CUNA Comment Letter
NCUAs Proposed Rule on Requirements for Insurance Foreign Branching, 12 CFR Part 741
December 26, 2002
Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
Dear Ms. Baker:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on NCUAs proposed rule to facilitate the process for federally-insured credit unions to branch overseas. The rule is designed to regulate credit union international operations in a manner similar to that of the Federal Reserve Board under Regulation K, while addressing issues that are unique to the operation of credit unions. By way of background, as a national trade association, CUNA represents more than 90 percent of the nations 10,000 state and federal credit unions.
Before addressing our specific comments, on the recommendation of CUNAs International Legislative and Regulatory Subcommittee and its Examination and Supervision Subcommittee, CUNA would like to commend the agency for moving forward with this proposal in order to clarify the regulatory responsibilities of federally insured credit unions seeking to establish branch operations outside of the United States. CUNA recognizes that the current proposal is an improvement over the advance notice of proposed rulemaking issued in September 2000, which, as our previous comment letter indicated, seemed to envision a regulatory approach that was too restrictive. CUNA appreciates the fact that the Board and staff have listened to the concerns of interested credit unions and as described in the proposal, have developed a more reasonable proposal.
Summary of CUNA's Position
- In general, CUNA supports the approach of NCUAs proposal that would govern the approval process for federally- insured credit unions seeking to branch overseas.
- CUNA supports having a consistent regulatory approach on this issue for federal as well as state chartered credit unions.
- Just as we support comparable regulatory treatment from NCUA for state and federal credit unions regarding foreign operations, we also support similar authority for federal credit unions to have more flexibility to serve members abroad as some states allow. As we will state in our comment letter on the proposed field of membership changes, allowing federal credit unions to have more authority to reach out to members overseas and serve their financial needs is a positive step, which CUNA supports.
- Regarding insurance of accounts, we support the approach NCUA discussed that would allow federally insured credit unions to have latitude to determine whether accounts at a particular overseas branch would be insured.
- Also, we appreciate the fact that the proposal would not require additional net worth in connection with a credit unions overseas operations and does not seek to regulate field of membership issues directly for state chartered credit unions.
- While we applaud NCUAs efforts to develop a comprehensive approval process, certain aspects of that process seem needlessly burdensome for both NCUA and credit unions. For example, Regulation K, which was updated and improved for banks October 2001, only requires a 30-day prior notice to the Federal Reserve Board. Also, some of the proposed requirements regarding a credit unions business plan seem unwarranted.
- Regulation K addresses incidental powers in which banks may engage, in connection with overseas services. While NCUAs current incidental powers rule is comprehensive, clarifying that such powers extend, as appropriate and consistent with the Federal Credit Union Act, to overseas activities might be useful.
Discussion Of CUNAs Recommended Changes
NCUAs proposal would establish an approval process for federally- insured credit unions to branch overseas, that involves several steps: (1) the credit union must obtain written approval from the host country to establish a branch in that country and from a state regulator if that is applicable; (2) the credit union must develop a detailed business plan that includes a marketing plan for the foreign branch and a plan for managing currency risk; and (3) the credit union must submit documentation exhibiting host county approval, state regulator approval if applicable, and the business plan to NCUA. The credit union must receive NCUA approval before establishing the branch office.
While CUNA supports a comprehensive approval process, certain aspects of NCUAs process would be overly burdensome for the agency, as well as for credit unions, and are not necessary for safety and soundness purposes.
A primary concern centers on the detailed requirements for a business plan and the provision that would authorize a regional director to revoke approval already given to a credit union if the regional office determines the business plan is not being followed.
Under the current proposal a credit unions business plan must include an analysis of market condition in the area, the credit unions plan for addressing foreign currency risk, safeguarding of assets, written policies for the branch, financial statements and field of membership to be served overseas. Some of these requirements go beyond what Regulation K imposes on banks, and NCUA has not explained sufficiently why credit unions should meet additional requirements that are not also imposed on banks.
For example, the proposal requires a market analysis, which can be costly.
Also, credit unions would be required to provide the field of membership to be served, and the financial needs of the members who would use the overseas services. We question the necessity of requiring state chartered credit unions to provide information about their field of membership. Also, while it might be useful for a state or federal credit union to have information about the financial needs of the members to be served, we do not agree that this should be a required item in a business plan that NCUA may approve or reject.
While it is essential for a credit union to have a business plan, the credit union should have latitude to develop the plan, as banks have under Regulation K. We believe that the essential issue for safety and soundness in assessing whether an overseas branch operation is a viable pursuit for a credit union is whether the credit union can manage the risk associated with the overseas services. Only if the risk is not being managed properly, or for some other critical safety and soundness reason should a regional office be allowed to revoke prior approval.
If NCUA decides to go forward with the proposed provisions regarding the business plan requirements, the proposal should clarify that if a credit union appeals a regional directors revocation of approval, termination of the branch operation does not have to commence until six months after an unfavorable decision from the NCUA Board is rendered.
NCUAs proposal gives the regional director sixty days to approve the application, and the regional office may extend this time. Regulation K only requires thirty-day advance notice of the application for the first two countries in which a bank wants to branch and then only twelve days prior notice for subsequent countries. We encourage NCUA to review this issue and consider whether a more expedited review is possible for credit unions.
Both NCUAs proposal and Regulation K require information regarding the host countrys approval of the proposed branch. However, NCUAs proposal goes farther in this regard, in a manner that we believe could be problematic for credit unions. While Regulation K requires information on the status of foreign government approvals, NCUA requires documentation that not only does the host country approve but also that it recognizes NCUAs authority to examine the credit unions overseas operation and take enforcement action, if necessary. Whether a host country recognizes NCUAs authority should be an issue determined by NCUA and the host country. The state regulator should also be involved, if it is a state chartered credit union. This should not be a determination that the credit union is forced to seek as we feel it is inappropriate and is not required of banks.
As the proposal indicated, NCUA is considering an approach under which a credit unions business plan would be required to address the insured status of members accounts. In addition, an account would be NCUSIF-insured only if denominated in U.S. dollars and only payable, by the term of the account agreement, at an U.S. office of the credit union. If the host country requires insurance from its own system, such accounts would not be insured by the NCUSIF. While we are not convinced this issue should be addressed in the business plan, CUNA does support the general approach the Board is considering if it will facilitate overseas branch operations for state and federal credit unions and allow the Board and state regulators to act quickly to protect a credit union in the event circumstances in a foreign country become unfavorable.
As drafted, the proposal seeks to support the authority of state regulators to supervise the operation of state-chartered credit unions. State-chartered credit unions would be required to obtain the approval of their regulator before they submitted their application to NCUA. We are hopeful that this requirement will keep state regulators apprised of the application and allow both regulators to work together in the approval process. However, the rule should address how NCUA will work with state regulators to protect due process for all credit unions subject to a revocation and during the appeals process. In addition, the rule should address how the regulators will work together should a state chartered credit union be operating in a foreign country encountering widespread economic or sociopolitical problems.
The proposal indicates that NCUA examiners would routinely inspect foreign branches at the expense of the credit unions with those branches. We urge NCUA to streamline this process, make it consistent with the risk-focus examination approach applied to domestic operations, and work with state regulators to coordinate examination activities for state chartered credit unions.
The proposal also indicates that if implemented, the rule will be examined by the agency over time to ensure its effectiveness. We appreciate this approach and encourage NCUA to agree to review the rule within one year of its effective date to determine if changes are needed and if it indeed facilitates overseas operations, as intended.
Thank you for the opportunity to comment on NCUAs proposed rule on overseas branching. Please feel free to contact me at 202-638-5777 if you have any questions or comments about our views on this proposal.
Mary Mitchell Dunn
Senior Vice President & Associate General Counsel
|cc:||NCUA Board Chairman Dennis Dollar
NCUA Board Member Deborah Matz
NCUA Board Member JoAnn Johnson