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CUNA Regulatory Comment Call

September 15, 2000

While all state chartered credit unions may not have branches in foreign countries, they should be concerned about an Advanced Notice of Proposed Rulemaking issued by the National Credit Union Administration that requests comments on the agency’s role in regulation of foreign branches of state chartered credit unions. This issue raises significant concerns because it calls into question the agency’s proper rule in insuring the safety and soundness of credit unions and the National Credit Union Share Insurance Fund. The notice was issued at NCUA’s September 7th Board meeting and will be open for comments through November 13, 2000. CUNA has referred the issue to its Examination and Supervision Subcommittee, chaired by Alabama League President Gary Wolter, which will develop CUNA’s comments, with input from the State Issues Subcommittee, chaired by Rose Bartolomucci, President and CEO of Kent Credit Union in Ohio.

Please submit your comments to CUNA’s Associate General Counsel Mary Dunn at mdunn@cuna.com or Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com by November 3rd. You may contact Mary or Jeff at 202-682-4200.

As NCUA points out in the notice, federal credit unions (FCUs) are permitted to serve foreign nationals outside of the United States only on a very limited basis. The FCU must submit a business plan to its NCUA regional office and receive written approval from the agency to service foreign nationals who are outside of the U.S. The regional office may limit the types of services offered to foreign nationals residing outside of the country, and FCUs may establish branches outside of the U.S. only if the branch is on a U.S. military installation, or at a U.S. embassy.

State chartered credit unions, in some cases, have greater authority to serve foreign nationals abroad. NCUA is seeking comments on a number of legal issues relating to the authority of state chartered credit unions to operate such facilitates and regarding the agency’s power to supervise such operations. NCUA notes that while the general practice within the banking industry is to establish accounts in foreign branches as uninsured accounts, member share accounts at state- chartered credit unions’ foreign branches would be federally insured, unless NCUA makes a regulatory change. Questions on which the agency is seeking comments are:

• Should such accounts be federally insured?



• Will NCUA be able to adequately exercise its liquidation powers when placing a credit union into conservatorship or liquidated based on a host country’s laws?



• Will NCUA need to incur increased costs to hire additional staff to examine foreign operations of state chartered credit unions?



• Will NCUA be able to obtain adequate information about the on-site management of the foreign branch?



• Will loan collections prove to be a problem area for state credit union foreign operations?



• Will working with foreign countries regarding the supervision of the foreign operations be a problem?



• Should NCUA require an opinion audit of foreign branch operations?



• Will the fact that the branch would be subject to foreign law pose risks to the National Credit Union Share Insurance Fund?



• Will fluctuating exchange rates create undue problems?



• Should NCUA follow the lead of the Federal Deposit Insurance Corporation and require additional capital for credit unions involved in foreign branching?

NCUA has listed a number of limitations it is considering and seeks comments on these or other suggestions for regulating state chartered credit union operations on foreign soil:

• Allow foreign branches for the purpose of serving employees of U.S. or international organizations in the credit union’s field of membership, but prohibit select employee group expansions or other expansion based on the foreign branch;



• Provide that accounts at foreign branches are not insured, or to provide an option as to whether they are insured;



• Require a separate application for insurance for foreign branch operations with factors to be considered enumerated in NCUA’s regulations;



• Limit the amount of total loans, issued at a foreign branch, in relation to insured and uninsured shares;



• Require specific minimum capital amounts based on the size of the loan portfolio and require mandatory change-offs of loans greater than 120 days past due; and



• Limit the amount of loans to foreign nationals outside the United States to the uninsured deposits at the foreign branch. Uninsured shares would act as the primary offset for loan losses after capital reserved for the branch is depleted.

While there is no question that some safety and soundness issues may need to be addressed regarding foreign operations of state chartered credit unions, CUNA will make every effort to ensure NCUA does not use the guise of guardian of the Share Insurance Fund to over-regulate in this area and turn an advantage for some state chartered credit unions into a disadvantage.