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CUNA Regulatory Comment Call

September 26, 2002

EXECUTIVE SUMMARY

• NCUA has issued a proposed rule regarding foreign branching by federally-insured credit unions. In September 2000, the Board issued an Advanced Notice of Proposed Rulemaking (ANPR) regarding whether NCUA should insure state-chartered credit union that establish branches outside the U.S. After considering the comments received on the ANPR and discussing the issue with state regulators, NCUA has issued a proposed rule that is similar to the Federal Reserve Board’s rules on international banking operations, Regulation K, but which is tailored to the unique nature of credit unions.
• For purposes of the proposal, a representative or liaison office is not a branch as defined by NCUA.
• NCUA believes that this proposed rule will minimize risk without interfering with the operations of a credit union or plans to serve its membership.
• The proposal sets forth a 3-step process:

1. The credit union must obtain written approval from the host country to establish a branch in that country. The document must explicitly recognize NCUA’s authority to examine and take any enforcement action concerning that branch office, including conservatorship and liquidation actions. State-chartered credit unions must further obtain written approval from the state supervisory agency and submit the approval with the application to NCUA.
2. The credit union must develop a detailed business plan that addresses:
   
   
   • Market analysis of the area where the foreign branch will be located;
   • Plan to address foreign currency risk;
   • Operating facilities, including office space, equipment and supplies;
   • Safeguarding of assets, insurance coverage, and records preservation;
   • Written policies regarding the branch (shares, lending, capital, charge-offs, collections);
   • Field of membership to be served by the foreign branch, the financial needs of the members to be served and the products to be offered;
   • Detailed pro forma financial statements for branch operations for the first and second year;
   • Internal controls, including cash disbursal procedures;
   • Accounting procedures to be utilized; and
   • Foreign income taxation.
3. The credit union must submit documentation exhibiting host country approval, state regulator approval if applicable, and the business plan to NCUA and receive NCUA approval before establishing the branch office.

• The NCUA regional director has 60 days to approve the application but may extend the time period for good cause. The regional director may revoke approval of the branch office for failure to follow the business plan in any material respect or for substantive and documented safety and soundness reasons. If the credit union wants to make a material deviation from its previously approved business plan, it must submit the new business plan for approval. If the regional director revokes the approval, the credit union will have 6 months to terminate the operations of the branch. The credit union can appeal this decision directly to the NCUA Board.
• Whether the accounts at a foreign branch would be insured is still under review by NCUA and comments are requested on this issue. Under current regulations, a federally-insured credit union that opens a branch outside the U.S. would have its member share accounts at that branch federally insured (by the National Credit Union Share Insurance Fund, NCUSIF).
• If NCUA allows foreign branching activity as proposed, the agency’s current investment rule (Part 703) may not authorize sufficient management tools to manage currency risk. NCUA is reviewing its investment rule and expects to propose a revised investment rule in the next few months. The proposal will address the issue of currency risk.
• NCUA is seeking comments on whether this rule should also apply to federally-chartered credit unions (FCUs).
• If the proposal is adopted in final form, the Board will monitor the performance and safeguards of foreign branches through its examination functions to ensure the approach laid out in the rule continues to minimize risk and maintains safety and soundness, without unduly hindering the business decisions for credit unions
• CUNA’s Examination and Supervision Subcommittee will be developing CUNA’s comments along with input from its International Subcommittee.
• Comments are due to NCUA by December 26, 2002. Comments should be sent to Becky Baker, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. You may fax your comments to NCUA to (703) 518-6319 or e-mail them to regcomments@NCUA.gov. Please submit your comments to CUNA by December 6, 2002. 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.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com ; or mail them to Mary and Catherine in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. To obtain a copy of the proposed rule, please contact us or go to the following Internet address:
  /reg_advocacy/member/download/rcc_092602b.txt.

1. Do you disagree with any of the elements required to be in the comprehensive business plan?
   
   Yes ______ No ______
   
   If yes, please indicate which elements you believe should be eliminated or added and the reasons.
   
   

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2. Do you feel that NCUA’s approval/revocation procedures are appropriate?
   
   Yes ______ No ______
   
   If not, how should the procedure(s) be changed and why.
   
   

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3. With regard to the issue of insurance, NCUA is considering an approach whereby a credit union’s business plan would be required to address the insured status of members accounts and, in any event, accounts would be NCUSIF insured only if denominated in U.S. dollars and only payable, by the term of the account agreement, at a U.S. office of the credit union. If the host country requires insurance from its own system, such accounts would not be insured by the NCUSIF. Do you have any comments on this proposal or any other alternative for addressing NCUSIF coverage related to foreign branching and accounts opened and maintained at a foreign branch?
   
   

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4. Do you believe this proposal would unduly encroach upon the authority of state regulators to oversee the operations of the state-chartered credit unions they oversee?
   
   Yes ______ No ______
   
   If yes, in what respect(s) do you believe this proposal would encroach upon state regulatory authority?
   
   

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5. Do you agree that NCUA should remove the limitation on the location of foreign branches for FCUs imposed by NCUA’s Chartering and Field of Membership Manual and require them to follow the requirements of this proposed rule?
   
   Yes ______ No ______
   
   If not, why not?
   
   

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6. Other comments?
   
   

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