CUNA Comment Letter

Management Interlock Proposal

January 27, 1999

Ms. Becky Baker
Secretary to the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Management Interlock Proposal

Dear Ms. Baker:

Credit Union National Association (CUNA) and Affiliates, which represents over 90% of the federal and state chartered credit unions nationwide through state leagues, welcomes the opportunity to respond to NCUA's request for comments on proposed changes to management interlock requirements. The proposal was in the October 29 Federal Register.

The Depository Institution Management Interlocks Act generally prohibits financial institution management officials from serving simultaneously with two unaffiliated depository institutions or their holding companies. However, the Act exempts interlocking arrangements between credit unions. Therefore, NCUA's management interlocks regulations only address interlocks between federally insured credit unions and other institutions. According to NCUA, the agency receives approximately one management interlock application a year.

CUNA supports the change to implement the statutory increase to the asset thresholds in the major asset prohibition in Section 711.3. The Economic Growth and Regulatory Paperwork Reduction (EGPRP) Act of 1996 raised the thresholds to $2.5 billion and $1.5 billion from $1 billion and $500 million respectively. These thresholds are to be adjusted according to the Consumer Price Index for Urban Wage Earners and Clerical Workers.

CUNA supports the change which implements NCUA's statutory authority in the Act to adopt a general exemption to the management interlock prohibition if the service would not result in "a monopoly or substantial lessening of competition." NCUA proposes to provide a rebuttable presumption in four situations where it believes management interlock would not result in a monopoly or substantial lessening of competition and would not present safety and soundness concerns. Those four situations are where the depository institution seeking to add the management official is (1) located in and primarily serves low- or moderate-income areas; (2) controlled or managed by members of a minority group or women; (3) newly-chartered; or (4) deemed to be in a "troubled condition." The management interlocks proposals from the other federal financial regulatory agencies contain these same four rebuttable presumptions.

A small market share exemption had previously been proposed by the OCC, FDIC, and FRB, but withdrawn when 1994 legislation restricted the agencies' broad exemption authority. The Act restored this broad exemption authority, and thus, the agencies are all proposing a small market share exemption. Under the proposal two unaffiliated depository institutions that together control no more than 20% of the shares and deposits in any relevant metropolitan statistical area (RMSA) or community could be exempt if the major assets prohibition did not apply to these institutions. Credit unions have not indicated that the 20% limitation would cause concern. However, it is clear that whatever limitation is in the final regulation must be the same as the limitation set in the final rule of the other federal financial regulatory agencies.

Since NCUA does not report total credit union shares or deposits held in federally insured credit unions by RMSA or community, in proposed Section 711.5 credit unions are directed to NCUA's Website at www.ncua.gov to create their own custom reports. In the preamble to the proposal NCUA explains where to access and capture that information on the Website and how to generate a good faith estimate. This explanation needs to be included in the final regulation.

CUNA appreciates the opportunity to comment on the proposal.

Sincerely yours,

Sarah Cummer
Regulatory Affairs Counsel