82 FR 34982 - Closing the Temporary Corporate Credit Union Stabilization Fund and Setting the Share Insurance Fund Normal Operating Level
NATIONAL CREDIT UNION ADMINISTRATION Federal Register Volume 82, Issue 143 (July 27, 2017)
Federal Register Volume 82, Issue 143 (July 27, 2017)
| Page Range | 34982-34990 | |
| FR Document | 2017-15686 |
[Federal Register Volume 82, Number 143 (Thursday, July 27, 2017)] [Notices] [Pages 34982-34990] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-15686] ======================================================================= ----------------------------------------------------------------------- NATIONAL CREDIT UNION ADMINISTRATION Closing the Temporary Corporate Credit Union Stabilization Fund and Setting the Share Insurance Fund Normal Operating Level AGENCY: National Credit Union Administration (NCUA). ACTION: Notice and request for comment. ----------------------------------------------------------------------- SUMMARY: The NCUA Board (Board) is considering closing the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) in 2017, prior to its scheduled closing date in June 2021. Closing the Stabilization Fund and distributing all assets, property, and funds to the National Credit Union Share Insurance Fund (Share Insurance Fund) will increase the Share Insurance Fund's equity ratio and allow for the return to insured credit unions of any equity above the normal operating level. The return of excess equity would be accomplished through a distribution from the Share Insurance Fund in conformance with the Federal Credit Union Act (the Act). However, given the nature of certain assets and liabilities of the Stabilization Fund, the Share Insurance Fund's assumption of these assets and liabilities will introduce additional risk of volatility to the Share Insurance Fund's equity ratio. Therefore, the Share Insurance Fund would need to hold sufficient equity to cover potential changes in the value of its claims on the failed corporate credit union asset management estates. In addition, the Share Insurance Fund needs to have enough equity to cover other risks to the equity ratio, such as losses on insured credit unions, under the same macroeconomic conditions that create volatility in the asset management estate values. To ensure the Share Insurance Fund has sufficient equity to absorb these risks, the Board proposes to raise the normal operating level to 1.39 percent. This notice provides a discussion of the reasons the Board is proposing to close the Stabilization Fund in 2017 and the basis used to determine the normal operating level necessary to account for the additional risk to the Share Insurance Fund. In addition, the notice sets forth a new policy by which the Board would set the normal operating level. The Board solicits comments on each of these proposed actions. DATES: Comments must be received on or before September 5, 2017 to be assured of consideration. ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only):NCUA Web site: https://www.ncua.gov/about/pages/board-comments.aspx Email: Address to [email protected]. Include ``[Your name]--Comments on Stabilization Fund Closure'' in the email subject line. Fax: (703) 518-6319. Use the subject line described above for email. Mail: Address to Gerald Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Hand Delivery/Courier: Same as mail address. Public Inspection: You can view all public comments on NCUA's Web site at https://www.ncua.gov/about/pages/board-comments.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA's headquarters at 1775 Duke Street, Alexandria, VA 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518-6360 or send an email to [email protected]. FOR FURTHER INFORMATION CONTACT: Anthony Cappetta, Supervisory Financial Analyst, at 1775 Duke Street, Alexandria, VA 22314, or telephone: (703) 518-1592. SUPPLEMENTARY INFORMATION: I. Stabilization Fund Background II. Legal Matters III. Closing the Stabilization Fund IV. The Normal Operating Level V. Request for Comment I. Stabilization Fund Background Public Law 111-22, Helping Families Save Their Homes Act of 2009 (Helping Families Act), signed into law by the President on May 20, 2009 created the Temporary Corporate Credit Union Stabilization Fund. Congress provided NCUA with this temporary fund to accrue the losses of the corporate credit union system and assess insured credit unions for such losses over time. This prevented insured credit unions from bearing a significant burden for losses associated with the failure of five corporate credit unions within a short period. Without creation of the Stabilization Fund, these corporate credit union losses would have been borne by the Share Insurance Fund. The magnitude of losses would have exhausted the Share Insurance Fund's retained earnings and significantly impaired credit unions' one percent contributed capital deposit.\1\ The deposit impairment, along with premiums that would have been necessary to restore the Share Insurance Fund's equity ratio, would have resulted in a significant, immediate cost to credit unions at a time when their earnings and capital were already under stress due to the Great Recession.\2\ In June 2009, the Board formally approved use of the Stabilization Fund for accounting for the costs of the Corporate System Resolution Program.\3\ Since then, all of these costs have been accounted for in the financial statements of the Stabilization Fund. --------------------------------------------------------------------------- \1\ Prior to reassignment of these costs to the Stabilization Fund, the capitalization deposit impairment would have been 89 basis points. \2\ Because the contributed capital deposit is reflected as an asset on the financial statements of insured credit unions, under accounting rules any impairment results in an immediate expense to credit unions. \3\ For more details on the corporate system resolution program, please see the NCUA Corporate System Resolution Costs Web page (https://www.ncua.gov/regulation-supervision/Pages/corporate-system-resolution.aspx). --------------------------------------------------------------------------- The Act specifies that the Stabilization Fund will terminate 90 days after the seven-year anniversary of its first borrowing from the U.S. Treasury.\4\ The first borrowing occurred [[Page 34983]] on June 25, 2009, making the original closing date September 27, 2016. However, the Act provided the Board, with the concurrence of the Secretary of the U.S. Treasury, authority to extend the closing date of the Stabilization Fund. In June 2010, the Board voted to extend the life of the Stabilization Fund and on September 24, 2010, NCUA received concurrence from the Secretary of the U.S. Treasury to extend the closing date to June 30, 2021. --------------------------------------------------------------------------- \4\ 12 U.S.C. 1790e(h). --------------------------------------------------------------------------- In March 2009, the Board conserved U.S. Central Federal Credit Union and Western Corporate Credit Union. In September 2010, the Board conserved three additional corporate credit unions and publicly announced the Corporate System Resolution Program. The Board placed the five corporate credit unions into liquidation in the fourth quarter of 2010. The Board, as Liquidating Agent, administers the assets and liabilities of the five failed corporate credit unions in separate legal entities, referred to as asset management estates. The Corporate System Resolution Program included providing short- term and long-term funding to resolve a portfolio of residential mortgage-backed securities, commercial mortgage-backed securities, other asset-backed securities, and corporate bonds (collectively referred to as the Legacy Assets) held by the liquidated corporate credit unions. Under the Corporate System Resolution Program, NCUA created a re-securitization program where NCUA issued a series of NCUA Guaranteed Notes (NGNs). The sale of NGNs to investors has provided long-term funding for the Legacy Assets. The NGNs are guaranteed by NCUA in its Agency capacity, backed by the full faith and credit of the United States. While the accounting for obligations associated with the NGNs occurs through the Stabilization Fund, the guaranty is not specific to the Stabilization Fund. All NCUA agency funds for which payments on the NGN guarantees is a permitted use, including the Share Insurance Fund, are potential sources for guaranty obligations prior to any recourse to the U.S. Treasury. During its life, the Stabilization Fund provides the primary funding necessary for NCUA's guarantees on the NGNs and to complete the resolution of the corporate credit union asset management estates. The majority of this funding has been from two primary sources: Borrowings of $5.1 billion (peak outstanding balance) on NCUA's $6 billion line of credit with the U.S. Treasury and $4.8 billion in Stabilization Fund assessments paid by insured credit unions. In 2010, when NCUA announced the Corporate System Resolution Program, the outstanding principal balance of the Legacy Assets totaled over $40 billion--about four times the size of the Share Insurance Fund. The initial outstanding balance of guaranteed notes backed by the Legacy Assets and sold to investors through the NGN program in 2010 and 2011 totaled approximately $28 billion--almost three times the size of the Share Insurance Fund at that time. As of March 2017, the outstanding principal balance of the Legacy Assets and the outstanding balance of the guaranteed notes back by them have declined to $12.7 billion and $7.5 billion, respectively. Both of these balances are less than the current size of the Share Insurance Fund, which is $13.2 billion in total assets as of March 31, 2017. The projected range of lifetime Legacy Asset defaults was $13.2 billion to $16.4 billion as of December 2011. As of March 2017, the projected range of lifetime Legacy Asset defaults has declined to $9.9 billion to $10.3 billion. In addition, NCUA's pursuit of legal recoveries in its capacity as Liquidating Agent against various third parties in connection with the Legacy Assets has resulted in net recoveries of approximately $3.8 billion after fees and expenses.\5\ Improved projected performance of the Legacy Assets and legal recoveries are the primary reasons the Stabilization Fund's net position has increased from negative $7.5 billion as of December 2010 to a positive $1.6 billion as of March 2017. --------------------------------------------------------------------------- \5\ NCUA does not include potential future legal recoveries in loss projections, as they are inherently inestimable. For a list of legal recoveries to date, see NCUA's Legal Recoveries Web site (https://www.ncua.gov/regulation-supervision/Pages/corporate-system-resolution/legal-recoveries.aspx). --------------------------------------------------------------------------- It is now possible for the remaining obligations of the Corporate System Resolution Program to be borne by the Share Insurance Fund without inordinate risk, provided additional equity is maintained while the exposure to remaining resolution program obligations exist. As a result, the Board believes the purpose of the Stabilization Fund has been fulfilled.\6\ Therefore, the Board proposes to close the Stabilization Fund in 2017. Closing the Stabilization Fund at this time would increase the equity ratio of the Share Insurance Fund and require NCUA to distribute any resulting equity above the normal operating level to insured credit unions.\7\ The Board is simultaneously publishing a separate proposal to update Sec. 741.4 of NCUA's Rules and Regulations regarding the method for Share Insurance Fund distributions to insured credit unions. --------------------------------------------------------------------------- \6\ Worthy of note, if the Stabilization Fund is closed in 2017, it would have been in operation about one year longer than the original seven years provided for in the Act. \7\ The potential return of excess equity would be in the form of a distribution to insured credit unions from the Share Insurance Fund as provided for in the Act. Stakeholders should not confuse this with potential recoveries on depleted member capital. Until senior obligations of each particular estate can be satisfied, there will not be distributions for any recoveries on depleted member capital. --------------------------------------------------------------------------- II. Legal Matters The Act sets forth the purpose, permissible expenditures, borrowing and repayment authorities, assessment authority, investment authority, and procedures for closing the Stabilization Fund.\8\ The statute specifically prescribes the conditions for closing the Stabilization Fund and distributing its holdings.\9\ The Board has the authority under the Act to close the Stabilization Fund at its discretion at any time when it has no deficit, which then requires that all of its assets and funds be distributed to the Share Insurance Fund.\10\ The Stabilization Fund's financial statements have reflected a positive net position since June 30, 2014. Therefore, there are currently no statutory barriers for the Board in regards to closing the Stabilization Fund in 2017. Once the Stabilization Fund is closed, there is no statutory authority that permits NCUA to re-open it for any reason. --------------------------------------------------------------------------- \8\ 12 U.S.C. 1790e. \9\ 12 U.S.C. 1790e(h). \10\ 12 U.S.C. 1790e(g), (h). --------------------------------------------------------------------------- The Board is aware of industry opinions that the Act may permit a distribution to insured credit unions directly from the Stabilization Fund. The Board does not believe this is permissible for the following reasons. NCUA's authority to use Stabilization Fund money arises from the reference to 12 U.S.C. 1783(a) in the legislation that created the Stabilization Fund.\11\ Specifically, the legislation provides that ``[m]oney in the Stabilization Fund shall be available upon requisition by the Board . . . for making payments for the purposes described in Sec. 1783(a) of this title.'' \12\ Except with respect to administrative payments, the legislation limits this authority to the context of a ``conservatorship, liquidation, or threatened conservatorship or liquidation, of a corporate credit union.'' \13\ Under section 1783(a), [[Page 34984]] permissible uses include payments of insurance under section 1787 of the title, for providing assistance and making expenditures under section 1788 of the title in connection with the liquidation or threatened liquidation of insured credit unions, and for such administrative and other expenses incurred in carrying out the purposes of the subchapter as the Board may determine to be proper. --------------------------------------------------------------------------- \11\ 12 U.S.C. 1790e(b). \12\ 12 U.S.C. 1790e(b)(1). \13\ Id. --------------------------------------------------------------------------- Here, a distribution, such as an assessment rebate, does not plainly meet any of those criteria, assuming an appropriate nexus to a corporate credit union conservatorship or liquidation could be established in each instance. First, a distribution to insured credit unions from the Stabilization Fund, by its namesake alone, would not be a payment of insurance under section 1787. Further, a distribution could not be in the form of assistance under section 1788, since it would not go to credit unions for the assistance purposes described in section 1788. Finally, a distribution is not an ``administrative expense'' or ``other expense'' in the context of the Act. While the general definition of an expense can be quite broad,\14\ section 1782(c)(3) of the Act expressly governs distributions to insured credit unions. Distributions under section 1782(c)(3) are not included as an authority that Congress granted for the Stabilization Fund, particularly since Congress expressly tied Stabilization Fund authority to section 1783(a), to the exclusion of any other section. On the contrary, the Stabilization Fund legislation references section 1782(c)(3) only with respect to distributions flowing into the Stabilization Fund, in any circumstances where U.S. Treasury borrowings remain outstanding.\15\ --------------------------------------------------------------------------- \14\ Black's Law Dictionary characterizes an expense as ``[a]n expenditure of money, time, labor or resources to accomplish a result.'' Black's Law Dictionary 617 (8th ed. 2004). \15\ 12 U.S.C. 1790e(e). --------------------------------------------------------------------------- In the only other circumstance where the legislation references a distribution in any manner, it is in reference to the Stabilization Fund's closing.\16\ In that circumstance, the Act limits a distribution of all ``funds, property or other assets remaining in the Stabilization Fund'' to one recipient: The Share Insurance Fund.\17\ For these reasons, the Board believes the Stabilization Fund must be closed before a distribution of excess funds to insured credit unions can occur for purposes other than those described in section 1783(a). --------------------------------------------------------------------------- \16\ 12 U.S.C. 1790e(h). \17\ Id. Within 90 days following the seventh anniversary of the initial Stabilization Fund advance, or earlier at the Board's discretion, the Board shall distribute any funds, property, or other assets remaining in the Stabilization Fund to the Insurance Fund and shall close the Stabilization Fund. --------------------------------------------------------------------------- III. Closing the Stabilization Fund A. Accounting and Financial Reporting The financial statements of the Stabilization Fund and the Share Insurance Fund are presented under standards promulgated by the Federal Accounting Standards Advisory Board (FASAB). These financial statements are presented and audited by calendar year. With the closing of the Stabilization Fund, NCUA intends to prepare final financial statements for the Stabilization Fund as of September 30, 2017. These financial statements would be audited by NCUA's Office of the Inspector General. Per applicable accounting standards, the assets and liabilities of the Stabilization Fund will be distributed to the Share Insurance Fund at September 30, 2017 values. This transfer will increase the net position of the Share Insurance Fund, resulting in an increase to the equity ratio. As required by applicable accounting standards, certain budgetary accounts will also transfer and be shown in the Statement of Budgetary Resources. NCUA determined the applicable accounting standards in consultation with an independent accounting firm. The post-closure financial statements and note disclosures for the Share Insurance Fund will continue to provide the same level of detail about the receivables from the corporate asset management estates and the related fiduciary activities. That is, the detailed note disclosures in the Stabilization Fund's financial statements will now be in the note disclosures of the Share Insurance Fund's financial statements. NCUA does not envision any changes to the accounting for the asset management estates. The accounting for each asset management estate has and will remain distinct, which is a requisite in fulfilling the Board's responsibility as Liquidating Agent. For illustrative purposes, Table 1 depicts the March 31, 2017 Share Insurance Fund balance sheet (unaudited), the March 31, 2017 Stabilization Fund balance sheet (unaudited), and the pro-forma Share Insurance Fund balance sheet (unaudited) as if the Stabilization Fund were closed on that day.\18\ --------------------------------------------------------------------------- \18\ The impact on the post-closure Share Insurance Fund financial statements will be based on actual results at the time the Stabilization Fund is closed and the presentation may vary somewhat due to the specific application of accounting standards on individual line items. Table 1--Share Insurance Fund and Stabilization Fund Balance Sheets, Pre- and Post-Closure, as of March 31, 2017 [Dollars in millions] ---------------------------------------------------------------------------------------------------------------- Share Share insurance Stabilization insurance fund (pre- fund (pre- fund (post- closure) closure) closure) ---------------------------------------------------------------------------------------------------------------- Assets ---------------------------------------------------------------------------------------------------------------- Fund Balance with Treasury & Investments........................ $12,766.2 $700.4 $13,466.6 Notes Receivable, Net........................................... 8.7 .............. 8.7 Capitalization Deposits Receivable.............................. 316.5 .............. 316.5 Receivable from Asset Management Estates, Net (NPCU)............ 51.3 .............. 51.3 Receivable from Asset Management Estates, Net (CCU)............. .............. 876.3 876.3 Accrued Interest and Other Assets............................... 61.2 2.7 63.9 ----------------------------------------------- Total Assets................................................ 13,203.9 1,579.4 14,783.3 ---------------------------------------------------------------------------------------------------------------- Liabilities and Net Position ---------------------------------------------------------------------------------------------------------------- Accounts Payable and Other Liabilities.......................... 26.0 1.1 27.1 Borrowings from U.S. Treasury................................... .............. .............. .............. Insurance and Guarantee Program Liabilities..................... 245.6 .............. 245.6 Net Position--Contributed Capital Deposits...................... 10,285.8 .............. 10,258.8 [[Page 34985]] Net Position--Cumulative Results of Operations.................. 2,646.5 1,578.3 4,224.8 ----------------------------------------------- Total Liabilities and Net Position.......................... 13,203.9 1,579.4 14,783.3 ----------------------------------------------- Total Net Position...................................... 12,932.3 1,578.3 14,510.6 ---------------------------------------------------------------------------------------------------------------- Subsequent to March 31, 2017, and prior to the end of the year, there are several items that have been or are expected to be recognized that will ultimately affect the net position of the Share Insurance Fund. Table 2 includes these additional items and the effect on the projected net position as of December 31, 2017. Table 2--Breakdown of Projected Net Position Components by December 31, 2017 [Dollars in thousands] ------------------------------------------------------------------------ Amount (in Component millions) ------------------------------------------------------------------------ March 31, 2017 Pro-Forma Net Position (Post-Closure)-- $14,511 From Table 1 Above................................... Plus: Legal Recoveries that Increase the Value of 310 the Receivable from the AMEs..................... Plus: Estimated Recovery on U.S. Central Capital \20\ 500-800 Note \19\........................................ Plus: Share Insurance Fund Net Income 2017q2- (26) 2017q4 \21\...................................... Plus: Adjustment to 1% Contributed Capital Deposit 383 \22\............................................. ----------------- Equals: Adjusted Net Position (Post-Closure), as of 12/ 15,678-15,978 31/17................................................ ------------------------------------------------------------------------ B. Effect on Share Insurance Fund Equity Ratio and Distributions --------------------------------------------------------------------------- \19\ The estimated recovery includes U.S. Central's portion of the recent legal recoveries. --------------------------------------------------------------------------- The Share Insurance Fund equity ratio is defined in the Act as the ratio of the amount of Fund capitalization, including insured credit unions' 1 percent capitalization deposits and the retained earnings balance of the Fund (net of direct liabilities of the fund and contingent liabilities for which no provision has been made) to the aggregate amount of insured shares in all insured credit unions.\23\ It serves as a measure of the Share Insurance Fund's overall strength and ability to absorb losses. In general, the Act requires the Board to manage the Share Insurance Fund's equity ratio within a range of 1.20 percent to 1.50 percent. --------------------------------------------------------------------------- \20\ This estimated range only reflects what is projected to be recognizable by December 31, 2017 under applicable accounting rules, which mainly includes the portion of the U.S. Central capital note for which there is cash available for repayment. \21\ Assuming current yield on investments, insurance losses equal to the five-year average, and operating expenses based on the currently approved NCUA budget. \22\ Based on share growth of 3.71 percent in the first quarter 2017 and the historical share of adjusted contributed capital deposit adjustments collected in October each year. \23\ 12 U.S.C. 1782(h)(2). --------------------------------------------------------------------------- The closure of the Stabilization Fund would increase the Share Insurance Fund's net position. This would result in an increase to the Share Insurance Fund's equity ratio. Table 3 shows the estimated equity ratio of the Share Insurance Fund as of December 31, 2017 as if the Stabilization Fund were closed. Table 3--Projected Share Insurance Fund Equity Ratio as of December 31, 2017 [Dollars in thousands] ------------------------------------------------------------------------ Amount (in Component millions) ------------------------------------------------------------------------ Adjusted Net Position Post Closure--From Table 2 Above $15,678-$15,978 Less: Gain(Loss) on Investments \24\................ ($66) ----------------- Equals: Equity Ratio Numerator........................ $15,744-$16,044 Equity Ratio Denominator: Projected Insured Shares as $1,089,500 of December 31, 2017 \25\............................ Projected Calendar Yearend 2017 Equity Ratio \26\..... 1.45%-1.47% ------------------------------------------------------------------------ The Share Insurance Fund's calendar yearend equity ratio is part of the statutory basis to determine whether NCUA must make a distribution to insured credit unions.\27\ The Act states ``the Board shall effect a pro rata distribution to insured credit unions after each calendar year if, as of the end of that calendar year-- --------------------------------------------------------------------------- \24\ Actual gain(loss) on investments as of March 31, 2017 and could be materially different as of December 31, 2017. \25\ Based on 5.8 percent annual insured share growth, which is the three-year average insured share growth for the industry. \26\ This does not account for extraordinary losses and/or failures in credit unions, abnormally high insured-share growth, or a significant downturn in economic conditions, including declining interest rates. \27\ The equity ratio is also part of the statutory basis for determining whether a premium or Share Insurance Fund restoration plan is necessary. --------------------------------------------------------------------------- [[Page 34986]] Any loans to the Fund from the Federal Government, and any interest on those loans, have been repaid; The Fund's equity ratio exceeds the normal operating level; and The Fund's available assets ratio exceeds 1.0 percent.'' \28\ --------------------------------------------------------------------------- \28\ 12 U.S.C. 1782(c)(3). This section is also subject to 12 U.S.C. 1790e(e). --------------------------------------------------------------------------- As of October 24, 2016, all NCUA borrowings from the Federal Government had been repaid. The Share Insurance Fund's available asset ratio is 1.21 percent as of March 31, 2017, well above the 1.0 percent minimum and is projected to remain above 1.0 percent.\29\ --------------------------------------------------------------------------- \29\ After closure, NCUA estimates the Share Insurance Fund would hold $4 billion in surplus funds over the 1.0 percent minimum ratio. NCUA currently projects $2.8 billion in guaranty payments on the NGNs after 2017. However, the current estimate for the funding needs net of related cash flows is approximately $1 billion. --------------------------------------------------------------------------- To the extent the equity ratio exceeds the normal operating level as of calendar yearend 2017, a distribution would be paid to insured credit unions in accordance with the Act and Sec. 741.4 of NCUA regulations. The distribution in total would equal the dollar amount of equity in excess of the normal operating level. For additional information on how the pro rata distribution would be made, see the July 2017 Notice of Proposed Rulemaking on this subject. IV. The Normal Operating Level Per the Act, the normal operating level is an equity ratio set by the Board and may not be less than 1.20 percent and not more than 1.50 percent.\30\ As noted above, if the calendar yearend equity ratio exceeds the normal operating level, NCUA is required to make a pro rata distribution to insured credit unions. The Board has historically set the normal operating level as the target equity ratio for the Share Insurance Fund. --------------------------------------------------------------------------- \30\ 12 U.S.C. 1782(h)(4). --------------------------------------------------------------------------- The current normal operating level is 1.30 percent, set by the Board in 2007 based on the Board-approved methodology in place at that time. When establishing the 1.30 percent normal operating level in 2007, the Board affirmed that the Share Insurance Fund would maintain a counter-cyclical posture. In practice, this means the Share Insurance Fund's equity should be built up during periods of economic prosperity and allowed to decline during periods of economic adversity. A counter- cyclical posture allows NCUA to maintain the Share Insurance Fund at a level that is sufficient for it to remain viable even during economic stress conditions without having to charge a premium when credit unions can least afford it. With the proposed closing of the Stabilization Fund, the Board considered whether the current normal operating level of 1.30 percent would be sufficient to cover all of the Share Insurance Fund's resulting exposures. To determine this, NCUA modeled the losses that would be expected under a moderate and a severe recession.\31\ For the two recession scenarios, the agency modeled the: --------------------------------------------------------------------------- \31\ In estimating the equity ratio under various economic stress scenarios, NCUA must make estimates and assumptions that affect the model output. Actual results could differ from NCUA's estimates; however, the agency evaluates the reasonableness of such estimates when analyzing the model output. The base scenario for modeling the performance of the Share Insurance Fund is a moderate economic expansion through the projection period with Treasury rates assumed to rise steadily across the maturity spectrum, the unemployment rate remains low and housing prices rise slightly. --------------------------------------------------------------------------- Impact on the equity ratio of the estimated decline in the value of the Share Insurance Fund's claims on the liquidated corporate credit unions' asset management estates--which would be driven by a reduction in the value of the Legacy Assets. Performance of the Share Insurance Fund based on the three primary factors that currently affect the Share Insurance Fund's equity ratio: Insured share growth, yield on investments, and insurance losses. The Share Insurance Fund was modeled over a five-year period and the Legacy Assets were modeled over their remaining life.\32\ NCUA used the applicable variables describing economic developments for the Adverse and Severely Adverse economic scenarios from the Federal Reserve Board's 2017 annual stress test supervisory scenarios.\33\ In the Adverse scenario, the U.S. economy experiences a moderate recession, and asset prices decline. This scenario is characterized by weakening economic activity, including higher unemployment, falling short-term interest rates, long-term interest rates that slowly rise, a steadily rising unemployment rate, and sustained declines in housing prices. The Severely Adverse scenario is characterized by a severe global recession that is accompanied by a period of heightened stress in corporate loan markets and commercial real estate markets. In this scenario, the unemployment rate spikes, short-term interest rates fall to near zero, long-term interest rates fall initially then increase slightly, and housing prices decline substantially. Further details on how these scenarios were applied to model the value of the claims on the corporate asset management estates and the performance of the Share Insurance Fund are provided below. --------------------------------------------------------------------------- \32\ A five-year horizon (beginning at yearend 2017) was used to cover the cycle of an economic downturn and the life of the NGN program. \33\ Supervisory Scenarios for Annual Stress Test Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule, February 10, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20170203a5.pdf). --------------------------------------------------------------------------- A. Determining Equity Needed To Cover Potential Declines in the Value of Claims on the Corporate Credit Union Asset Management Estates At NCUA's request, BlackRock incorporated the Adverse and Severely Adverse macroeconomic scenarios into its proprietary models to project cash flows for all of the Legacy Assets.\34\ In both the Adverse and Severely Adverse macroeconomic scenarios, the value of the Legacy Assets declines. --------------------------------------------------------------------------- \34\ The NGNs remaining after yearend 2017 do not mature until 2020 and 2021. Because these NGNs do not have a call feature (other than a clean-up call provision when the Legacy Asset balances are 10 percent or less or their balances when transferred to the NGNs, which NCUA does not expect to be triggered), they cannot be retired early. --------------------------------------------------------------------------- Credit spreads indicative of Adverse and Severely Adverse market conditions are applied to the forward interest rate curve to arrive at a discount rate to calculate the present value of the Legacy Asset cash flows, as shown in Table 4. For the Adverse scenario, credit spreads similar to the period of the U.S. credit rating downgrade in August 2011 were used. For the Severely Adverse scenario, credit spreads similar to the peak of the Great Recession in 2009 were used. [[Page 34987]] Table 4--Discounted Legacy Asset Cash Flows [Dollars in billions] -------------------------------------------------------------------------------------------------------------------------------------------------------- Scenario Differences from base ------------------------------------------------------------------------------------ Severely Severely Base Adverse adverse Adverse adverse -------------------------------------------------------------------------------------------------------------------------------------------------------- Total.............................................................. $10.3 $8.3 $7.3 ($2.0) ($3.0) -------------------------------------------------------------------------------------------------------------------------------------------------------- The projected Legacy Asset cash flows are aggregated by NGN and run through the applicable NGN waterfall to determine their related projected cash flows. As shown in Table 5, the NGN-related cash flows include guaranty fees paid to NCUA, guaranty payments made by NCUA to NGN investors for principal and interest shortfalls, guaranty reimbursements made to NCUA for any guaranty payments made, and any residual cash flows left after all of these payments have been made. The present value of the NGN cash flows is determined by the same discounting approach discussed above. Table 5--Discounted NGN Cash Flows [Dollars in billions] ---------------------------------------------------------------------------------------------------------------- Scenario Differences from base ------------------------------------------------------------------------------- Cash flow Severely Severely Base Adverse adverse Adverse adverse ---------------------------------------------------------------------------------------------------------------- Guaranty Fees................... $0.1 $0.1 $0.1 $0.0 $0.0 Guaranty Payments............... (3.2) (4.0) (4.4) (0.8) (1.2) Guaranty Reimbursements......... 3.0 3.3 3.5 0.3 0.5 Residuals....................... 3.5 2.1 1.3 (1.4) (2.2) ------------------------------------------------------------------------------- Total....................... 3.4 1.5 0.5 (1.9) (2.9) ---------------------------------------------------------------------------------------------------------------- NCUA then applied the un-securitized projected Legacy Asset cash flows and NGN cash flows to the applicable asset management estates based on the payout priorities in NCUA regulations.\35\ This results in an estimate of the change in the net receivable from asset management estates due to NCUA, as well as changes in NCUA's projected recovery on the U.S. Central capital note.\36\ For each asset management estate, the impact of the stress scenarios will differ depending on the specific circumstances of the estate. While the decreases in Legacy Asset and NGN cash flows under the Adverse and Severely Adverse scenarios are approximately $2 billion and $3 billion, respectively, the net impact on the value of NCUA's claims--and ultimately the equity ratio--is different, primarily due to how these funds flow through the payout priorities applicable to each asset management estate. This is shown in Table 6. --------------------------------------------------------------------------- \35\ Payout priorities are outlined in 12 CFR 709.5. \36\ For more information on the U.S. Central capital note, see NCUA's costs and assessments Q&A (https://www.ncua.gov/Resources/Documents/QA-Corporate-Resolution-Costs-and-Assessments.pdf). \37\ These numbers represent both the $0.1 billion of net receivable due to NCUA and the $0.8 billion expected to be recognized for the U.S. Central capital note. While NCUA believes the full $1 billion capital note will be collected, $0.8 billion represents NCUA's estimate of the recognizable value under accounting rules at yearend 2017. Table 6--Net Receivable to NCUA Plus U.S. Central Capital Note Recovery [Dollars in billions] ---------------------------------------------------------------------------------------------------------------- Scenario Differences from base ------------------------------------------------------------------------------- Estate Severely Severely Base Adverse adverse Adverse adverse ---------------------------------------------------------------------------------------------------------------- U.S. Central \37\............... $0.9 $0.9 $0.5 $0.0 ($0.4) WesCorp......................... 0.9 0.5 0.3 (0.4) (0.6) Members......................... 0.2 0.2 0.1 0.0 (0.1) Southwest....................... 0.0 0.0 0.0 0.0 0.0 Constitution.................... 0.0 0.0 0.0 0.0 0.0 ------------------------------------------------------------------------------- Total....................... 2.0 1.6 0.9 (0.4) (1.1) ---------------------------------------------------------------------------------------------------------------- Under the Adverse scenario, NCUA projects a decline in value of its receivables from asset management estates, net of approximately $400 million, which would equate to a 4-basis point reduction in the Share Insurance Fund's equity ratio. Under the Severely Adverse scenario, the potential decline in value is approximately $1.1 billion or 11 basis points.\38\ --------------------------------------------------------------------------- \38\ There are four asset management estates projected to have recoveries for investors in depleted capital instruments of the failed corporates. Depleted capital recoveries would decrease by approximately $1.5 billion and $1.7 billion under the Adverse and Severely Adverse scenarios, respectively. This estimate accounts for any depleted member capital claims the other four asset management estates have against the U.S. Central asset management estate. However, all five estates are currently expected to have outstanding senior creditor obligations, including to the Stabilization Fund (or Share Insurance Fund after closure) via the guaranty provided on the NGNs until 2021. Thus, until senior creditor obligations can be satisfied with certainty--that is repaid or fully funded, including for contingencies--it would be inappropriate for NCUA to make payments to the subordinated depleted capital claimants. --------------------------------------------------------------------------- [[Page 34988]] B. Determining Equity Needed To Cover Other Risks to the Equity Ratio of the Share Insurance Fund 39 --------------------------------------------------------------------------- \39\ The performance of the Share Insurance Fund described here does not include the losses discussed above related to the claims on the corporate credit union asset management estates. The Share Insurance Fund performance is modeled here based on the current financial position, without factoring in the potential Stabilization Fund closure. --------------------------------------------------------------------------- NCUA uses the relevant variables from the economic scenarios outlined above to project the values of the three primary drivers of the Share Insurance Fund: Insured share growth, insurance losses, and yield on investments. NCUA developed regression equations that relate the historical movements of economic variables to movements in two of the primary drivers of the Share Insurance Fund equity ratio: Insurance losses and growth in insured shares. The equations translate the economic conditions in the Adverse and Severely Adverse scenarios into projections of the level of losses and insured share growth. The equations are relatively straightforward and translate economic developments into Share Insurance Fund drivers in a commonsense way using historical data that extends back to the early-to-mid 1990s. For example, the equation for share growth relates annual growth in total shares (inflation-adjusted) from 1991 to 2016 to the unemployment rate, the change in the average annual unemployment rate, the change in the average annual three-month Treasury bill, and the year-to-year growth in real disposable income. In the equation, a rise in unemployment first raises share growth, but continued high unemployment eventually leads to lower growth. Faster income growth tends to lead to faster share growth, and a rising interest rate tends to reduce share growth. For the insurance loss equation, NCUA projects the portion of shares accounted for by CAMEL 4 and 5 rated federally insured credit unions using data from 1996 to 2016 for the unemployment rate and house price growth.\40\ As expected, a higher unemployment rate tends to increase insurance losses, as does falling house prices. Then, the dollar value of losses is projected as a constant percentage of the portion of shares in CAMEL 4 and 5 rated institutions. --------------------------------------------------------------------------- \40\ See Letter to Credit Unions 07-CU-12 CAMEL Rating System for more information on NCUA's CAMEL rating system. --------------------------------------------------------------------------- To determine the yield on the Share Insurance Fund investment portfolio, interest rate inputs are taken directly from the Adverse and Severely Adverse stress scenarios. These inputs are applied to the Share Insurance Fund's investment portfolio assuming a seven-year ladder.\41\ Table 7 outlines the resulting inputs used each year of the projections for the key drivers to forecast the equity ratio under the various stress scenarios.\42\ --------------------------------------------------------------------------- \41\ The interest rate inputs used were provided by Macroeconomic Advisers, LLC (April 2017). These inputs were used for two reasons: (1) The Federal Reserve scenarios do not provide the yield on the seven-year Treasury note, which NCUA uses in the stress scenarios. Macroeconomic Advisers uses its proprietary model to extend the Federal Reserve scenarios to a wider array of economic variables, including the full yield curve. (2) Macroeconomic Advisers advances the beginning of the Federal Reserve scenarios to the second quarter of 2017, rather than beginning in the first quarter. This was necessary because, when conducing analysis of the Share Insurance Fund, first quarter data was already known. Macroeconomic Advisers scenarios match the Federal Reserve scenarios for variables provided by the Federal Reserve, but the timing is advanced on quarter into the future relative to the published Federal Reserve scenarios, so that the Adverse and Severely Adverse shocks begin in the second quarter of 2017. Using these scenarios allows NCUA to implement the full effects of the downturn scenarios developed by the Federal Reserve. \42\ These are stress scenarios and do not represent forecasts of likely outcomes. Federal Reserve stress scenarios provide data through the first quarter of 2020. These scenarios are extended through 2021 by Macroeconomic Advisers, LLC using a proprietary model. NCUA assumes that values for the economic variables in 2022 are the same as they were in 2021 (for variables that are rates or growth rates). Table 7--Projected Inputs for the Primary Drivers of the Equity Ratio \43\ ---------------------------------------------------------------------------------------------------------------- Base Adverse Severely adverse ---------------------------------------------------------------------------------------------------------------- Insured Share Growth.............. 2017: 5.10% 2017: 6.60% 2017: 6.92% 2018: 5.30% 2018: 6.30% 2018: 6.20% 2019: 5.50% 2019: 4.20% 2019: 2.34% 2020: 5.60% 2020: 3.70% 2020: 1.66% 2021: 6.00% 2021: 3.90% 2021: 2.48% 2022: 5.70% 2022: 4.67% 2022: 3.90% Insurance Losses (in millions).... 2017: $52.1 2017: $142.0 2017: $216.0 2018: $58.1 2018: $311.2 2018: $532.0 2019: $52.4 2019: $257.8 2019: $425.4 2020: $60.2 2020: $202.8 2020: $292.4 2021: $78.1 2021: $164.2 2021: $230.4 2022: $76.7 2022: $188.6 2022: $269.6 Yield on Investment Portfolio..... 2017: 1.64% 2017: 1.56% 2017: 1.48% 2018: 1.92% 2018: 1.73% 2018: 1.49% 2019: 2.16% 2019: 1.84% 2019: 1.47% 2020: 2.40% 2020: 1.93% 2020: 1.47% 2021: 2.57% 2021: 2.00% 2021: 1.46% 2022: 2.74% 2022: 2.05% 2022: 1.51% ---------------------------------------------------------------------------------------------------------------- As shown above, insured share growth rises initially as consumers move funds into safer, federally insured savings instruments--a pattern that is highly correlated to economic downturns. After an initial surge, growth in insured shares slows reflecting worsening economic conditions. Toward the end of the stress scenarios, growth begins to increase reflecting some rebound in the overall economy. Insurance losses peak at the beginning of the economic stress and then decline and stabilize over the following years. Overnight rates drop to 10 basis points for the entire period and the yield on investments drops over the first three years, and then increases as the economy begins to recover. --------------------------------------------------------------------------- \43\ NCUA used the current budget growth of 4.1 percent in each scenario as the operating expense input. --------------------------------------------------------------------------- The results of each stress scenario, expressed as the calendar yearend Share Insurance Fund equity ratio, are included in Table 8 (based on the current equity ratio of 1.26 percent).\44\ --------------------------------------------------------------------------- \44\ Using the figures in Table 1 and Table 3 above, the calendar yearend equity ratio of the Share Insurance Fund is projected to be 1.23 percent, if the Stabilization Fund is not closed in 2017. [[Page 34989]] Table 8--Projected Equity Ratio Under Various Economic Stresses \45\ -------------------------------------------------------------------------------------------------------------------------------------------------------- 2017q1 (%) 2017 (%) 2018 (%) 2019 (%) 2020 (%) 2021 (%) 2022 (%) -------------------------------------------------------------------------------------------------------------------------------------------------------- Baseline................................ 1.26 1.26 1.24 1.24 1.23 1.23 1.23 Adverse................................. 1.26 1.25 1.21 1.18 1.16 1.15 1.14 Severely Adverse........................ 1.26 1.24 1.18 1.13 1.11 1.09 1.06 -------------------------------------------------------------------------------------------------------------------------------------------------------- Neither the Adverse nor the Severely Adverse scenario causes the equity ratio of the Share Insurance Fund to fall below 1.00 percent, the level at which credit union's contributed capital deposit would begin to be impaired.\46\ However, by yearend 2019, under both the Adverse and Severely Adverse scenarios, the equity ratio falls below 1.20 percent--the statutory trigger for either assessing premiums or developing a Share Insurance Fund restoration plan. Under the Adverse and Severely Adverse scenarios, for the equity ratio to not fall below 1.20 percent during the full projection timeframe, the equity ratio at yearend 2017 would have to be 1.33 percent and 1.41 percent, respectively.\47\ However, the actual results could vary from these projections based on a variety of factors, including: --------------------------------------------------------------------------- \45\ These scenarios do not account for any substantial increase in NCUA's operating budget or increases in the loss rate of CAMEL 4 and 5 rated credit unions, both of which may increase in times of economic stress. \46\ Credit unions' one percent contributed capital deposits are included in the numerator of the equity ratio and are available to absorb losses of the Share Insurance Fund. However, because the contributed capital deposits are recorded both as equity to the Share Insurance Fund and as assets to credit unions, if NCUA were to use any part of this capital to absorb losses, credit unions would have to write-down (expense) this asset. At the same time, credit unions would be required to deposit additional funds to adjust their contributions back to a full one percent of their insured shares. \47\ Similar results are obtained if the Share Insurance Fund is stressed over two years using the highest observed stress factors during the last ten years. --------------------------------------------------------------------------- Projected declines in the equity ratio, even under no economic stress. Extraordinary losses and/or failures in credit unions that are not market related, such as those from fraud or other asset ``bubbles''. Unusual or abnormally high insured share growth materially different from the historical correlation. Economic conditions that involve greater volatility in one or more market indicators as compared to the stress scenarios modeled. C. Approach for Setting the Normal Operating Level The Board has the responsibility to be prudent in managing the Share Insurance Fund. In addition to maintaining public confidence in federal share insurance, it is important that NCUA maintain a strong Share Insurance Fund for the mutual benefit of the credit union community and the taxpayers. The Board believes that the Share Insurance Fund should be able to withstand a moderate recession without the equity ratio falling below 1.20 percent. This approach is consistent with the Act's minimum equity level for the Share Insurance Fund set by Congress. Additionally, it allows NCUA to maintain a counter-cyclical posture, which helps to ensure that credit unions will not need to impair their contributed capital deposit or pay premiums when they can least afford it. The Board does not believe it should set the normal operating level at a point where mandatory premiums or development of a Fund restoration plan would be necessary in a moderate recession.\48\ --------------------------------------------------------------------------- \48\ The Board believes its authority to establish a Fund restoration plan in lieu of mandatory premiums should only be used for severe, unexpected circumstances. While the Board can develop a restoration plan to restore the Share Insurance Fund to 1.20 percent within eight years (or longer in extraordinary circumstances), this could necessitate one or more relatively large premiums. Further, it could erode public confidence in federal share insurance. --------------------------------------------------------------------------- The Board also considered the amount of equity necessary for the Share Insurance Fund to withstand a severe global recession without having the equity ratio fall below 1.20 percent. While the Severely Adverse stress scenario is more conservative, the Board believes managing to the Adverse scenario provides a good balance between maintaining sufficient equity in the Share Insurance Fund and keeping money at work in the credit union community. Based on the analyses above, Table 9 shows the calculation of what the equity ratio needs to be to withstand a moderate and a severe recession without falling below 1.20 percent. Table 9--Equity Ratio Needed to Withstand an Economic Stress by Risk ------------------------------------------------------------------------ Severely Adverse stress adverse stress scenario (%) scenario (%) ------------------------------------------------------------------------ Equity for Share Insurance Fund Stress.. \49\ 1.33 1.41 Equity for Claims on AMEs (see Table 6). 0.04 0.11 Projected Equity Ratio Decline in 2018 0.02 0.02 and 2019 (based on current performance trends) \50\........................... ------------------------------- Total............................... 1.39 \51\ 1.54 ------------------------------------------------------------------------ To withstand a moderate recession without the equity ratio falling below 1.20 percent, the Share Insurance Fund's equity ratio needs to be high enough to withstand the following: --------------------------------------------------------------------------- \49\ The 2007 Board-approved policy would also result in a recommended normal operating level above 1.30 percent. To date, the Board has maintained the normal operating level at 1.30 percent, which has allowed NCUA to use the excess equity to help repay outstanding U.S. Treasury borrowings. \50\ The equity ratio has been declining over the last several years and is expected to continue to decline because of the low yield on Share Insurance Fund investments and strong insured share growth. For additional information on the methodology used to project the equity ratio using current trends, refer to the information provided at the November 2016 Open Board Meeting (https://www.ncua.gov/About/Documents/Agenda%20Items/AG20161117Item5a.pdf). \51\ This exceeds the statutory maximum normal operating level of 1.50 percent. --------------------------------------------------------------------------- A 13 basis point decline in the equity ratio due to the impact on the [[Page 34990]] three primary drivers of the Share Insurance Fund's performance. A 4 basis point decline in the value of the Share Insurance Fund's claim on the corporate credit union asset management estates. A 2 basis point decline in the equity ratio expected to occur prior to when the remaining NGNs begin to mature in 2020 and remaining exposure to the Legacy Assets can begin to be reduced. This helps ensure the 4 basis points of additional equity to account for the potential decline in value of the claims on the asset management estates is maintained in the Share Insurance Fund until Legacy Assets can be sold.\52\ --------------------------------------------------------------------------- \52\ The Board must consider retaining this equity now, because as the equity ratio declines, the Board would be unable to replenish the equity through premium assessments as long as the equity ratio remains above 1.30 percent, per the Act. 12 U.S.C. 1782(c)(2)(B). --------------------------------------------------------------------------- Therefore, the Board proposes to set the normal operating level at 1.39 percent. Based on the yearend equity ratio projections of 1.45 percent to 1.47 percent from Table 3, this would result in an estimated initial Share Insurance Fund distribution of 6 to 8 basis points (approximately $600 to $800 million) paid in 2018.\53\ --------------------------------------------------------------------------- \53\ The 4 basis points of equity included for covering losses on the Share Insurance Fund's claims against the corporate asset management estates, along with any recognition permitted on the outstanding balance of the $1 billion U.S. Central capital note (an estimated range of 2 to 5 basis points of equity), may be available for a future Share Insurance Fund distribution--provided it is not consumed by an increase in future legacy asset losses from an economic downturn or other losses and factors affecting the equity ratio. Future distributions also depend on any subsequent changes the Board might make to the normal operating level. --------------------------------------------------------------------------- Policy for Setting the Normal Operating Level The Board retains the authority to reassess and set the normal operating level periodically, in particular when there are changes in the risks to the Share Insurance Fund's equity ratio, such as maturity of the NGNs. Based on the approach discussed above, the Board proposes to replace its current policy for setting the normal operating level with the following.\54\ --------------------------------------------------------------------------- \54\ The current policy was approved at the December 3, 2007 NCUA Board meeting open to the public. --------------------------------------------------------------------------- Periodically, NCUA will review the equity needs of the Share Insurance Fund and provide this analysis to stakeholders. Board action is only necessary when this review determines that a change in the normal operating level is warranted. Any change to the normal operating level of more than 1 basis point shall be made only after a public announcement of the proposed adjustment and opportunity for comment. In soliciting comment, NCUA will issue a report including data supporting the proposal. The Board's main objectives in setting the normal operating level are to: Retain public confidence in federal share insurance, Prevent impairment of the one percent contributed capital deposit, and Ensure the Share Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.20 percent over a five-year period. V. Request for Comment The Board seeks comments on the proposed closure of the Stabilization Fund in 2017 and the related approach for setting the normal operating level of the Share Insurance Fund. Commenters are also encouraged to discuss any other relevant issues they believe the Board should consider with respect to this matter. In particular, the Board is interested in comments on whether to: Close the Stabilization Fund in 2017, close it at some future date, or wait until it is currently scheduled to close in 2021. Set the normal operating level based on the Share Insurance Fund's ability to withstand a moderate recession. Or, should the Share Insurance Fund be able to withstand a severe recession. Base the approach to setting the normal operating level on preventing the equity ratio from declining below 1.20 percent, or some other higher minimum level. Commenters are encouraged to provide the specific basis for their comments and, to the extent feasible, documentation to support any recommendations. By the National Credit Union Administration Board on July 20, 2017. Gerard S. Poliquin, Secretary of the Board. [FR Doc. 2017-15686 Filed 7-26-17; 8:45 am] BILLING CODE 7535-01-P
![34982 Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices
collecting the information, including Insurance Fund’s assumption of these FOR FURTHER INFORMATION CONTACT:
through information technology; and (e) assets and liabilities will introduce Anthony Cappetta, Supervisory
whether the collection affects small additional risk of volatility to the Share Financial Analyst, at 1775 Duke Street,
businesses. In this notice, we solicit Insurance Fund’s equity ratio. Alexandria, VA 22314, or telephone:
comments concerning the following Therefore, the Share Insurance Fund (703) 518–1592.
information collection: would need to hold sufficient equity to SUPPLEMENTARY INFORMATION:
Title: Presidential Library Facilities. cover potential changes in the value of I. Stabilization Fund Background
OMB number: 3095–0036. its claims on the failed corporate credit II. Legal Matters
Agency form number: None. union asset management estates. In III. Closing the Stabilization Fund
Type of review: Regular. addition, the Share Insurance Fund IV. The Normal Operating Level
Affected public: Presidential library needs to have enough equity to cover V. Request for Comment
foundations or other entities proposing other risks to the equity ratio, such as I. Stabilization Fund Background
to transfer a Presidential library facility losses on insured credit unions, under
to NARA. the same macroeconomic conditions Public Law 111–22, Helping Families
Estimated number of respondents: 1. that create volatility in the asset Save Their Homes Act of 2009 (Helping
Estimated time per response: 40 management estate values. To ensure Families Act), signed into law by the
hours. the Share Insurance Fund has sufficient President on May 20, 2009 created the
Frequency of response: On occasion. equity to absorb these risks, the Board Temporary Corporate Credit Union
Estimated total annual burden hours: proposes to raise the normal operating Stabilization Fund. Congress provided
40 hours. level to 1.39 percent. NCUA with this temporary fund to
Abstract: The information collection This notice provides a discussion of accrue the losses of the corporate credit
is required for NARA to meet its the reasons the Board is proposing to union system and assess insured credit
obligations under 44 U.S.C. 2112(a)(3) to close the Stabilization Fund in 2017 and unions for such losses over time. This
submit a report to Congress before the basis used to determine the normal prevented insured credit unions from
accepting a new Presidential library operating level necessary to account for bearing a significant burden for losses
facility. The report contains information the additional risk to the Share associated with the failure of five
that can be furnished only by the Insurance Fund. In addition, the notice corporate credit unions within a short
foundation or other entity responsible sets forth a new policy by which the period. Without creation of the
for building the facility and establishing Board would set the normal operating Stabilization Fund, these corporate
the library endowment. level. The Board solicits comments on credit union losses would have been
each of these proposed actions. borne by the Share Insurance Fund. The
Swarnali Haldar, magnitude of losses would have
DATES: Comments must be received on
Executive for Information Services/CIO. exhausted the Share Insurance Fund’s
or before September 5, 2017 to be
[FR Doc. 2017–15792 Filed 7–26–17; 8:45 am] retained earnings and significantly
assured of consideration.
BILLING CODE 7515–01–P impaired credit unions’ one percent
ADDRESSES: You may submit comments contributed capital deposit.1 The
by any of the following methods (Please deposit impairment, along with
send comments by one method only): premiums that would have been
NATIONAL CREDIT UNION • NCUA Web site: https://
ADMINISTRATION necessary to restore the Share Insurance
www.ncua.gov/about/pages/board- Fund’s equity ratio, would have resulted
Closing the Temporary Corporate comments.aspx in a significant, immediate cost to credit
Credit Union Stabilization Fund and • Email: Address to boardcomments@ unions at a time when their earnings
Setting the Share Insurance Fund ncua.gov. Include ‘‘[Your name]— and capital were already under stress
Normal Operating Level Comments on Stabilization Fund due to the Great Recession.2 In June
Closure’’ in the email subject line. 2009, the Board formally approved use
AGENCY: National Credit Union • Fax: (703) 518–6319. Use the of the Stabilization Fund for accounting
Administration (NCUA). subject line described above for email. for the costs of the Corporate System
ACTION: Notice and request for comment. • Mail: Address to Gerald Poliquin, Resolution Program.3 Since then, all of
Secretary of the Board, National Credit these costs have been accounted for in
SUMMARY: The NCUA Board (Board) is Union Administration, 1775 Duke the financial statements of the
considering closing the Temporary Street, Alexandria, VA 22314–3428. Stabilization Fund.
Corporate Credit Union Stabilization • Hand Delivery/Courier: Same as The Act specifies that the
Fund (Stabilization Fund) in 2017, prior mail address. Stabilization Fund will terminate 90
to its scheduled closing date in June Public Inspection: You can view all days after the seven-year anniversary of
2021. Closing the Stabilization Fund public comments on NCUA’s Web site its first borrowing from the U.S.
and distributing all assets, property, and at https://www.ncua.gov/about/pages/ Treasury.4 The first borrowing occurred
funds to the National Credit Union board-comments.aspx as submitted,
Share Insurance Fund (Share Insurance except for those we cannot post for 1 Prior to reassignment of these costs to the
Fund) will increase the Share Insurance technical reasons. NCUA will not edit or Stabilization Fund, the capitalization deposit
Fund’s equity ratio and allow for the remove any identifying or contact impairment would have been 89 basis points.
2 Because the contributed capital deposit is
return to insured credit unions of any information from the public comments
reflected as an asset on the financial statements of
equity above the normal operating level. submitted. You may inspect paper
mstockstill on DSK30JT082PROD with NOTICES
insured credit unions, under accounting rules any
The return of excess equity would be copies of comments in NCUA’s impairment results in an immediate expense to
accomplished through a distribution headquarters at 1775 Duke Street, credit unions.
from the Share Insurance Fund in Alexandria, VA 22314, by appointment 3 For more details on the corporate system
conformance with the Federal Credit weekdays between 9 a.m. and 3 p.m. To resolution program, please see the NCUA Corporate
System Resolution Costs Web page (https://
Union Act (the Act). However, given the make an appointment, call (703) 518– www.ncua.gov/regulation-supervision/Pages/
nature of certain assets and liabilities of 6360 or send an email to EIMail@ corporate-system-resolution.aspx).
the Stabilization Fund, the Share ncua.gov. 4 12 U.S.C. 1790e(h).
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![Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices 34983
on June 25, 2009, making the original In 2010, when NCUA announced the unions.7 The Board is simultaneously
closing date September 27, 2016. Corporate System Resolution Program, publishing a separate proposal to update
However, the Act provided the Board, the outstanding principal balance of the § 741.4 of NCUA’s Rules and
with the concurrence of the Secretary of Legacy Assets totaled over $40 billion— Regulations regarding the method for
the U.S. Treasury, authority to extend about four times the size of the Share Share Insurance Fund distributions to
the closing date of the Stabilization Insurance Fund. The initial outstanding insured credit unions.
Fund. In June 2010, the Board voted to balance of guaranteed notes backed by II. Legal Matters
extend the life of the Stabilization Fund the Legacy Assets and sold to investors
and on September 24, 2010, NCUA through the NGN program in 2010 and The Act sets forth the purpose,
received concurrence from the Secretary 2011 totaled approximately $28 permissible expenditures, borrowing
of the U.S. Treasury to extend the billion—almost three times the size of and repayment authorities, assessment
closing date to June 30, 2021. the Share Insurance Fund at that time. authority, investment authority, and
In March 2009, the Board conserved As of March 2017, the outstanding procedures for closing the Stabilization
U.S. Central Federal Credit Union and principal balance of the Legacy Assets Fund.8 The statute specifically
Western Corporate Credit Union. In and the outstanding balance of the prescribes the conditions for closing the
September 2010, the Board conserved guaranteed notes back by them have Stabilization Fund and distributing its
three additional corporate credit unions declined to $12.7 billion and $7.5 holdings.9 The Board has the authority
and publicly announced the Corporate billion, respectively. Both of these under the Act to close the Stabilization
System Resolution Program. The Board balances are less than the current size of Fund at its discretion at any time when
placed the five corporate credit unions the Share Insurance Fund, which is it has no deficit, which then requires
into liquidation in the fourth quarter of $13.2 billion in total assets as of March that all of its assets and funds be
2010. The Board, as Liquidating Agent, 31, 2017. distributed to the Share Insurance
administers the assets and liabilities of The projected range of lifetime Legacy Fund.10 The Stabilization Fund’s
the five failed corporate credit unions in Asset defaults was $13.2 billion to $16.4 financial statements have reflected a
separate legal entities, referred to as billion as of December 2011. As of positive net position since June 30,
asset management estates. March 2017, the projected range of 2014. Therefore, there are currently no
The Corporate System Resolution lifetime Legacy Asset defaults has statutory barriers for the Board in
Program included providing short-term declined to $9.9 billion to $10.3 billion. regards to closing the Stabilization Fund
and long-term funding to resolve a In addition, NCUA’s pursuit of legal in 2017. Once the Stabilization Fund is
portfolio of residential mortgage-backed recoveries in its capacity as Liquidating closed, there is no statutory authority
securities, commercial mortgage-backed Agent against various third parties in that permits NCUA to re-open it for any
securities, other asset-backed securities, connection with the Legacy Assets has reason.
and corporate bonds (collectively resulted in net recoveries of The Board is aware of industry
referred to as the Legacy Assets) held by approximately $3.8 billion after fees and opinions that the Act may permit a
the liquidated corporate credit unions. expenses.5 Improved projected distribution to insured credit unions
Under the Corporate System Resolution performance of the Legacy Assets and directly from the Stabilization Fund.
Program, NCUA created a re- legal recoveries are the primary reasons The Board does not believe this is
securitization program where NCUA the Stabilization Fund’s net position has permissible for the following reasons.
issued a series of NCUA Guaranteed increased from negative $7.5 billion as NCUA’s authority to use Stabilization
Notes (NGNs). The sale of NGNs to of December 2010 to a positive $1.6 Fund money arises from the reference to
investors has provided long-term billion as of March 2017. 12 U.S.C. 1783(a) in the legislation that
funding for the Legacy Assets. The created the Stabilization Fund.11
NGNs are guaranteed by NCUA in its It is now possible for the remaining
Specifically, the legislation provides
Agency capacity, backed by the full obligations of the Corporate System
that ‘‘[m]oney in the Stabilization Fund
faith and credit of the United States. Resolution Program to be borne by the
shall be available upon requisition by
While the accounting for obligations Share Insurance Fund without
the Board . . . for making payments for
associated with the NGNs occurs inordinate risk, provided additional
the purposes described in § 1783(a) of
through the Stabilization Fund, the equity is maintained while the exposure
this title.’’ 12 Except with respect to
guaranty is not specific to the to remaining resolution program
administrative payments, the legislation
Stabilization Fund. All NCUA agency obligations exist. As a result, the Board
limits this authority to the context of a
funds for which payments on the NGN believes the purpose of the Stabilization
‘‘conservatorship, liquidation, or
guarantees is a permitted use, including Fund has been fulfilled.6 Therefore, the
threatened conservatorship or
the Share Insurance Fund, are potential Board proposes to close the
liquidation, of a corporate credit
sources for guaranty obligations prior to Stabilization Fund in 2017. Closing the
union.’’ 13 Under section 1783(a),
any recourse to the U.S. Treasury. Stabilization Fund at this time would
During its life, the Stabilization Fund increase the equity ratio of the Share 7 The potential return of excess equity would be
provides the primary funding necessary Insurance Fund and require NCUA to in the form of a distribution to insured credit
for NCUA’s guarantees on the NGNs and distribute any resulting equity above the unions from the Share Insurance Fund as provided
to complete the resolution of the normal operating level to insured credit for in the Act. Stakeholders should not confuse this
with potential recoveries on depleted member
corporate credit union asset capital. Until senior obligations of each particular
5 NCUA does not include potential future legal
management estates. The majority of estate can be satisfied, there will not be
mstockstill on DSK30JT082PROD with NOTICES
recoveries in loss projections, as they are inherently distributions for any recoveries on depleted
this funding has been from two primary inestimable. For a list of legal recoveries to date, see member capital.
sources: Borrowings of $5.1 billion NCUA’s Legal Recoveries Web site (https:// 8 12 U.S.C. 1790e.
(peak outstanding balance) on NCUA’s www.ncua.gov/regulation-supervision/Pages/ 9 12 U.S.C. 1790e(h).
$6 billion line of credit with the U.S. corporate-system-resolution/legal-recoveries.aspx).
10 12 U.S.C. 1790e(g), (h).
6 Worthy of note, if the Stabilization Fund is
Treasury and $4.8 billion in closed in 2017, it would have been in operation
11 12 U.S.C. 1790e(b).
Stabilization Fund assessments paid by about one year longer than the original seven years 12 12 U.S.C. 1790e(b)(1).
insured credit unions. provided for in the Act. 13 Id.
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![34984 Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices
permissible uses include payments of contrary, the Stabilization Fund Stabilization Fund will be distributed to
insurance under section 1787 of the legislation references section 1782(c)(3) the Share Insurance Fund at September
title, for providing assistance and only with respect to distributions 30, 2017 values. This transfer will
making expenditures under section flowing into the Stabilization Fund, in increase the net position of the Share
1788 of the title in connection with the any circumstances where U.S. Treasury Insurance Fund, resulting in an increase
liquidation or threatened liquidation of borrowings remain outstanding.15 to the equity ratio. As required by
insured credit unions, and for such In the only other circumstance where applicable accounting standards, certain
administrative and other expenses the legislation references a distribution budgetary accounts will also transfer
incurred in carrying out the purposes of in any manner, it is in reference to the and be shown in the Statement of
the subchapter as the Board may Stabilization Fund’s closing.16 In that Budgetary Resources. NCUA determined
determine to be proper. circumstance, the Act limits a the applicable accounting standards in
Here, a distribution, such as an distribution of all ‘‘funds, property or consultation with an independent
assessment rebate, does not plainly meet other assets remaining in the accounting firm.
any of those criteria, assuming an Stabilization Fund’’ to one recipient: The post-closure financial statements
appropriate nexus to a corporate credit The Share Insurance Fund.17 For these and note disclosures for the Share
union conservatorship or liquidation reasons, the Board believes the Insurance Fund will continue to provide
could be established in each instance. Stabilization Fund must be closed the same level of detail about the
First, a distribution to insured credit before a distribution of excess funds to receivables from the corporate asset
unions from the Stabilization Fund, by insured credit unions can occur for management estates and the related
its namesake alone, would not be a purposes other than those described in fiduciary activities. That is, the detailed
payment of insurance under section section 1783(a). note disclosures in the Stabilization
1787. Further, a distribution could not III. Closing the Stabilization Fund Fund’s financial statements will now be
be in the form of assistance under in the note disclosures of the Share
section 1788, since it would not go to A. Accounting and Financial Reporting Insurance Fund’s financial statements.
credit unions for the assistance The financial statements of the NCUA does not envision any changes to
purposes described in section 1788. Stabilization Fund and the Share the accounting for the asset management
Finally, a distribution is not an Insurance Fund are presented under estates. The accounting for each asset
‘‘administrative expense’’ or ‘‘other standards promulgated by the Federal management estate has and will remain
expense’’ in the context of the Act. Accounting Standards Advisory Board distinct, which is a requisite in fulfilling
While the general definition of an (FASAB). These financial statements are the Board’s responsibility as Liquidating
expense can be quite broad,14 section presented and audited by calendar year. Agent.
1782(c)(3) of the Act expressly governs With the closing of the Stabilization For illustrative purposes, Table 1
distributions to insured credit unions. Fund, NCUA intends to prepare final depicts the March 31, 2017 Share
Distributions under section 1782(c)(3) financial statements for the Stabilization Insurance Fund balance sheet
are not included as an authority that Fund as of September 30, 2017. These (unaudited), the March 31, 2017
Congress granted for the Stabilization financial statements would be audited Stabilization Fund balance sheet
Fund, particularly since Congress by NCUA’s Office of the Inspector (unaudited), and the pro-forma Share
expressly tied Stabilization Fund General. Insurance Fund balance sheet
authority to section 1783(a), to the Per applicable accounting standards, (unaudited) as if the Stabilization Fund
exclusion of any other section. On the the assets and liabilities of the were closed on that day.18
TABLE 1—SHARE INSURANCE FUND AND STABILIZATION FUND BALANCE SHEETS, PRE- AND POST-CLOSURE, AS OF
MARCH 31, 2017
[Dollars in millions]
Share Share
Stabilization
insurance insurance
fund
fund fund
(pre-closure)
(pre-closure) (post-closure)
Assets
Fund Balance with Treasury & Investments ................................................................................................................. $12,766.2 $700.4 $13,466.6
Notes Receivable, Net .................................................................................................................................................. 8.7 ........................ 8.7
Capitalization Deposits Receivable ............................................................................................................................... 316.5 ........................ 316.5
Receivable from Asset Management Estates, Net (NPCU) ......................................................................................... 51.3 ........................ 51.3
Receivable from Asset Management Estates, Net (CCU) ........................................................................................... ........................ 876.3 876.3
Accrued Interest and Other Assets ............................................................................................................................... 61.2 2.7 63.9
Total Assets ........................................................................................................................................................... 13,203.9 1,579.4 14,783.3
Liabilities and Net Position
Accounts Payable and Other Liabilities ........................................................................................................................ 26.0 1.1 27.1
Borrowings from U.S. Treasury .................................................................................................................................... ........................ ........................ ........................
Insurance and Guarantee Program Liabilities .............................................................................................................. 245.6 ........................ 245.6
mstockstill on DSK30JT082PROD with NOTICES
Net Position—Contributed Capital Deposits ................................................................................................................. 10,285.8 ........................ 10,258.8
14 Black’s Law Dictionary characterizes an 17 Id. Within 90 days following the seventh 18 The impact on the post-closure Share Insurance
expense as ‘‘[a]n expenditure of money, time, labor anniversary of the initial Stabilization Fund Fund financial statements will be based on actual
or resources to accomplish a result.’’ Black’s Law advance, or earlier at the Board’s discretion, the results at the time the Stabilization Fund is closed
Dictionary 617 (8th ed. 2004). Board shall distribute any funds, property, or other and the presentation may vary somewhat due to the
15 12 U.S.C. 1790e(e).
assets remaining in the Stabilization Fund to the specific application of accounting standards on
16 12 U.S.C. 1790e(h). Insurance Fund and shall close the Stabilization individual line items.
Fund.
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![Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices 34985
TABLE 1—SHARE INSURANCE FUND AND STABILIZATION FUND BALANCE SHEETS, PRE- AND POST-CLOSURE, AS OF
MARCH 31, 2017—Continued
[Dollars in millions]
Share Share
Stabilization
insurance insurance
fund
fund fund
(pre-closure)
(pre-closure) (post-closure)
Net Position—Cumulative Results of Operations ......................................................................................................... 2,646.5 1,578.3 4,224.8
Total Liabilities and Net Position ........................................................................................................................... 13,203.9 1,579.4 14,783.3
Total Net Position ........................................................................................................................................... 12,932.3 1,578.3 14,510.6
Subsequent to March 31, 2017, and expected to be recognized that will these additional items and the effect on
prior to the end of the year, there are ultimately affect the net position of the the projected net position as of
several items that have been or are Share Insurance Fund. Table 2 includes December 31, 2017.
TABLE 2—BREAKDOWN OF PROJECTED NET POSITION COMPONENTS BY DECEMBER 31, 2017
[Dollars in thousands]
Amount
Component
(in millions)
March 31, 2017 Pro-Forma Net Position (Post-Closure)—From Table 1 Above ........................................................................... $14,511
Plus: Legal Recoveries that Increase the Value of the Receivable from the AMEs ............................................................... 310
Plus: Estimated Recovery on U.S. Central Capital Note 19 ..................................................................................................... 20 500–800
Plus: Share Insurance Fund Net Income 2017q2–2017q4 21 .................................................................................................. (26)
Plus: Adjustment to 1% Contributed Capital Deposit 22 ........................................................................................................... 383
Equals: Adjusted Net Position (Post-Closure), as of 12/31/17 ....................................................................................................... 15,678–15,978
B. Effect on Share Insurance Fund contingent liabilities for which no The closure of the Stabilization Fund
Equity Ratio and Distributions provision has been made) to the would increase the Share Insurance
aggregate amount of insured shares in Fund’s net position. This would result
TheShare Insurance Fund equity ratio all insured credit unions.23 It serves as in an increase to the Share Insurance
is defined in the Act as the ratio of the a measure of the Share Insurance Fund’s Fund’s equity ratio. Table 3 shows the
amount of Fund capitalization, overall strength and ability to absorb estimated equity ratio of the Share
including insured credit unions’ 1 losses. In general, the Act requires the Insurance Fund as of December 31, 2017
percent capitalization deposits and the Board to manage the Share Insurance as if the Stabilization Fund were closed.
retained earnings balance of the Fund Fund’s equity ratio within a range of
(net of direct liabilities of the fund and 1.20 percent to 1.50 percent.
TABLE 3—PROJECTED SHARE INSURANCE FUND EQUITY RATIO AS OF DECEMBER 31, 2017
[Dollars in thousands]
Amount
Component (in millions)
Adjusted Net Position Post Closure—From Table 2 Above ........................................................................................................... $15,678–$15,978
Less: Gain(Loss) on Investments 24 ............................................................................................................................................ ($66)
Equals: Equity Ratio Numerator ...................................................................................................................................................... $15,744–$16,044
Equity Ratio Denominator: Projected Insured Shares as of December 31, 2017 25 ...................................................................... $1,089,500
Projected Calendar Yearend 2017 Equity Ratio 26 ......................................................................................................................... 1.45%–1.47%
The Share Insurance Fund’s calendar NCUA must make a distribution to distribution to insured credit unions
yearend equity ratio is part of the insured credit unions.27 The Act states after each calendar year if, as of the end
statutory basis to determine whether ‘‘the Board shall effect a pro rata of that calendar year—
19 The estimated recovery includes U.S. Central’s 22 Based on share growth of 3.71 percent in the 26 This does not account for extraordinary losses
portion of the recent legal recoveries. first quarter 2017 and the historical share of and/or failures in credit unions, abnormally high
mstockstill on DSK30JT082PROD with NOTICES
20 This estimated range only reflects what is adjusted contributed capital deposit adjustments insured-share growth, or a significant downturn in
projected to be recognizable by December 31, 2017 collected in October each year. economic conditions, including declining interest
under applicable accounting rules, which mainly 23 12 U.S.C. 1782(h)(2).
rates.
includes the portion of the U.S. Central capital note 24 Actual gain(loss) on investments as of March
27 The equity ratio is also part of the statutory
for which there is cash available for repayment. 31, 2017 and could be materially different as of
21 Assuming current yield on investments, December 31, 2017. basis for determining whether a premium or Share
insurance losses equal to the five-year average, and 25 Based on 5.8 percent annual insured share Insurance Fund restoration plan is necessary.
operating expenses based on the currently approved growth, which is the three-year average insured
NCUA budget. share growth for the industry.
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![Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices 34987
TABLE 4—DISCOUNTED LEGACY ASSET CASH FLOWS
[Dollars in billions]
Scenario Differences from base
Severely Severely
Base Adverse Adverse
adverse adverse
Total ..................................................................................... $10.3 $8.3 $7.3 ($2.0) ($3.0)
The projected Legacy Asset cash flows paid to NCUA, guaranty payments made payments have been made. The present
are aggregated by NGN and run through by NCUA to NGN investors for principal value of the NGN cash flows is
the applicable NGN waterfall to and interest shortfalls, guaranty determined by the same discounting
determine their related projected cash reimbursements made to NCUA for any approach discussed above.
flows. As shown in Table 5, the NGN- guaranty payments made, and any
related cash flows include guaranty fees residual cash flows left after all of these
TABLE 5—DISCOUNTED NGN CASH FLOWS
[Dollars in billions]
Scenario Differences from base
Cash flow Severely Severely
Base Adverse Adverse
adverse adverse
Guaranty Fees ..................................................................... $0.1 $0.1 $0.1 $0.0 $0.0
Guaranty Payments ............................................................. (3.2) (4.0) (4.4) (0.8) (1.2)
Guaranty Reimbursements .................................................. 3.0 3.3 3.5 0.3 0.5
Residuals ............................................................................. 3.5 2.1 1.3 (1.4) (2.2)
Total .............................................................................. 3.4 1.5 0.5 (1.9) (2.9)
NCUA then applied the un- recovery on the U.S. Central capital respectively, the net impact on the value
securitized projected Legacy Asset cash note.36 For each asset management of NCUA’s claims—and ultimately the
flows and NGN cash flows to the estate, the impact of the stress scenarios equity ratio—is different, primarily due
applicable asset management estates will differ depending on the specific to how these funds flow through the
based on the payout priorities in NCUA circumstances of the estate. While the payout priorities applicable to each
regulations.35 This results in an estimate decreases in Legacy Asset and NGN asset management estate. This is shown
of the change in the net receivable from cash flows under the Adverse and in Table 6.
asset management estates due to NCUA, Severely Adverse scenarios are
as well as changes in NCUA’s projected approximately $2 billion and $3 billion,
TABLE 6—NET RECEIVABLE TO NCUA PLUS U.S. CENTRAL CAPITAL NOTE RECOVERY
[Dollars in billions]
Scenario Differences from base
Estate Severely Severely
Base Adverse Adverse
adverse adverse
U.S. Central 37 ....................................................................................................... $0.9 $0.9 $0.5 $0.0 ($0.4)
WesCorp ............................................................................................................... 0.9 0.5 0.3 (0.4) (0.6)
Members ............................................................................................................... 0.2 0.2 0.1 0.0 (0.1)
Southwest .............................................................................................................. 0.0 0.0 0.0 0.0 0.0
Constitution ........................................................................................................... 0.0 0.0 0.0 0.0 0.0
Total ............................................................................................................... 2.0 1.6 0.9 (0.4) (1.1)
Under the Adverse scenario, NCUA million, which would equate to a 4- decline in value is approximately $1.1
projects a decline in value of its basis point reduction in the Share billion or 11 basis points.38
receivables from asset management Insurance Fund’s equity ratio. Under the
estates, net of approximately $400 Severely Adverse scenario, the potential
mstockstill on DSK30JT082PROD with NOTICES
35 Payout priorities are outlined in 12 CFR 709.5. expected to be recognized for the U.S. Central corporates. Depleted capital recoveries would
36 Formore information on the U.S. Central capital note. While NCUA believes the full $1 decrease by approximately $1.5 billion and $1.7
capital note, see NCUA’s costs and assessments billion capital note will be collected, $0.8 billion billion under the Adverse and Severely Adverse
Q&A (https://www.ncua.gov/Resources/Documents/ represents NCUA’s estimate of the recognizable scenarios, respectively. This estimate accounts for
QA-Corporate-Resolution-Costs-and- value under accounting rules at yearend 2017. any depleted member capital claims the other four
Assessments.pdf). 38 There are four asset management estates asset management estates have against the U.S.
37 These numbers represent both the $0.1 billion projected to have recoveries for investors in Central asset management estate. However, all five
of net receivable due to NCUA and the $0.8 billion depleted capital instruments of the failed estates are currently expected to have outstanding
Continued
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![34990 Federal Register / Vol. 82, No. 143 / Thursday, July 27, 2017 / Notices
three primary drivers of the Share adjustment and opportunity for ACTION: Determination of the successful
Insurance Fund’s performance. comment. In soliciting comment, NCUA completion of inspections, tests, and
• A 4 basis point decline in the value will issue a report including data analyses.
of the Share Insurance Fund’s claim on supporting the proposal.
the corporate credit union asset The Board’s main objectives in setting SUMMARY: The U.S. Nuclear Regulatory
management estates. the normal operating level are to: Commission (NRC) has determined that
• A 2 basis point decline in the equity • Retain public confidence in federal the inspections, tests, and analyses have
ratio expected to occur prior to when share insurance, been successfully completed, and that
the remaining NGNs begin to mature in • Prevent impairment of the one the specified acceptance criteria are met
2020 and remaining exposure to the percent contributed capital deposit, and for the Virgil C. Summer Nuclear
Legacy Assets can begin to be reduced. • Ensure the Share Insurance Fund Station (VCSNS), Units 2 and 3.
This helps ensure the 4 basis points of can withstand a moderate recession DATES: The determination of the
additional equity to account for the without the equity ratio declining below successful completion of inspections,
potential decline in value of the claims 1.20 percent over a five-year period. tests, and analyses for VCSNS Units 2
on the asset management estates is and 3 is effective July 27, 2017.
maintained in the Share Insurance Fund V. Request for Comment
ADDRESSES: Please refer to Docket ID
until Legacy Assets can be sold.52 The Board seeks comments on the NRC–2008–0441 when contacting the
Therefore, the Board proposes to set proposed closure of the Stabilization NRC about the availability of
the normal operating level at 1.39 Fund in 2017 and the related approach information regarding this document.
percent. Based on the yearend equity for setting the normal operating level of You may obtain publicly-available
ratio projections of 1.45 percent to 1.47 the Share Insurance Fund. Commenters information related to this document
percent from Table 3, this would result are also encouraged to discuss any other using any of the following methods:
in an estimated initial Share Insurance relevant issues they believe the Board • Federal Rulemaking Web site: Go to
Fund distribution of 6 to 8 basis points should consider with respect to this http://www.regulations.gov and search
(approximately $600 to $800 million) matter. In particular, the Board is for Docket ID NRC–2008–0441. Address
paid in 2018.53 interested in comments on whether to: questions about NRC dockets to Carol
Policy for Setting the Normal Operating • Close the Stabilization Fund in Gallagher; telephone: 301–415–3463;
Level 2017, close it at some future date, or email: Carol.Gallagher@nrc.gov. For
wait until it is currently scheduled to technical questions, contact the
The Board retains the authority to close in 2021. individual listed in the FOR FURTHER
reassess and set the normal operating • Set the normal operating level INFORMATION CONTACT section of this
level periodically, in particular when based on the Share Insurance Fund’s document.
there are changes in the risks to the ability to withstand a moderate • NRC’s Agencywide Documents
Share Insurance Fund’s equity ratio, recession. Or, should the Share Access and Management System
such as maturity of the NGNs. Based on Insurance Fund be able to withstand a (ADAMS): You may obtain publicly-
the approach discussed above, the severe recession. available documents online in the
Board proposes to replace its current • Base the approach to setting the ADAMS Public Documents collection at
policy for setting the normal operating normal operating level on preventing http://www.nrc.gov/reading-rm/
level with the following.54 the equity ratio from declining below adams.html. To begin the search, select
Periodically, NCUA will review the 1.20 percent, or some other higher ‘‘ADAMS Public Documents’’ and then
equity needs of the Share Insurance minimum level. select ‘‘Begin Web-based ADAMS
Fund and provide this analysis to Commenters are encouraged to Search.’’ For problems with ADAMS,
stakeholders. Board action is only provide the specific basis for their please contact the NRC’s Public
necessary when this review determines comments and, to the extent feasible, Document Room (PDR) reference staff at
that a change in the normal operating documentation to support any 1–800–397–4209, 301–415–4737, or by
level is warranted. Any change to the recommendations. email to pdr.resource@nrc.gov. The
normal operating level of more than 1 ADAMS accession number for each
basis point shall be made only after a By the National Credit Union
Administration Board on July 20, 2017. document referenced (if it is available in
public announcement of the proposed ADAMS) is provided the first time that
Gerard S. Poliquin,
52 The Board must consider retaining this equity Secretary of the Board. it is mentioned in this document.
now, because as the equity ratio declines, the Board
• NRC’s PDR: You may examine and
[FR Doc. 2017–15686 Filed 7–26–17; 8:45 am]
would be unable to replenish the equity through purchase copies of public documents at
BILLING CODE 7535–01–P
premium assessments as long as the equity ratio the NRC’s PDR, Room O1–F21, One
remains above 1.30 percent, per the Act. 12 U.S.C. White Flint North, 11555 Rockville
1782(c)(2)(B).
53 The 4 basis points of equity included for
Pike, Rockville, Maryland 20852.
NUCLEAR REGULATORY
covering losses on the Share Insurance Fund’s FOR FURTHER INFORMATION CONTACT:
COMMISSION
claims against the corporate asset management Billy Gleaves, Office of New Reactors,
estates, along with any recognition permitted on the [Docket Nos. 52–027 and 52–028; NRC– U.S. Nuclear Regulatory Commission,
outstanding balance of the $1 billion U.S. Central 2008–0441]
capital note (an estimated range of 2 to 5 basis Washington, DC 20555–0001; telephone:
points of equity), may be available for a future 301–415–5848; email: Bill.Gleaves@
Share Insurance Fund distribution—provided it is South Carolina Electric & Gas nrc.gov.
mstockstill on DSK30JT082PROD with NOTICES
not consumed by an increase in future legacy asset Company, South Carolina Public
losses from an economic downturn or other losses Service Authority; Virgil C. Summer SUPPLEMENTARY INFORMATION:
and factors affecting the equity ratio. Future Nuclear Station, Units 2 and 3,
distributions also depend on any subsequent I. Licensee Notification of Completion
changes the Board might make to the normal Inspections, Tests, Analyses, and of ITAAC
operating level. Acceptance Criteria
54 The current policy was approved at the South Carolina Electric & Gas
December 3, 2007 NCUA Board meeting open to the AGENCY:Nuclear Regulatory (SCE&G), on behalf of itself and the
public. Commission. South Carolina Public Service
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Document Created: 2017-07-27 02:07:36
Document Modified: 2017-07-27 02:07:36
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Notice and request for comment. | |
| Dates | Comments must be received on or before September 5, 2017 to be assured of consideration. | |
| Contact | Anthony Cappetta, Supervisory Financial Analyst, at 1775 Duke Street, Alexandria, VA 22314, or telephone: (703) 518-1592. | |
| FR Citation | 82 FR 34982 |
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