CUNA Regulatory Comment Call


September 30, 2003

MAXIMUM BORROWING LIMIT/SURETYSHIP & GUARANTY PROPOSAL
(Not a Major Rule)

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the rule, or you may access it here.

DESCRIPTION OF THE PROPOSED RULE

Maximum Borrowing Authority

The proposed rule will create a waiver process for state-chartered credit unions that want to exceed the general borrowing limitations, provided certain requirements are met. State-chartered credit unions may apply for a waiver up to the amount permitted under state law or by the state regulator. The maximum borrowing authority for FCUs is set by statute, which cannot be changed by NCUA.

The waiver request must be submitted to the appropriate regional director and must include the following:

The request will be approved if the regional director determines that the proposed borrowing limit will not adversely affect the safety and soundness of the state-chartered credit union.

The waiver process will permit regional directors to consider the circumstances of the state-chartered credit union, its community, and members, and will provide additional flexibility to address specific needs and benefits on a case-by-case basis. State-chartered credit unions will need to include a thorough explanation of the business purposes and strategies that will be in place to mitigate risk so that the regional directors may make an informed determination with regard to safety and soundness considerations.

Such a waiver may be appropriate when the borrowing has minimal risk. An example could be a transaction in which the state-chartered credit union is acting as co-borrower and the member has provided sufficient collateral to cover the obligation if that member defaults.

Suretyship and Guaranty

The proposal will permit FCUs to act as a guarantor or surety on behalf of a member, which will be considered an incidental power. This proposal will not apply to the guaranty of public deposits or the assumption of liability to pay member deposits, since those activities are already permitted under the Federal Credit Union Act. The proposal will also apply to state-chartered credit unions if permitted under state law.

While both a surety and guarantor agree to be bound for the one primarily liable for the obligation to the third party, there are differences. The significant difference is that the surety is bound to the obligation while the guarantor is bound only if the party primarily obligated fails to perform.

Here are the requirements of the surety and guaranty agreements, designed to ensure safety and soundness, which are modeled after similar requirements that have been issued by the Office of the Comptroller of the Currency and the Office of Thrift Supervision:

QUESTIONS TO CONSIDER REGARDING NCUA’s PROPOSED RULE ON MAXIMUM BORROWING LIMIT/GUARANTY AND SURETYSHIP AGREEMENTS

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com