days unpaid. The Office of the Chief Financial Officer has
determined that switching to a fixed rate and imposing the delinquency
fee based on the number of days the balance is outstanding will allow
NCUA to automate the billing process, thus eliminating the need for
additional administrative fees.
Finally, the proposal restates provisions from the Act that: (a)
Give the Board authority to collect a penalty of up to $20,000 per day
for each day the balance related to a premium or deposit remains
unpaid; and (b) prohibit insured credit unions from paying dividends or
distributing assets while in default on insurance deposits or premiums,
with possible punishment of fines up to $1,000 or imprisonment of one
year for directors or officers who knowingly violate this prohibition.

D. Temporary Corporate Credit Union Stabilization Fund

In the Spring of 2009, Congress enacted the ``Helping Families Save
Their Homes Act of 2009,'' Pub. L. 111-22. Section 204(f) of that Act
established the Temporary Corporate Credit Union Stabilization Fund
(CCSUF).
The CCUSF is separate from the NCUSIF, and the CCUSF will make
assessments on federally-insured credit unions separate and apart from
any NCUSIF assessments. The CCUSF, unlike the NCUSIF, is funded by
Treasury borrowings and not credit union capitalization deposits.
Accordingly, the CCUSF does not make assessments to replenish capital
deposits, nor does it make assessments

[[Page 36625]]

to reestablish a particular equity ratio. Instead, the CCUSF only makes
assessments on insured credit unions as necessary to repay CCUSF
borrowings from the Treasury. Accordingly, much of Sec. 741.4 of
NCUA's rules is inapplicable to the CCUSF, and the CCUSF is not
specifically addressed in the text of this rulemaking.
While the obligation of a particular credit union to replenish its
NCUSIF deposit or make a NCUSIF premium payment can be rather
complicated, the obligation for a particular credit union to pay a
particular CCUSF assessment is straightforward. CCUSF assessments are
effective on the date the NCUA Board acts to order an assessment as
authorized by Public Law 111-22. Any credit union whose shares are
covered by Federal insurance on that date must pay its share of that
particular assessment; but any credit union that is not covered by
Federal insurance on that date is not obligated to pay any part of that
assessment. The dollar amount of each credit union's portion of a CCUSF
assessment is calculated based on that credit union's insured shares as
of the end of its last reporting period preceding the date of the Board
action.

E. Proposed Amendment to Section 701.6

Section 701.6(d) of NCUA's regulations addresses delinquent payment
of the operating fee paid by FCUs. The proposal updates this section to
parallel the revised provisions for delinquent payment of insurance
premium and deposit replenishment expenses. As in Sec. 741.4(k), the
proposed amendments to Sec. 701.6(d) delete potentially duplicative
provisions allowing both administrative fees and costs of collection,
and replace the variable interest rate with a fixed interest rate of
six percent per year. The delinquency fee will be calculated based on a
360-day year, that is, six percent times the unpaid balance divided by
360 times the number of days unpaid.

F. 30-Day Comment Period

NCUA seeks public comment on the proposed amendments discussed
above.
As a matter of agency policy, the NCUA Board general provides a 60-
day comment period for proposed regulations. NCUA's Interpretive Ruling
and Policy Statement (IRPS) 87-2, 52 FR 35231 (Sept. 18, 1987), as
amended by IRPS 03-02, 68 FR 31949 (May 29, 2003). In this case, the
NCUA Board believes a 30-day comment period will suffice because the
proposal clarifies an existing rule.
NCUA also seeks comment on whether the examples that appear above
illustrating the various proposed amendments should be placed in a
formal Appendix and be published in the Code of Federal Regulations
with the rule text.

Regulatory Procedures

Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a rule may have on a
substantial number of small credit unions, defined as those under ten
million dollars in assets. This proposed rule clarifies existing
requirements and will not impose any new regulatory requirements. The
proposed rule will not have a significant economic impact on a
substantial number of small credit unions, and, therefore, a regulatory
flexibility analysis is not required.
Paperwork Reduction Act
NCUA has determined that the proposed rule would not increase
paperwork requirements under the Paperwork Reduction Act of 1995 and
regulations of the Office of Management and Budget. 44 U.S.C. 3501 et
seq.; 5 CFR part 1320.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on State and local interests. In
adherence to fundamental federalism principles, NCUA, an independent
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies
with the executive order. The proposed rule would not have substantial
direct effects on the States, on the connection between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. NCUA has
determined that this proposed rule does not constitute a policy that
has federalism implications for purposes of the executive order.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The NCUA has determined that the proposed rule would 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 in 12 CFR Part 701

Credit, Credit unions, Operating fee.

List of Subjects in 12 CFR Part 741

Credit unions, insurance.

By the National Credit Union Administration Board on July 16,
2009.
Mary F. Rupp,
Secretary of the Board.

For the reasons set forth above, NCUA proposes to amend 12 CFR
parts 701 and 741 as follows.

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

1. The authority citation for part 701 continues to read as
follows:

Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 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.

2. Revise paragraph (d) of Sec. 701.6 to read as follows:

Sec. 701.6 Fees paid by Federal credit unions.

* * * * *
(d) Assessment of interest for delinquent payment. Each Federal
credit union must pay to the Administration interest on any delinquent
payment of its operating fee. A payment will be considered delinquent
if it is post-marked later than the date stated in the notice to the
credit union provided under Sec. 701.6(c). The National Credit Union
Administration may waive the collection of interest if circumstances
warrant.
(1) The interest rate charged on any delinquent payment is six
percent per annum of the unpaid balance for the number of days the
balance remains unpaid. The delinquency fee is calculated based on a
360-day year, that is, six percent times the unpaid balance divided by
360 times the number of days unpaid.
(2) If a credit union makes a combined payment of its operating fee
and its share insurance deposit and/or insurance premium as provided in
Sec. 741.4 of this chapter and such payment is delinquent, interest
will be charged on the combined amount.

PART 741--REQUIREMENTS FOR INSURANCE

3. The authority citation for part 741 continues to read as
follows:

Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d: 31
U.S.C. 3717.

4. Revise Sec. 741.4 to read as follows:

[[Page 36626]]

Sec. 741.4 Insurance premium and one percent deposit.

(a) Scope. This section implements the requirements of Section 202
of the Act (12 U.S.C. 1782) providing for capitalization of the NCUSIF
through the maintenance of a deposit by each insured credit union in an
amount equaling one percent of its insured shares and payment of an
insurance premium.
(b) Definitions. For purposes of this section:
Available assets ratio means the ratio of:
(i) The amount determined by subtracting all liabilities of the
NCUSIF, including contingent liabilities for which no provision for
losses has been made, from the sum of cash and the market value of
unencumbered investments authorized under Section 203(c) of the Act (12
U.S.C. 1783(c)), to:
(ii) The aggregate amount of the insured shares in all insured
credit unions.
(iii) Shown as an abbreviated mathematical formula, the available
assets ratio is:
[GRAPHIC] [TIFF OMITTED] TP24JY09.001

Equity ratio means the ratio of:
(i) The amount of NCUSIF's capitalization, meaning insured credit
unions' one percent capitalization deposits plus the retained earnings
balance of the NCUSIF (less contingent liabilities for which no
provision for losses has been made) to:
(ii) The aggregate amount of the insured shares in all insured
credit unions.
(iii) Shown as an abbreviated mathematical formula, the equity
ratio is:
[GRAPHIC] [TIFF OMITTED] TP24JY09.002

Insured shares means the total amount of a federally-insured credit
union's share, share draft and share certificate accounts, or their
equivalent under State law (which may include deposit accounts),
authorized to be issued to members, other credit unions, public units,
or nonmembers (where permitted under the Act or equivalent State law),
but does not include amounts in excess of insurance coverage as
provided in part 745 of this chapter. For a credit union or other
entity that is not federally insured, ``insured shares'' means, for
purposes of this section only, the amount of deposits or shares that
would have been insured by the NCUSIF under part 745 had the
institution been federally insured on the date of measurement.
Modified premium/distribution ratio means one minus the premium/
distribution ratio.
Normal operating level means an equity ratio not less than 1.2
percent and not more than 1.5 percent, as established by action of the
NCUA Board.
Premium/distribution ratio means the number of full remaining
months in the calendar year following the date of the institution's
conversion or merger divided by 12.
Reporting period means calendar year for credit unions with total
assets of less than $50,000,000 and means semiannual period for credit
union with total assets of $50,000,000 or more.
(c) One percent deposit. Each insured credit union must maintain
with the NCUSIF during each reporting period a deposit in an amount
equaling one percent of the total of the credit union's insured shares
at the close of the preceding reporting period. For credit unions with
total assets of less than $50,000,000, insured shares will be measured
and adjusted annually based on the insured shares reported in the
credit union's semiannual 5300 report due in January of each year. For
credit unions with total assets of $50,000,000 or more, insured shares
will be measured and adjusted semiannually based on the insured shares
reported in the credit union's quarterly 5300 reports due in January
and July of each year.
(d) Insurance premium charges. (1) In general. Each insured credit
union will pay to the NCUSIF, on dates the NCUA Board determines, but
not more than twice in any calendar year, an insurance premium in an
amount stated as a percentage of insured shares, which will be the same
percentage for all insured credit unions.
(2) Relation of premium charge to equity ratio of NCUSIF. (i) The
NCUA Board may assess a premium charge only if the NCUSIF's equity
ratio is less than 1.3 percent and the premium charge does not exceed
the amount necessary to restore the equity ratio to 1.3 percent.
(ii) If the equity ratio of the NCUSIF falls to between 1.0 and 1.2
percent, the NCUA Board is required to assess a premium in an amount it
determines is necessary to restore the equity ratio to, and maintain
that ratio at, at least 1.2 percent. If the equity ratio of the NCUSIF
falls below 1.0 percent, the NCUA Board is required to assess a deposit
replenishment charge in an amount it determines is necessary to restore
the equity ratio to 1.0 percent and to assess a premium charge in an
amount it determines is necessary to restore the equity ratio to, and
maintain the ratio at, at least 1.2 percent.
(e) Distribution of NCUSIF equity. If, as of the end of a calendar
year, the NCUSIF exceeds its normal operating level and its available
assets ratio exceeds 1.0 percent, the NCUA Board will make a
proportionate distribution of NCUSIF equity to insured credit unions.
The distribution will be the maximum amount possible that does not
reduce the NCUSIF's equity ratio below its normal operating level and
does not reduce its available assets ratio below 1.0 percent. The
distribution will be after the calendar year and in the form determined
by the NCUA Board. The form of the distribution may include a waiver of
insurance premiums, premium rebates, or distributions from NCUSIF
equity in the

[[Page 36627]]

form of dividends. The NCUA Board will use the aggregate amount of the
insured shares from all insured credit unions from the final reporting
period of the calendar year in calculating the NCUSIF's equity ratio
and available assets ratio for purposes of this paragraph.
(f) Invoices. The NCUA provides invoices to all federally insured
credit unions stating any change in the amount of a credit union's one
percent deposit and the computation and funding of any premium or
deposit replenishment assessments due. Invoices for Federal credit
unions also include any annual operating fees that are due. Invoices
are calculated based on a credit union's insured shares as of the most
recently ended reporting period. The invoices may also provide for any
distribution the NCUA Board declares in accordance with paragraph (e)
of this section, resulting in a single net transfer of funds between a
credit union and the NCUA.
(g) New charters. A newly-chartered credit union that obtains share
insurance coverage from the NCUSIF during the calendar year in which it
has obtained its charter will not be required to pay an insurance
premium for that calendar year. The credit union will fund its one
percent deposit on a date to be determined by the NCUA Board in the
following calendar year, but will not participate in any distribution
from NCUSIF equity related to the period prior to the credit union's
funding of its deposit.
(h) Depletion of one percent deposit. All or part of the one
percent deposit may be used by the NCUSIF if necessary to meet its
expenses, and the fund will expense the amount so used. The NCUSIF may
invoice credit unions in an amount necessary to replenish the one
percent deposit at any time following the effective date of the
depletion, but must invoice credit unions no later than the adjustment
described in paragraph (c) of this section based on insured shares as
of December 31 of the year of the depletion.
(i) Conversion to Federal insurance.
(1) A credit union or other institution that converts to insurance
coverage with the NCUSIF will:
(i) Immediately fund its one percent deposit based on the total of
its insured shares as of the last day of the most recently ended
reporting period prior to the date of conversion;
(ii) If the NCUSIF assesses a premium in the calendar year of
conversion, pay a premium based on the institution's insured shares as
of the last day of the most recently ended reporting period preceding
the invoice date times the institution's premium/distribution ratio;
(iii) If the NCUSIF declares, in the calendar year of conversion on
or before the date of conversion, an assessment to replenish the one-
percent deposit, pay nothing related to that assessment;
(iv) If the NCUSIF declares, at any time after the date of
conversion through the end of that calendar year, an assessment to
replenish the one-percent deposit, pay a replenishment amount based on
the institution's insured shares as of the last day of the most
recently ended reporting period preceding the invoice date; and
(v) If the NCUSIF declares a distribution in the year following
conversion based the NCUSIF's equity at the end of the year of
conversion, receive a distribution based on the institution's insured
shares as of the end of the year of conversion times the institution's
premium/distribution ratio. With regard to distributions declared in
the calendar year of conversion but based on the NCUSIF's equity from
the end of the preceding year, the converting institution will receive
no distribution.
(2) A federally insured credit union that merges with a
nonfederally-insured credit union or other non-federally insured
institution (the ``merging institution''), where the federally-insured
credit union is the continuing institution, will:
(i) Immediately on the date of merger increase the amount of its
NCUSIF deposit by an amount equal to one percent of the merging
institution's insured shares as of the last day of the merging
institution's most recently ended reporting period preceding the date
of merger;
(ii) With regard to any NCUSIF premiums assessed in the calendar
year of merger, pay a two-part premium, with one part calculated on the
merging institution's insured shares as described in subparagraph
(1)(ii) above, and the other part calculated on the continuing
institution's insured shares as of the last day of its most recently
ended reporting period preceding the date of merger; and
(iii) If the NCUSIF declares a distribution in the year following
the merger based the NCUSIF's equity at the end of the year of merger,
receive a distribution based on the continuing institution's insured
shares as of the end of the year of merger. With regard to
distributions declared in the calendar year of merger but based on the
NCUSIF's equity from the end of the preceding year, the institution
will receive a distribution based on its insured shares as of the end
of the preceding year.
(j) Conversion from, or termination of, Federal share insurance.
(1) A federally insured credit union whose insurance coverage with
the NCUSIF terminates, including through a conversion to, or merger
into, a nonfederally insured credit union or a non-credit union entity,
will:
(i) Receive the full amount of its NCUSIF deposit, less any
announced depletion, immediately after the final date on which any
shares of the credit union are NCUSIF-insured;
(ii) If the NCUSIF declares a distribution at the end of the
calendar year of conversion, receive a distribution based on the
institution's insured shares as of the last day of the most recently
ended reporting period preceding the date of conversion times the
institution's modified premium/distribution ratio; and
(iii) If the NCUSIF assesses a premium in the calendar year of
conversion or merger on or before the day in which the conversion or
merger is completed, pay a premium based on the institution's insured
shares as of the last day of the most recently ended reporting period
preceding the conversion or merger date times the institution's
modified premium/distribution ratio. If the institution has previously
paid a premium based on this same assessment that exceeds this amount,
the institution will receive a refund of the difference following
completion of the conversion or merger.
(2) Notwithstanding the requirements of paragraph (j)(1) of this
section:
(i) Any insolvent credit union that is closed for involuntary
liquidation will not be entitled to a return of its deposit;
(ii) Any solvent credit union that is closed due to voluntary or
involuntary liquidation will be entitled to a return of its deposit,
less any announced depletion, prior to final distribution of member
shares; and
(iii) The Board reserves the right to delay return of the deposit
to any credit union converting from or terminating its Federal
insurance, or voluntarily liquidating, for up to one year if the Board
determines that immediate repayment would jeopardize the NCUSIF.
(k) Assessment of interest and penalties for delinquent payment.
(1) Each federally insured credit union must pay to the NCUA
interest on any delinquent payment of its capitalization deposit,
including any delinquent deposit replenishment, and on any delinquent
insurance premium. A payment will be considered delinquent if it is
postmarked later than the date stated in the invoice provided to the
credit union. The interest rate charged on any delinquent payment is
six percent per annum of the unpaid

[[Page 36628]]

balance for the number of days after the due date the balance remains
unpaid. The delinquency fee is calculated based on a 360-day year, that
is, six percent times the unpaid balance divided by 360 times the
number of days unpaid. The NCUA may waive or abate collection of
interest, if circumstances warrant.
(2) The Act contains specific penalties and other consequences for
delinquent payments, including, but not limited to:
(i) Section 202(d)(2)(B) of the Act (12 U.S.C. 1782(d)(2)(B))
provides that the Board may assess and collect a penalty from an
insured credit union of not more than $20,000 for each day the credit
union fails or refuses to pay any deposit or premium due to the fund;
and
(ii) Section 202(d)(3) of the Act (12 U.S.C. 1782(d)(3)) provides,
generally, that no insured credit union shall pay any dividends on its
insured shares or distribute any of its assets while it remains in
default in the payment of its deposit or any premium charge due to the
fund. Section 202(d)(3) further provides that any director or officer
of any insured credit union who knowingly participates in the
declaration or payment of any such dividend or in any such distribution
shall, upon conviction, be fined not more than $1,000 or imprisoned
more than one year, or both.

[FR Doc. E9-17310 Filed 7-23-09; 8:45 am]

BILLING CODE 7535-01-P