NPRM 12 CFR 702, Subpart E Nov 1, 2013

Federal Register / Vol. 78, No. 212 / Friday, November 1, 2013 / Proposed Rules
D. NCUA action on capital plans.
E. Annual supervisory stress testing.
F. Public disclosure.
G. Process Overview.
III. Regulatory Procedures

NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 702
RIN 3133–AE27

Capital Planning and Stress Testing
National Credit Union
Administration (NCUA).
ACTION: Proposed rule with request for
comment.
AGENCY:

NCUA proposes to conduct
annual stress tests of federally insured
credit unions (FICUs) with assets of $10
billion or more. NCUA further proposes
to require those credit unions to develop
and maintain capital plans.
DATES: Comments must be received on
or before December 31, 2013.
ADDRESSES: You may submit comments
by any of the following methods (Please
send comments by one method only):
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• NCUA Web site: http://
www.ncua.gov/
RegulationsOpinionsLaws/proposed_
regs/proposed_regs.html. Follow the
instructions for submitting comments.
• Email: Address to regcomments@
ncua.gov. Include ‘‘[Your name]—
Comments on Proposed Rule—Capital
Planning and Stress Testing’’ in the
email subject line.
• Fax: (703) 518–6319. Use the
subject line described above for email.
• Mail: Address to Gerard Poliquin,
Secretary of the Board, National Credit
Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314–
3428.
• Hand Delivery/Courier: Same as
mail address.
FOR FURTHER INFORMATION CONTACT:
Jeremy Taylor, Senior Capital Markets
Specialist, Office of National
Examinations and Supervision, at the
above address or telephone (703) 518–
6640; Dale Klein, Senior Capital Markets
Specialist, Office of Examination and
Insurance, at the above address or
telephone (703) 518–6360; or Lisa
Henderson, Staff Attorney, Office of
General Counsel, at the above address or
telephone (703) 518–6540.
SUPPLEMENTARY INFORMATION:
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SUMMARY:

Table of Contents
I. Background
II. Proposed Rule
A. Credit union capital planning and
analysis.
B. Applicability.
C. Governance of capital planning and
analysis.

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I. Background
The NCUA Board (Board) has
determined, to protect the National
Credit Union Share Insurance Fund
(NCUSIF) and the credit union system,
that the largest FICUs should have
systems and processes to monitor and
maintain their capital adequacy. This
notice of proposed rulemaking (NPRM)
requires FICUs with assets of $10 billion
or more (covered credit unions) to
submit capital plans annually to NCUA.
The Board has also determined that
stress testing of these larger FICUs
would provide useful information for
both NCUA and the FICUs. This NPRM
describes the stress testing NCUA will
conduct of covered credit unions.
The Board of Governors of the Federal
Reserve System (Federal Reserve)
requires large bank holding companies
to submit capital plans to the Federal
Reserve.1 The requirement supports the
Federal Reserve’s expectation that large
bank holding companies have robust
systems and processes that incorporate
forward-looking projections of revenue
and losses to monitor and maintain their
internal capital adequacy.2 The Federal
Reserve, the Federal Deposit Insurance
Corporation (FDIC), and the Office of
the Comptroller of the Currency (OCC)
have issued regulations, pursuant to the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (the DoddFrank Act), requiring their supervised
institutions to conduct annual stress
tests.3
II. Proposed Rule
A. Credit Union Capital Planning and
Analysis
The proposed rule requires covered
credit unions to develop and maintain
a capital plan and submit this plan to
NCUA by March 31 of each year. NCUA
took into account the risk to the NCUSIF
of the largest FICUs as it considered the
need for capital plans at these
institutions. The size of these
institutions relative to the NCUSIF
makes capital planning essential. As of
June 2013, NCUSIF equity was $11.2
billion, and the assets of the largest
FICUs that would be covered by this
rule totaled $108.5 billion—nearly 10
times the size of the NCUSIF. The net
1 76

FR 74631 (Dec. 1, 2011).

2 Id.
3 See 77 FR 61238 (Oct. 9, 2012); 77 FR 62378
(Oct. 12, 2012); 77 FR 62396 (Oct. 12, 2012); 77 FR
62417 (Oct. 15, 2012).

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worth of these FICUs was $10.8 billion
as a cushion against the risks of these
assets. At the same time, NCUA must
maintain the NCUSIF against the risks
of all FICUs, large and small. As of June
2013, the aggregate assets of all FICUs
in the system was $1.06 trillion, with a
net worth of $111.0 billion. The
concentration of the NCUSIF’s exposure
to risks at the largest FICUs is therefore
clear, as is the associated need for safe
and sound capital planning at these
FICUs to ensure the adequacy of their
net worth. Losses by FICUs with assets
of $10 billion or more would likely
require replenishment of the NCUSIF by
all FICUs through assessments. NCUA is
protecting the NCUSIF and the interests
of all FICU members by making this
proposed rule applicable to the largest
FICUs.
Under the proposed rule, mandatory
elements of the covered credit unions’
capital plans start with an assessment of
each credit union’s sources and levels of
capital over the planning horizon,
taking into consideration its financial
condition, size, risk profile, scope of
operations, and existing capital. The
credit union must assume both expected
and adverse conditions. The credit
union must also discuss in its capital
plan how it will maintain ready access
to funding to meet its obligations and
continue to serve as an intermediary for
its members. The capital plan must also
take into account any expected changes
to the credit union’s business plan that
will materially affect the capital
adequacy or liquidity of the credit
union.
The proposed rule requires a covered
credit union to perform specific capital
analyses. At a minimum, covered credit
unions must conduct a sensitivity
analysis to evaluate the effect on capital
of changes in variables, parameters, and
inputs used by the credit union in its
capital plans. Credit unions must also
test the impact of interest rate shocks of
at least ± 300 basis points on the net
economic value of the credit union,
using final maturities of non-maturity
shares not exceeding two years. Covered
credit unions must also analyze the
impact of credit risk to capital under
unfavorable conditions, both separately
and in combination with unfavorable
interest rate scenarios.
B. Applicability
The proposed rule would apply to all
FICUs that report $10 billion or more in
assets on their March 31 Call Report.
For example, if a FICU reports $10
billion or more in assets on March 31,
2014, it would be required to evaluate
its capital under unfavorable conditions
and submit a capital plan by March 31,

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Federal Register / Vol. 78, No. 212 / Friday, November 1, 2013 / Proposed Rules

2015. The specific details of the
required capital plan and accompanying
capital analysis are discussed below.

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C. Governance of Capital Planning and
Analysis
To emphasize the importance of
credit union board oversight of the
capital planning and analysis process,
the proposed rule provides that a
covered credit union’s board of directors
is expected to understand and approve
processes that are consistent with the
financial condition, size, complexity,
risk profile, scope of operations, and
level of regulatory capital of the credit
union.
Senior management with
responsibility for accomplishing these
critical objectives must take into
account all of the complexities of the
credit union’s risk exposures and
operations. The capital planning process
should reflect the risk management of
the credit union, and senior
management responsible for
establishing and maintaining the capital
planning functions should report
directly to the board of directors.
The capital analysis policy approved
by the covered credit union’s board
should be established and reviewed in
conjunction with the credit union’s
capital plan. NCUA will consider these
together in assessing the safety and
soundness of a credit union.
D. NCUA Action on Capital Plans
Under the proposed rule, NCUA will
notify a covered credit union of the
agency’s acceptance or rejection of the
capital plan by June 30 of the year it is
submitted. NCUA may reject the plan if
there are material unresolved
supervisory issues associated with the
planning process. NCUA may also reject
the plan if the assumptions,
methodologies, or analysis underlying
the plan are not reasonable or
appropriate or if the data used lacks
integrity or is not sufficiently detailed.
In the event NCUA objects to the credit
union’s capital plan, the credit union
must update and re-submit a plan
within 30 days of receiving notice of the
objection. The plan must address
deficiencies identified by NCUA and
remediation for any unresolved
supervisory issues which have been
identified as contributing to the
rejection of the plan.
Any covered credit union operating
without an NCUA-approved capital plan
after September 30 of the year in which
the plan was submitted will be subject
to supervisory actions on the part of
NCUA. Before taking any action on the
capital plan of a federally insured, statechartered credit union, NCUA will

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consult with the applicable state
supervisory authority.
E. Annual Supervisory Stress Testing
NCUA will conduct independent
stress tests on all covered credit unions
based on September 30 financial data.
These stress tests are for the agency to
independently conduct forward-looking
assessments of risk vulnerabilities and
stress test capital positions in the credit
unions. NCUA will provide a
description of the baseline, adverse, and
severely adverse scenarios underlying
the test by December 1 of the same year.
The scenarios will be based on those
developed by the Federal Reserve, the
FDIC, and the OCC for their regulated
institutions, although there may be
variations based on credit unionspecific factors. If NCUA’s stress test
shows that a covered credit union does
not have the ability to maintain a stress
test capital ratio of at least 5 percent on
a pro-forma basis under expected and
stressed conditions throughout the 9quarter stress test period, NCUA will
require the credit union to take steps to
enhance capital and/or may take other
supervisory action against the credit
union.
In arriving at a minimum stress test
capital ratio of 5 percent, NCUA
considered minimum net worth ratio
requirements under the Prompt
Corrective Action regulation.4 NCUA
considers a credit union to be
significantly undercapitalized when its
net worth ratio is between 2 percent and
3.99 percent, and critically
undercapitalized when its ratio is less
than 2 percent. A minimum stress test
capital ratio requirement is intended to
provide prospective information of
credit union capital adequacy. NCUA
believes that a minimum ratio of 5
percent allows for a credit union to take
corrective measures before it becomes
significantly or critically
undercapitalized. Under these latter two
classifications, the credit union’s
operating environment would be
influenced by mandatory, discretionary
and other supervisory actions, enhanced
public scrutiny, and member concern
over the safety of its deposits leading to
abnormal withdrawals. These pressures
may limit the credit union’s ability to
restore confidence and its financial
soundness in a timely manner, thus
jeopardizing future viability.
In establishing a 5 percent ratio,
NCUA also considered the minimum
leverage ratio for banks, which is now
4 percent.5 While the banking agencies’
leverage ratio is not identical to NCUA’s
4 12

CFR part 702.
78 FR 62018 (Oct. 11, 2013).

5 See

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proposed stress test capital ratio, it is
the most comparable of the banking
capital ratios. NCUA is setting the
minimum stress test capital ratio higher
than the leverage ratio in recognition of
the fact that credit unions cannot raise
capital in the form of stockholder
equity. Most credit unions can replenish
depleted capital only through the
retention of earnings, which may be
especially difficult in times of stress.
Credit unions must, therefore, anticipate
any need to retain additional earnings.
The stress test process, combined with
the 5 percent minimum ratio, prepares
them to do this.
The net worth ratio contains
components that do not constitute core
capital on which a credit union may
rely to offset losses. The proposed
regulation excludes the following
components from the definition of stress
test capital ratio:
• assistance through Section 208 of
the Federal Credit Union Act,
• subordinated debt for low-income
credit unions, and
• the credit union’s NCUSIF deposit.
There are several reasons for these
exclusions. Stress tests are intended to
show the impact of events on a credit
union’s own capital, and therefore will
not include assistance provided by
NCUA. The largest credit unions are
unlikely to be designated as lowincome. Only low-income credit unions
are authorized by statute to count
subordinated debt as capital. In any
event, NCUA believes the largest credit
unions should be supported by their
own capital under stressed conditions.
The NCUSIF deposit is carried by credit
unions as an asset rather than being
expensed. It therefore elevates credit
union net worth ratios compared to
banks without representing capital on
which a credit union may draw to
absorb losses from stresses as they
occur.
As noted above, if NCUA’s stress test
indicates a covered credit union cannot
maintain a minimum stress test capital
ratio of 5 percent under expected and
stressed conditions throughout the 9quarter stress test period, NCUA will
require the credit union to include
actions and timeframes for enhancement
of stress test capital. These actions may
be to accumulate capital, to reduce risks
to capital or a combination of the two.
If a covered credit union’s stress test
capital ratio indicates serious safety and
soundness concerns, NCUA will take
supervisory actions at its discretion.
Before taking any action on the stress
test of a federally insured, statechartered credit union, NCUA will
consult with the applicable state
supervisory authority.

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Federal Register / Vol. 78, No. 212 / Friday, November 1, 2013 / Proposed Rules
The Board notes that the Federal
Reserve, OCC, and FDIC require their
covered institutions to conduct their
own stress testing based on agencyprovided baseline, adverse, and severely
adverse scenarios. The Board seeks
comment on whether NCUA should
similarly require covered credit unions
to conduct their own stress testing.
F. Public Disclosure
The Board also notes that the Federal
Reserve, OCC, and FDIC require their

covered institutions to publicly disclose
the results of their stress tests. The
Board recognizes that public disclosure
helps to provide valuable information to
market participants, enhances
transparency, and facilitates market
discipline. However, the Board also
understands that stress test results can
be misinterpreted and lead to inaccurate
conclusions about the health of an
institution. The Board seeks comment
on the benefits and costs associated
with credit union-specific disclosures,

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specific concerns about the possible
release of a credit union’s proprietary
information, and alternatives to credit
union-specific disclosures that could
still provide useful information to the
membership or the public.
G. Process Overview.
Table 1 describes the capital planning
and NCUA stress testing process under
this proposed rule, including the
anticipated general timelines for each
step.

TABLE 1—PROCESS OVERVIEW OF CAPITAL PLANNING AND ANNUAL STRESS TEST REQUIREMENTS UNDER THIS
PROPOSED RULE
Timeframe

Steps

September 30 ..........................................
by December 1 ........................................
by March 31 ............................................
by May 31 ...............................................
by June 30 ..............................................
by September 30 .....................................

‘‘As of’’ date for covered credit union’s capital plan and NCUA’s stress test data.
NCUA releases scenarios on which it will conduct independent stress tests.
Covered credit union submits capital plan to NCUA.
NCUA provides stress test results to covered credit union.
NCUA approves or rejects capital plan.
Covered credit union must have an NCUA-approved capital plan.

The Board emphasizes that credit
union capital planning and NCUA’s
stress testing have different timelines.
While covered credit unions may
choose to perform their own stress tests,
NCUA will rely on the independent
stress testing described in this proposed
rule to measure a covered credit union’s
stress test capital ratio. However, if a
covered credit union fails the NCUA
stress test and must provide a stress test
capital enhancement plan under
§ 702.506(e), the credit union must
incorporate this enhancement plan into
the § 702.503 capital plan submitted the
following year.
III. Regulatory Procedures
a. Regulatory Flexibility Act

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The Regulatory Flexibility Act
requires NCUA to prepare an analysis of
any significant economic impact any
proposed regulation may have on a
substantial number of small entities
(primarily those under $50 million in
assets).6 Because the proposed rule only
applies to credit unions with $10 billion
or more in assets, it will not have any
economic impact on small credit
unions.

b. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) applies to rulemakings in which
an agency by rule creates a new
paperwork burden on regulated entities
or increases an existing burden.7 For
purposes of the PRA, a paperwork
burden may take the form of a reporting
or recordkeeping requirement, both
referred to as information collections.
The proposed changes to part 702
impose new information collection
requirements. As required by the PRA,
NCUA is submitting a copy of this
proposal to OMB for its review and
approval. Persons interested in
submitting comments with respect to
the information collection aspects of the
proposed rule should submit them to
OMB at the address noted below.
1. Estimated PRA Burden
The information collection
requirements are found in sections
702.503, 702.504, 702.505, and 702.506
of the proposed rule.
Section 702.503(a) requires a covered
credit union to develop and maintain a
capital plan and to submit the plan to
NCUA by March 31 of a given year.
Section 702.506(a) further requires a
covered credit union’s board of directors
Number of
respondents

Initial Paperwork Burden:
Initial Report .............................................................................................
Ongoing Paperwork Burden:
Annual Report ...........................................................................................
65

U.S.C. 603(a).

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or a designated committee to review and
approve the covered credit union’s
capital plan prior to its submission to
NCUA.
Section 702.503(b) provides the list of
mandatory elements to be included in
the capital plan.
Section 702.504 provides that the
senior management of a covered credit
union must establish and maintain a
system of controls, oversight, and
documentation designed to ensure that
the capital planning and analysis
processes satisfy the requirements in
this part.
Section 702.505(d) provides that
within 30 calendar days of receipt of a
notice of rejection by NCUA of a
covered credit union’s capital plan,
under section 702.505(c), the covered
credit union must update and re-submit
its capital plan to NCUA.
Section 702.506(c) requires a covered
credit union to provide any relevant
qualitative or quantitative information
requested by NCUA to conduct the
supervisory stress test.
Summary of Burden
As of June 30, 2013, there were four
FICUs with assets of $10 billion or
more.
Annual
frequency

Hourly
estimate

4

1

500

2,000

4

1

250

1,000

U.S.C. 3507(d); 5 CFR part 1320.

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Total
hours

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2. Submission of comments
NCUA considers comments by the
public on this proposed collection of
information in:
• Evaluating whether the proposed
collection of information is necessary
for the proper performance of the
functions of NCUA, including whether
the information will have a practical
use;
• Evaluating the accuracy of NCUA’s
estimate of the burden of the proposed
collection of information, including the
validity of the methodology and
assumptions used;
• Enhancing the quality, usefulness,
and clarity of the information to be
collected; and
• Minimizing the burden of collection
of information on those who are to
respond, including through the use of
appropriate automated, electronic,
mechanical, or other technological
collection techniques or other forms of
information technology; e.g., permitting
electronic submission of responses.
The PRA requires OMB to make a
decision concerning the collection of
information contained in the proposed
regulation between 30 and 60 days after
publication of this document in the
Federal Register. Therefore, a comment
to OMB is best assured of having its full
effect if OMB receives it within 30 days
of publication. This does not affect the
deadline for the public to comment to
NCUA on the substantive aspects of the
proposed regulation.
Comments on the proposed
information collection requirements
should be sent to: Office of Information
and Regulatory Affairs, OMB, New
Executive Office Building, Washington,
DC 20503; Attention: NCUA Desk
Officer, with a copy to Gerard Poliquin,
Secretary of the Board, National Credit
Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314–
3428.

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c. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. NCUA, an
independent regulatory agency as
defined in 44 U.S.C. 3502(5), voluntarily
complies with the executive order to
adhere to fundamental federalism
principles. The proposed rule does not
have substantial direct effects on the
states, on the relationship between the
national government and the states, or
on the distribution of power and
responsibilities among the various
levels of government. NCUA has,
therefore, determined that this proposal
does not constitute a policy that has

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federalism implications for purposes of
the executive order.
d. Assessment of Federal Regulations
and Policies on Families
NCUA has determined that this
proposed rule will not affect family
well-being within the meaning of § 654
of the Treasury and General
Government Appropriations Act, 1999,
Pub. L. 105–277, 112 Stat. 2681 (1998).
List of Subjects in 12 CFR Part 702
Credit unions, Reporting and
recordkeeping requirements.
By the National Credit Union
Administration Board, on October 24,
2013.
Gerard Poliquin,
Secretary of the Board.

For the reasons discussed above, the
National Credit Union Administration
proposes to amend part 702 as follows:
PART 702—CAPITAL ADEQUACY
1. The authority citation for part 702
continues to read as follows:

■

Authority: 12 U.S.C. 1766(a), 1790d.

2. The heading for part 702 is revised
to read as set forth above.
■ 3. Add subpart E to read as follows:
■

Subpart E—Capital Planning and Stress
Testing
Sec.
702.501 Authority, purpose, and
reservation of authority.
702.502 Definitions.
702.503 Credit union capital planning.
702.504 Governance of capital planning and
analysis.
702.505 NCUA action on capital plans
702.506 Annual supervisory stress testing.

Subpart E—Capital Planning and Stress
Testing
§ 702.501 Authority, purpose, and
reservation of authority.

(a) Authority. This subpart is issued
by the National Credit Union
Administration (NCUA).
(b) Purpose. This subpart requires
covered credit unions to develop and
maintain capital plans and describes
NCUA stress testing and actions on
credit union capital plans.
(c) Reservation of authority.
Notwithstanding any other provisions of
this subpart, NCUA may modify some or
all of the requirements of this subpart.
Any exercise of authority under this
section by NCUA will be in writing and
will consider the financial condition,
size, complexity, risk profile, scope of
operations, and level of regulatory
capital of the covered credit union, in
addition to any other relevant factors.

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Nothing in this subpart limits the
authority of NCUA under any other
provision of law or regulation to take
supervisory or enforcement action,
including action to address unsafe and
unsound practices or conditions, or
violations of law or regulation.
§ 702.502

Definitions.

For purposes of this subpart—
Adverse scenario means a scenario
that is more adverse than that associated
with the baseline scenario.
Baseline scenario means a scenario
that reflects the consensus views of the
economic and financial outlook.
Capital plan means a written
presentation of a covered credit union’s
capital planning strategies and capital
adequacy process that includes the
mandatory elements set forth in this
subpart.
Capital policy means a covered credit
union’s written assessment of the
principles and guidelines used for
capital planning, including analyzing
capital, establishing capital levels,
describing the strategies for addressing
potential capital shortfalls, and
describing the internal governance
procedures around capital policy
principles and guidelines.
Covered credit union means a
federally insured credit union whose
assets were $10 billion or more on
March 31 of the current calendar year.
Planning horizon means the period of
at least three years over which the
relevant projections extend.
Pre-provision net revenue means the
sum of net interest income and noninterest income, less expenses, before
adjusting for loss provisions.
Provision for loan and lease losses
means the provision for loan and lease
losses as reported by the covered credit
union on its Call Report.
Scenarios are those sets of conditions
that affect the U.S. economy or the
financial condition of a covered credit
union that NCUA annually uses to
conduct stress tests, including, but not
limited to, baseline, adverse, and
severely adverse scenarios.
Severely adverse scenario means a
scenario that overall is more severe than
that associated with the adverse
scenario.
Stress test means the process to assess
the potential impact of expected and
stressed economic conditions on the
consolidated earnings, losses, and
capital of a covered credit union over
the planning horizon, taking into
account the current state of the covered
credit union and the covered credit
union’s risks, exposures, strategies, and
activities.
Stress test capital means net worth
(less assistance provided under Section

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Federal Register / Vol. 78, No. 212 / Friday, November 1, 2013 / Proposed Rules
208 of the Federal Credit Union Act,
subordinated debt included in net
worth, and NCUSIF deposit) under
stress test scenarios.
Stress test capital ratio means a
covered credit union’s stress test capital
divided by its total consolidated assets
less NCUSIF deposit.

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§ 702.503

Credit union capital planning.

(a) General requirements—Annual
capital planning. (1) A covered credit
union must develop and maintain a
capital plan.
(2) A covered credit union must
submit its complete capital plan to
NCUA each year by March 31, or such
later date as directed by NCUA. The
plan must be based on the credit union’s
financial data as of September 30 of the
previous calendar year.
(3) The covered credit union’s board
of directors or a designated committee
thereof must at least annually and prior
to submission of the capital plan under
paragraph (a)(2) of this section:
(i) Review the credit union’s process
for assessing capital adequacy;
(ii) Ensure that any deficiencies in the
credit union’s process for assessing
capital adequacy are appropriately
remedied; and
(iii) Approve the credit union’s
capital plan and capital planning policy.
(b) Mandatory elements of capital
plan. A capital plan must contain at
least the following elements:
(1) A quarterly assessment of the
expected sources and levels of capital
over the planning horizon that reflects
the covered credit union’s financial
state, size, complexity, risk profile,
scope of operations, and existing level
of capital, assuming both expected and
unfavorable conditions, including:
(i) Estimates of projected revenues,
losses, reserves, and pro forma capital
levels, over each quarter of the planning
horizon under expected conditions and
under a range of unfavorable conditions,
appropriate to its financial state, size,
complexity, risk profile, and scope of
operations; and
(ii) A detailed description of the
credit union’s process for assessing
capital adequacy.
(2) A discussion of how the covered
credit union will, under expected and
unfavorable conditions, maintain capital
commensurate with its risks.
(3) A discussion of how the covered
credit union will, under expected and
unfavorable conditions, maintain ready
access to funding, meeting its
obligations to all creditors and other
counterparties and continuing to serve
as an intermediary for its members.
(4) The covered credit union’s capital
policy.

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(5) A discussion of any expected
changes to the covered credit union’s
business plan that are likely to have a
material impact on the credit union’s
capital adequacy and liquidity.
(c) Mandatory credit union capital
analysis. As a fundamental part of its
capital planning process, a covered
credit union must, at a minimum,
conduct the capital analyses set forth in
paragraphs (c)(1) through (3) of this
section.
(1) A covered credit union must
conduct a sensitivity analysis to
evaluate the effect on its capital of
changes in variables, parameters, and
inputs used by the credit union in
preparing its capital plan.
(2) A covered credit union must
perform an analysis of the net economic
value of the credit union using interest
rate risk shocks of at least +/- 300 basis
points. This analysis must assume all
non-maturity shares have final
maturities not exceeding two years.
(3) A covered credit union must
analyze the impact of credit risk to
capital under unfavorable economic
conditions, both separately and in
combination with the impact of
unfavorable interest rate scenarios.
§ 702.504 Governance of capital planning
and analysis.

(a) General requirements. The extent
and sophistication of a covered credit
union’s governance over its capital
planning and analysis process must
align with the extent and sophistication
of that process. The process must be
consistent with the financial condition,
size, complexity, risk profile, scope of
operations, and level of regulatory
capital of the covered credit union.
Governance over a covered credit
union’s capital planning and analysis
process must rest with the credit
union’s board of directors. Senior
management must establish a
comprehensive, integrated, and effective
process that fits into the broader risk
management of the credit union.
Accordingly, senior management
responsible for capital planning and
analysis must report directly to the
credit union’s board of directors or a
designated committee of the board.
NCUA will assess whether the capital
planning and analysis process is
sufficiently robust in determining
whether to accept a credit union’s
capital plan.
(b) Capital analysis policy. The board
of directors must review and approve a
capital analysis policy, along with
procedures to implement it, at least
annually in conjunction with the
covered credit union’s capital plan. The
capital analysis policy must:

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(1) State the governance over the
capital analysis process, including all
the activities that contribute to the
analysis;
(2) Articulate consistent and
sufficiently rigorous capital analysis
practices across the entire credit union;
(3) Specify capital analysis roles and
responsibilities, including controls over
external resources used for any part of
capital analysis (such as vendors and
data providers);
(4) Describe the frequency with which
capital analyses will be conducted;
(5) State how capital analysis results
are used, and by whom, and outline
instances in which remedial actions
must be taken; and
(6) Require review, at least annually,
and update the capital analysis process
as necessary to ensure that it remains
current with changes in market
conditions, credit union products and
strategies, credit union exposures and
activities, the credit union’s established
risk appetite, and industry practices.
§ 702.505

NCUA action on capital plans.

(a) Timing. NCUA will notify the
covered credit union of the acceptance
or rejection of its capital plan by June
30 of the calendar year in which the
capital plan was submitted.
(b) Grounds for rejection of capital
plan. NCUA may reject a capital plan if
it determines that:
(1) The covered credit union has
material unresolved supervisory issues
associated with its capital planning
process;
(2) The assumptions and analysis
underlying the covered credit union’s
capital plan, or the covered credit
union’s methodologies for reviewing the
robustness of its capital adequacy, are
not reasonable or appropriate;
(3) Data utilized for analysis is
insufficiently detailed to capture the
risks of the covered credit union, or the
data lacks integrity; or
(4) The covered credit union’s capital
planning process constitutes an unsafe
or unsound practice, or would violate
any law, regulation, NCUA order,
directive, or any condition imposed by,
or written agreement with, NCUA. In
determining whether a capital plan
would constitute an unsafe or unsound
practice, NCUA considers whether the
covered credit union is and would
remain in sound financial condition
after giving effect to the capital plan.
(c) Notification in writing. NCUA will
notify the credit union in writing of the
reasons for a decision to reject a capital
plan.
(d) Re-submission of a capital plan. If
NCUA rejects a credit union’s capital
plan, the credit union must update and

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Federal Register / Vol. 78, No. 212 / Friday, November 1, 2013 / Proposed Rules

re-submit its capital plan to NCUA
within 30 calendar days. The
resubmitted capital plan must at a
minimum address:
(1) NCUA-noted deficiencies in the
credit union’s original capital plan; and
(2) Remediation plans for unresolved
supervisory issues contributing to the
rejection of the credit union’s original
capital plan.
(e) Supervisory actions. Any covered
credit union operating without an
NCUA-approved capital plan after
September 30 of the year in which the
plan was submitted will be subject to
supervisory actions on the part of
NCUA.
(f) Federally insured, state-chartered
credit unions. Before taking any action
under this section on the capital plan of
a federally insured, state-chartered
credit union, NCUA will consult with
the applicable state supervisory
authority.

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§ 702.506
testing.

Annual supervisory stress

(a) NCUA tests. NCUA will conduct
an annual stress test of each covered
credit union using baseline, adverse,
and severely adverse scenarios. NCUA
will provide a description of those
scenarios by December 1 of a calendar
year and will conduct the stress test
using the credit union’s financial data as
of September 30 of that year. NCUA
stress test analysis will take into
account all relevant exposures and
activities of a credit union to evaluate
its ability to absorb losses in specified
scenarios over a 9-quarter horizon. The
minimum target stress test capital ratio
for covered credit unions is 5 percent.
(b) Potential impact on capital. In
conducting a stress test under this
subpart, during each quarter of the
stress test horizon, NCUA will estimate
the following for each scenario for each
covered credit union:
(1) Pre-provision net revenues, loan
and lease loss provisions, and net
income; and
(2) The potential impact on the stress
test capital ratio, incorporating the
effects of any capital action over the
stress test horizon and maintenance of
an allowance for loan losses appropriate
for credit exposures throughout the
horizon. NCUA will conduct the stress
test without assuming any risk
mitigation actions on the part of the
covered credit union, except those
existing and identified as part of the
covered credit union’s balance sheet, or
off-balance sheet positions, such as
assets sales or derivatives positions, on
the date of the stress test.
(c) Information collection. Upon
request, the covered credit union must

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provide NCUA with any relevant
qualitative or quantitative information
requested by NCUA to conduct the
stress test under this section.
(d) Stress test results. NCUA will
provide each covered credit union with
the results of the stress test by May 31
of the year following the September 30
‘‘as of’’ testing date.
(e) Supervisory actions. If NCUA
stress tests show that covered credit
union does not have the ability to
maintain a stress test capital ratio of 5
percent or more on a pro forma basis
under expected and stressed conditions
throughout the 9-quarter horizon, the
credit union must provide NCUA,
within 60 days of receipt of the stress
test results, a stress test capital
enhancement plan showing how it will
meet that target. Failure to do so will
subject a covered credit union to
supervisory actions on the part of
NCUA.
(f) Federally insured, state-chartered
credit unions. Before taking any action
under this section against a federally
insured, state-chartered credit union,
NCUA will consult with the applicable
state supervisory authority.
[FR Doc. 2013–25713 Filed 10–31–13; 8:45 am]
BILLING CODE 7535–01–P

DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Chapter I
[Docket No. FDA–2013–N–0001]

Medical Gas Regulation Review;
Announcement of Public Meeting
AGENCY:

Food and Drug Administration,

HHS.
ACTION:

Notice of public meeting.

The Food and Drug Administration
(FDA) is announcing a public meeting
on whether any changes to Federal drug
regulations are necessary for medical
gases. The topic to be discussed is
whether any changes to the Federal drug
regulations are necessary for medical
gases as part of the implementation of
the Food and Drug Administration
Safety and Innovation Act (FDASIA).
Date and Time: The meeting will be
held on December 6, 2013, from 9 a.m.
to 5 p.m. However, depending on the
level of public participation, the
meeting may be extended or may end
early.
Location: The meeting will be held at
FDA’s White Oak Campus, 10903 New
Hampshire Ave., Bldg. 31 Conference
Center, the Great Room (Rm. 1503A),

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Silver Spring, MD 20993–0002. The
FDA Conference Center at the White
Oak location is a Federal facility with
security procedures and limited seating
(please note that all visitors to the White
Oak Campus must enter through
Building 1). The meeting is free and
seating will be on a first-come, firstserved basis. Attendees who do not
wish to make an oral presentation do
not need to register.
Contact Persons: Mary Gross, Center
for Drug Evaluation and Research, Food
and Drug Administration, 10903 New
Hampshire Ave., Silver Spring, MD
20903–0002, 301–796–3519, FAX: 301–
847–8753, email: Mary.Gross@
fda.hhs.gov; or Christine Kirk, Center for
Drug Evaluation and Research, Food
and Drug Administration, 10903 New
Hampshire Ave., Silver Spring, MD
20903–0002, 301–796–2465, FAX: 301–
847–8440, email: Christine.Kirk@
fda.hhs.gov; or Urvi Desai, Center for
Veterinary Medicine, Food and Drug
Administration, 7500 Standish Pl.,
Rockville, MD 20855, email:
[email protected].
Registration and Requests for Oral
Presentations: If you wish to a make an
oral presentation, you must register by
submitting your name, title, firm name,
address, telephone, email address, and
FAX number, to Mary Gross (see
Contact Persons) by December 2, 2013.
Please also provide the type of
organization you represent (e.g.,
industry, consumer organization), and a
brief summary of your remarks
(including the discussion topic(s) that
will be addressed).
FDA will try to accommodate all
persons who wish to make a
presentation; however, the duration of
each speaker’s presentation may be
limited by time constraints. FDA will
notify registered presenters of their
scheduled presentation times. Persons
registered to speak should check in
before the meeting and are encouraged
to arrive early to ensure their designated
order of presentation. Participants who
are not present when called may not be
permitted to speak at a later time. An
agenda of the meeting will be made
available at least 3 days before the
meeting at http://www.fda.gov/Drugs/
NewEvents/ucm370351.htm.
This public meeting will be Webcast
and the URL will be posted at http://
www.fda.gov/Drugs/NewEvents/
ucm370351.htm at least 1 day before the
meeting. A video record of the public
meeting will be available at the same
Web site address for 1 year. If you need
special accommodations because of
disability, please contact Mary Gross
(see Contact Persons) at least 7 days in
advance.

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