§ 1790d. — Prompt corrective action.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1790d]
TITLE 12--BANKS AND BANKING
CHAPTER 14--FEDERAL CREDIT UNIONS
SUBCHAPTER II--SHARE INSURANCE
Sec. 1790d. Prompt corrective action
(a) Resolving problems to protect Fund
(1) Purpose
The purpose of this section is to resolve the problems of
insured credit unions at the least possible long-term loss to the
Fund.
(2) Prompt corrective action required
The Board shall carry out the purpose of this section by taking
prompt corrective action to resolve the problems of insured credit
unions.
(b) Regulations required
(1) Insured credit unions
(A) In general
The Board shall, by regulation, prescribe a system of prompt
corrective action for insured credit unions that is--
(i) consistent with this section; and
(ii) comparable to section 1831o of this title.
(B) Cooperative character of credit unions
The Board shall design the system required under
subparagraph (A) to take into account that credit unions are
not-for-profit cooperatives that--
(i) do not issue capital stock;
(ii) must rely on retained earnings to build net worth;
and
(iii) have boards of directors that consist primarily of
volunteers.
(2) New credit unions
(A) In general
In addition to regulations under paragraph (1), the Board
shall, by regulation, prescribe a system of prompt corrective
action that shall apply to new credit unions in lieu of this
section and the regulations prescribed under paragraph (1).
(B) Criteria for alternative system
The Board shall design the system prescribed under
subparagraph (A)--
(i) to carry out the purpose of this section;
(ii) to recognize that credit unions (as cooperatives
that do not issue capital stock) initially have no net
worth, and give new credit unions reasonable time to
accumulate net worth;
(iii) to create adequate incentives for new credit
unions to become adequately capitalized by the time that
they either--
(I) have been in operation for more than 10 years;
or
(II) have more than $10,000,000 in total assets;
(iv) to impose appropriate restrictions and requirements
on new credit unions that do not make sufficient progress
toward becoming adequately capitalized; and
(v) to prevent evasion of the purpose of this section.
(c) Net worth categories
(1) In general
For purposes of this section the following definitions shall
apply:
(A) Well capitalized
An insured credit union is ``well capitalized'' if--
(i) it has a net worth ratio of not less than 7 percent;
and
(ii) it meets any applicable risk-based net worth
requirement under subsection (d) of this section.
(B) Adequately capitalized
An insured credit union is ``adequately capitalized'' if--
(i) it has a net worth ratio of not less than 6 percent;
and
(ii) it meets any applicable risk-based net worth
requirement under subsection (d) of this section.
(C) Undercapitalized
An insured credit union is ``undercapitalized'' if--
(i) it has a net worth ratio of less than 6 percent; or
(ii) it fails to meet any applicable risk-based net
worth requirement under subsection (d) of this section.
(D) Significantly undercapitalized
An insured credit union is ``significantly
undercapitalized''--
(i) if it has a net worth ratio of less than 4 percent;
or
(ii) if--
(I) it has a net worth ratio of less than 5 percent;
and
(II) it--
(aa) fails to submit an acceptable net worth
restoration plan within the time allowed under
subsection (f) of this section; or
(bb) materially fails to implement a net worth
restoration plan accepted by the Board.
(E) Critically undercapitalized
An insured credit union is ``critically undercapitalized''
if it has a net worth ratio of less than 2 percent (or such
higher net worth ratio, not to exceed 3 percent, as the Board
may specify by regulation).
(2) Adjusting net worth levels
(A) In general
If, for purposes of section 1831o(c) of this title, the
Federal banking agencies increase or decrease the required
minimum level for the leverage limit (as those terms are used in
section 1831o of this title), the Board may, by regulation, and
subject to subparagraph (B) of this paragraph, correspondingly
increase or decrease 1 or more of the net worth ratios specified
in subparagraphs (A) through (D) of paragraph (1) of this
subsection in an amount that is equal to not more than the
difference between the required minimum level most recently
established by the Federal banking agencies and 4 percent of
total assets (with respect to institutions regulated by those
agencies).
(B) Determinations required
The Board may increase or decrease net worth ratios under
subparagraph (A) only if the Board--
(i) determines, in consultation with the Federal banking
agencies, that the reason for the increase or decrease in
the required minimum level for the leverage limit also
justifies the adjustment in net worth ratios; and
(ii) determines that the resulting net worth ratios are
sufficient to carry out the purpose of this section.
(C) Transition period required
If the Board increases any net worth ratio under this
paragraph, the Board shall give insured credit unions a
reasonable period of time to meet the increased ratio.
(d) Risk-based net worth requirement for complex credit unions
(1) In general
The regulations required under subsection (b)(1) of this section
shall include a risk-based net worth requirement for insured credit
unions that are complex, as defined by the Board based on the
portfolios of assets and liabilities of credit unions.
(2) Standard
The Board shall design the risk-based net worth requirement to
take account of any material risks against which the net worth ratio
required for an insured credit union to be adequately capitalized
may not provide adequate protection.
(e) Earnings-retention requirement applicable to credit unions that are
not well capitalized
(1) In general
An insured credit union that is not well capitalized shall
annually set aside as net worth an amount equal to not less than 0.4
percent of its total assets.
(2) Board's authority to decrease earnings-retention
requirement
(A) In general
The Board may, by order, decrease the 0.4 percent
requirement in paragraph (1) with respect to a credit union to
the extent that the Board determines that the decrease--
(i) is necessary to avoid a significant redemption of
shares; and
(ii) would further the purpose of this section.
(B) Periodic review required
The Board shall periodically review any order issued under
subparagraph (A).
(f) Net worth restoration plan required
(1) In general
Each insured credit union that is undercapitalized shall submit
an acceptable net worth restoration plan to the Board within the
time allowed under this subsection.
(2) Assistance to small credit unions
The Board (or the staff of the Board) shall, upon timely request
by an insured credit union with total assets of less than
$10,000,000, and subject to such regulations or guidelines as the
Board may prescribe, assist that credit union in preparing a net
worth restoration plan.
(3) Deadlines for submission and review of plans
The Board shall, by regulation, establish deadlines for
submission of net worth restoration plans under this subsection
that--
(A) provide insured credit unions with reasonable time to
submit net worth restoration plans; and
(B) require the Board to act on net worth restoration plans
expeditiously.
(4) Failure to submit acceptable plan within time allowed
(A) Failure to submit any plan
If an insured credit union fails to submit a net worth
restoration plan within the time allowed under paragraph (3),
the Board shall--
(i) promptly notify the credit union of that failure;
and
(ii) give the credit union a reasonable opportunity to
submit a net worth restoration plan.
(B) Submission of unacceptable plan
If an insured credit union submits a net worth restoration
plan within the time allowed under paragraph (3), and the Board
determines that the plan is not acceptable, the Board shall--
(i) promptly notify the credit union of why the plan is
not acceptable; and
(ii) give the credit union a reasonable opportunity to
submit a revised plan.
(5) Accepting plan
The Board may accept a net worth restoration plan only if the
Board determines that the plan is based on realistic assumptions and
is likely to succeed in restoring the net worth of the credit union.
(g) Restrictions on undercapitalized credit unions
(1) Restriction on asset growth
An insured credit union that is undercapitalized shall not
generally permit its average total assets to increase, unless--
(A) the Board has accepted the net worth restoration plan of
the credit union for that action;
(B) any increase in total assets is consistent with the net
worth restoration plan; and
(C) the net worth ratio of the credit union increases at a
rate that is consistent with the net worth restoration plan.
(2) Restriction on member business loans
Notwithstanding section 1757a(a) of this title, an insured
credit union that is undercapitalized may not make any increase in
the total amount of member business loans (as defined in section
1757a(c) of this title) outstanding at that credit union at any one
time, until such time as the credit union becomes adequately
capitalized.
(h) More stringent treatment based on other supervisory criteria
With respect to the exercise of authority by the Board under
regulations comparable to section 1831o(g) of this title--
(1) the Board may not reclassify an insured credit union into a
lower net worth category, or treat an insured credit union as if it
were in a lower net worth category, for reasons not pertaining to
the safety and soundness of that credit union; and
(2) the Board may not delegate its authority to reclassify an
insured credit union into a lower net worth category or to treat an
insured credit union as if it were in a lower net worth category.
(i) Action required regarding critically undercapitalized credit unions
(1) In general
The Board shall, not later than 90 days after the date on which
an insured credit union becomes critically undercapitalized--
(A) appoint a conservator or liquidating agent for the
credit union; or
(B) take such other action as the Board determines would
better achieve the purpose of this section, after documenting
why the action would better achieve that purpose.
(2) Periodic redeterminations required
Any determination by the Board under paragraph (1)(B) to take
any action with respect to an insured credit union in lieu of
appointing a conservator or liquidating agent shall cease to be
effective not later than the end of the 180-day period beginning on
the date on which the determination is made, and a conservator or
liquidating agent shall be appointed for that credit union under
paragraph (1)(A), unless the Board makes a new determination under
paragraph (1)(B) before the end of the effective period of the prior
determination.
(3) Appointment of liquidating agent required if other
action fails to restore net worth
(A) In general
Notwithstanding paragraphs (1) and (2), the Board shall
appoint a liquidating agent for an insured credit union if the
credit union is critically undercapitalized on average during
the calendar quarter beginning 18 months after the date on which
the credit union became critically undercapitalized.
(B) Exception
Notwithstanding subparagraph (A), the Board may continue to
take such other action as the Board determines to be appropriate
in lieu of appointment of a liquidating agent if--
(i) the Board determines that--
(I) the insured credit union has been in substantial
compliance with an approved net worth restoration plan
that requires consistent improvement in the net worth of
the credit union since the date of the approval of the
plan; and
(II) the insured credit union has positive net
income or has an upward trend in earnings that the Board
projects as sustainable; and
(ii) the Board certifies that the credit union is viable
and not expected to fail.
(4) Nondelegation
(A) In general
Except as provided in subparagraph (B), the Board may not
delegate the authority of the Board under this subsection.
(B) Exception
The Board may delegate the authority of the Board under this
subsection with respect to an insured credit union that has less
than $5,000,000 in total assets, if the Board permits the credit
union to appeal any adverse action to the Board.
(j) Review required when Fund incurs material loss
For purposes of determining whether the Fund has incurred a material
loss with respect to an insured credit union (such that the inspector
general of the Board must make a report), a loss is material if it
exceeds the sum of--
(1) $10,000,000; and
(2) an amount equal to 10 percent of the total assets of the
credit union at the time at which the Board initiated assistance
under section 1788 of this title or was appointed liquidating agent.
(k) Appeals process
Material supervisory determinations, including decisions to require
prompt corrective action, made pursuant to this section by
Administration officials other than the Board may be appealed to the
Board pursuant to the independent appellate process required by section
4806 of this title (or, if the Board so specifies, pursuant to separate
procedures prescribed by regulation).
(l) Consultation and cooperation with State credit union supervisors
(1) In general
In implementing this section, the Board shall consult and seek
to work cooperatively with State officials having jurisdiction over
State-chartered insured credit unions.
(2) Evaluating net worth restoration plan
In evaluating any net worth restoration plan submitted by a
State-chartered insured credit union, the Board shall seek the views
of the State official having jurisdiction over the credit union.
(3) Deciding whether to appoint conservator or liquidating
agent
With respect to any decision by the Board on whether to appoint
a conservator or liquidating agent for a State-chartered insured
credit union--
(A) the Board shall--
(i) seek the views of the State official having
jurisdiction over the credit union; and
(ii) give that official an opportunity to take the
proposed action;
(B) the Board shall, upon timely request of an official
referred to in subparagraph (A), promptly provide the official
with--
(i) a written statement of the reasons for the proposed
action; and
(ii) reasonable time to respond to that statement;
(C) if the official referred to in subparagraph (A) makes a
timely written response that disagrees with the proposed action
and gives reasons for that disagreement, the Board shall not
appoint a conservator or liquidating agent for the credit union,
unless the Board, after considering the views of the official,
has determined that--
(i) the Fund faces a significant risk of loss with
respect to the credit union if a conservator or liquidating
agent is not appointed; and
(ii) the appointment is necessary to reduce--
(I) the risk that the Fund would incur a loss with
respect to the credit union; or
(II) any loss that the Fund is expected to incur
with respect to the credit union; and
(D) the Board may not delegate any determination under
subparagraph (C).
(m) Corporate credit unions exempted
This section does not apply to any insured credit union that--
(1) operates primarily for the purpose of serving credit unions;
and
(2) permits individuals to be members of the credit union only
to the extent that applicable law requires that such persons own
shares.
(n) Other authority not affected
This section does not limit any authority of the Board or a State to
take action in addition to (but not in derogation of) that is \1\
required under this section.
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\1\ So in original. The word ``is'' probably should not appear.
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(o) Definitions
For purposes of this section the following definitions shall apply:
(1) Federal banking agency
The term ``Federal banking agency'' has the same meaning as in
section 1813 of this title.
(2) Net worth
The term ``net worth''--
(A) with respect to any insured credit union, means retained
earnings balance of the credit union, as determined under
generally accepted accounting principles; and
(B) with respect to a low-income credit union, includes
secondary capital accounts that are--
(i) uninsured; and
(ii) subordinate to all other claims against the credit
union, including the claims of creditors, shareholders, and
the Fund.
(3) Net worth ratio
The term ``net worth ratio'' means, with respect to a credit
union, the ratio of the net worth of the credit union to the total
assets of the credit union.
(4) New credit union
The term ``new credit union'' means an insured credit union
that--
(A) has been in operation for less than 10 years; and
(B) has not more than $10,000,000 in total assets.
(June 26, 1934, ch. 750, title II, Sec. 216, as added Pub. L. 105-219,
title III, Sec. 301(a), Aug. 7, 1998, 112 Stat. 923.)
Effective Date
Pub. L. 105-219, title III, Sec. 301(e), Aug. 7, 1998, 112 Stat.
931, provided that:
``(1) In general.--Except as provided in paragraph (2), section 216
of the Federal Credit Union Act [12 U.S.C. 1790d] (as added by this
section) shall become effective 2 years after the date of enactment of
this Act [Aug. 7, 1998].
``(2) Risk-based net worth requirement.--Section 216(d) of the
Federal Credit Union Act (as added by this section) shall become
effective on January 1, 2001.''
Regulations
Pub. L. 105-219, title III, Sec. 301(d), Aug. 7, 1998, 112 Stat.
930, provided that:
``(1) In general.--Except as provided in paragraph (2), the Board
shall--
``(A) publish in the Federal Register proposed regulations to
implement section 216 of the Federal Credit Union Act [12 U.S.C.
1790d] (as added by subsection (a) of this section) not later than
270 days after the date of enactment of this Act [Aug. 7, 1998]; and
``(B) promulgate final regulations to implement section 216 not
later than 18 months after the date of enactment of this Act.
``(2) Risk-based net worth requirement.--
``(A) Advance notice of proposed rulemaking.--Not later than 180
days after the date of enactment of this Act, the Board shall
publish in the Federal Register an advance notice of proposed
rulemaking, as required by section 216(d) of the Federal Credit
Union Act, as added by this Act.
``(B) Final regulations.--The Board shall promulgate final
regulations, as required by section 216(d) not later than 2 years
after the date of enactment of this Act.''
Consultation Required
Pub. L. 105-219, title III, Sec. 301(c), Aug. 7, 1998, 112 Stat.
930, provided that: ``In developing regulations to implement section 216
of the Federal Credit Union Act [12 U.S.C. 1790d] (as added by
subsection (a) of this section), the Board shall consult with the
Secretary, the Federal banking agencies, and the State officials having
jurisdiction over State-chartered insured credit unions.''
Report to Congress
Pub. L. 105-219, title III, Sec. 301(f), Aug. 7, 1998, 112 Stat.
931, provided that: ``When the Board publishes proposed regulations
pursuant to subsection (d)(1)(A) [set out above], or promulgates final
regulations pursuant to subsection (d)(1)(B) [set out above], the Board
shall submit to the Congress a report that specifically explains--
``(1) how the regulations carry out section 216(b)(1)(B) of the
Federal Credit Union Act [12 U.S.C. 1790d(b)(1)(B)] (as added by
this section), relating to the cooperative character of credit
unions; and
``(2) how the regulations differ from section 38 of the Federal
Deposit Insurance Act [12 U.S.C. 1831o], and the reasons for those
differences.''
Definitions
Pub. L. 105-219, Sec. 3, Aug. 7, 1998, 112 Stat. 914, provided that:
``As used in this Act [see Short Title of 1998 Amendment note set out
under section 1751 of this title]--
``(1) the term `Administration' means the National Credit Union
Administration;
``(2) the term `Board' means the National Credit Union
Administration Board;
``(3) the term `Federal banking agencies' has the same meaning
as in section 3 of the Federal Deposit Insurance Act [12 U.S.C.
1813];
``(4) the terms `insured credit union' and `State-chartered
insured credit union' have the same meanings as in section 101 of
the Federal Credit Union Act [12 U.S.C. 1752]; and
``(5) the term `Secretary' means the Secretary of the
Treasury.''
Section Referred to in Other Sections
This section is referred to in sections 1757a, 1786, 1787 of this
title.
