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CUNA Regulatory Comment Call

May 31, 2005

EXECUTIVE SUMMARY

• The NCUA Board has issued a proposal to modernize the agency’s fidelity bond rules for federal credit unions (FCUs) and federally insured state-chartered credit unions (FISCUs), which provide a sliding scale, based on asset size, for both the maximum allowable deductible and the coverage amounts in a fidelity bond. The maximum deductible for federal credit unions, last increased in 1981, is currently $200,000, and the maximum coverage, last changed in 1977, is $5 million. NCUA conducts an internal rolling review of one-third of its regulations every year; these proposed changes are based on that review.
• The proposed rule would maintain the current formula for the deductible but increase the maximum deductible to $1,000,000 for those credit unions that qualify under NCUA’s Regulatory Flexibility (RegFlex) Program. Under this revised sliding scale, credit unions that (1) qualify for RegFlex and (2) have assets over $200 million would be able to purchase bonds with greater deductibles. (The current deductible limits would remain in place for credit unions that do not qualify under the additional criteria.) The new maximum deductible of $1,000,000 would apply to qualifying credit unions with assets over $998 million. A credit union initially meeting the criteria for a larger deductible but subsequently failing to do so must obtain the required coverage within 30 days. In that case, the credit union must notify the NCUA regional office that its status has changed and confirm that it has secured the required coverage.
  • At the Board meeting during which the Board voted to publish this proposal, Chairman JoAnn Johnson clarified that increasing the permissible deductible would have the effect of lowering premiums. According to NCUA staff, generally it would only cost $100 more a year to purchase a $150,000 fidelity bond as opposed to a $100,000 bond.
• In addition, the proposed rule would increase the minimum bond coverage for credit unions with assets over $500 million to equal one percent of assets, rounded to the nearest $100 million, with a maximum required coverage of $9 million.
• For smaller credit unions with assets less than $4 million, the minimum required coverage would be raised to $250,000 or the total assets, whichever is less.
  • At the Board meeting, Board Member Matz raised a concern about raising the minimum bond coverage for credit unions with under $4 million in assets. Agency staff stated that it should not result in a big increase in expense for those credit unions and that most smaller credit unions already have bonds of $250,000 and many have bonds as high as $1 million.
• Under the proposal, NCUA would remove the listing in the rule of approved bond forms and carriers. However, the information would still be listed and updated on the NCUA website; moreover, that information could also be requested directly from NCUA. The rule would continue to require prior approval of the NCUA Board for bond forms not listed on the NCUA website or departing from the described coverages.
• Comments are due to NCUA by July 25, 2005. Please send your comments to CUNA by July 11, 2005. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004. You may also contact us at 800-356-9655, ext. 6743, if you would like a copy of the proposed rule, or you may access it on the Internet.

1. Do you agree with the qualifying factors for the increase in deductible limits?
   
   Yes ______ No ______
   
   If not, would different criteria, such as the capital standards in NCUA’s Prompt Corrective Action (PCA) regulation, be a more appropriate measure to link to the higher permissible deductible?
   
   

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2. Do you agree with the increase in the minimum bond coverage requirements?
   
   Please explain.
   
   

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3. The current rule states that an FCU/FISCU should purchase additional coverage when circumstances, such as cash on hand or cash in transit, warrant. Are there additional activities the regulation should include as suggested factors that credit unions may want to consider in determining whether to raise their bond coverage above the regulatorily required amounts?
   
   Yes ______ No ______
   
   If yes, what are those factors?
   
   

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4. The proposal notes that Credit Union Blanket Bond Standard Form 23 of the Surety Association of America has not been changed since 1950 and is no longer used by many credit unions. Should NCUA rescind its approval of this Form?
   
   Yes ______ No ______
   
   Why or why not?
   
   

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5. Other comments?
   
   

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