12 Cfr 741.3 (1-1-21 Ed)

National Credit Union Administration

§ 741.3

credit union whose accounts are insured by the National Credit Union
Share Insurance Fund (NCUSIF).

Subpart
A—Regulations
That
Apply to Both Federal Credit
Unions and Federally Insured
State-Chartered Credit Unions
and That Are Not Codified
Elsewhere in NCUA’s Regulations
§ 741.1

Examination.

As provided in Sections 201 and 204 of
the Act (12 U.S.C. 1781 and 1784), the
NCUA Board is authorized to examine
any insured credit union or any credit
union making application for insurance
of its accounts. Such examination may
require access to all records, reports,
contracts to which the credit union is
a party, and information concerning
the affairs of the credit union. Upon request, such documentation must be
provided to the NCUA Board or its representative. Any credit union which
makes application for insurance will be
required to pay the cost of such examination and processing. To the maximum extent feasible, the NCUA Board
will utilize examinations conducted by
state regulatory agencies.

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§ 741.2

Maximum borrowing authority.

(a) Any credit union which makes application for insurance of its accounts
pursuant to title II of the Act, or any
insured credit union, must not borrow,
from any source, an aggregate amount
in excess of 50 per centum of its paidin and unimpaired capital and surplus
(shares and undivided earnings, plus
net income or minus net loss).
(b) A federally insured state-chartered credit union may apply to the regional director for a waiver of paragraph (a) of this section up to the
amount permitted under the applicable
state law or by the state regulator. The
waiver request must include:
(1) Written approval from the state
regulator;
(2) A detailed analysis of the safety
and soundness implications of the proposed waiver;
(3) A proposed aggregate dollar
amount or percentage of paid-in and

unimpaired capital and surplus limitation; and
(4) An explanation demonstrating the
need to raise the limit.
(c) The regional director will approve
the waiver request if the proposed borrowing limit will not adversely affect
the safety and soundness of the federally insured state-chartered credit
union.
[60 FR 58504, Nov. 28, 1995, as amended at 69
FR 8547, Feb. 25, 2004]

§ 741.3 Criteria.
In determining the insurability of a
credit union which makes application
for insurance and in continuing the insurability of its accounts pursuant to
title II of the Act, the following criteria shall be applied:
(a) Reserves—(1) General rule. Statechartered credit unions are subject to
section 216 of the Act, 12 U.S.C. 1790d,
and to part 702 and subpart L of part
747 of this chapter.
(2) Special reserve for nonconforming
investments.
State-chartered
credit
unions (except state-chartered corporate credit unions) are required to
establish an additional special reserve
for investments if those credit unions
are permitted by their respective state
laws to make investments beyond
those authorized in the Act or the
NCUA Rules and Regulations. For purposes of this paragraph, if a state-chartered credit union conducts and documents an analysis that reasonably concludes an investment is at least investment grade, as defined in § 703.2 of this
chapter, and the investment is otherwise permissible for Federal credit
unions, that investment is not considered to be beyond those authorized by
the Act or the NCUA Rules and Regulations. For any investment other than
loans to members and obligations or
securities expressly authorized in title
I of the Act and part 703 of this chapter, as amended, state-chartered credit
unions (except state-chartered corporate credit unions) are required to
establish and maintain at the end of
each accounting period and prior to
payment of any dividend, an Appropriation for Non-conforming Investments in an amount at least equal to
the net excess of book value over current market value of the investments.

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§ 741.3

12 CFR Ch. VII (1–1–21 Edition)

If the market value cannot be determined, an amount equal to the full
book value will be established. When at
the end of any dividend period, the
amount in the Appropriation for Nonconforming Investments exceeds the
difference between book value and
market value, the board of directors
may authorize the transfer of the excess to Undivided Earnings.
(b) Financial condition and policies.
The following factors are to be considered in determining whether the credit
union’s financial condition and policies
are both safe and sound:
(1) The existence of unfavorable
trends which may include excessive
losses on loans (i.e., losses which exceed the regular reserve or its equivalent [in the case of state-chartered
credit unions] plus other irrevocable
reserves established as a contingency
against losses on loans), the presence
of special reserve accounts used specifically for charging off loan balances of
deceased borrowers, and an expense
ratio so high that the required transfers to reserves create a net operating
loss for the period or that the net gain
after these transfers is not sufficient to
permit the payment of a nominal dividend;
(2) The existence of written lending
policies, including adequate documentation of secured loans and the
protection of security interests by recording, bond, insurance or other adequate means, adequate determination
of the financial capacity of borrowers
and co-makers for repayment of the
loan, adequate determination of value
of security on loans to ascertain that
said security is adequate to repay the
loan in the event of default, loan workout arrangements, and nonaccrual
standards that include the discontinuance of interest accrual on loans past
due by 90 days or more and requirements for returning such loans, including member business loans, to accrual
status.
(3) Investment policies which are
within the provisions of applicable law
and regulations, i.e., the Act and part
703 of this chapter for federal credit
unions and the laws of the state in
which the credit union operates for
state-chartered credit unions, except
state-chartered
corporate
credit

unions. State-chartered corporate credit unions are permitted to make only
those investments that are in conformance with part 704 of this chapter and
applicable state laws and regulations;
(4) The presence of any account or security, the form of which has not been
approved by the Board, except for accounts authorized by state law for
state-chartered credit unions.
(5) The existence of a written interest
rate risk policy (‘‘IRR policy’’) and an
effective interest rate risk management program (‘‘effective IRR program’’) as part of asset liability management. Federally insured credit
unions (‘‘FICUs’’) with assets of more
than $50 million, as measured by the
most recent Call Report filing, must
adopt a written IRR policy and implement an effective IRR program. Appendix A to this part 741 provides guidance
on how to develop an IRR policy and an
effective IRR program. The guidance
describes widely accepted best practices in the management of interest
rate risk for the benefit of all FICUs.
(c) Fitness of management. The officers, directors, and committee members of the credit union must have conducted its operations in accordance
with provisions of applicable law, regulations, its charter and bylaws. No person shall serve as a director, officer,
committee member, or employee of an
insured credit union who has been convicted of any criminal offense involving dishonesty or breach of trust, except with the written consent of the
Board.
(d) Insurance of member accounts
would not otherwise involve undue risk to
the NCUSIF. The credit union must
maintain adequate fidelity bond coverage as specified in § 741.201. Any circumstances which may be unique to
the particular credit union concerned
shall also be considered in arriving at
the determination of whether or not an
undue risk to the NCUSIF is or may be
present. For purposes of this section,
the term ‘‘undue risk to the NCUSIF’’
is defined as a condition which creates
a probability of loss in excess of that
normally found in a credit union and

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National Credit Union Administration

§ 741.4

which indicates a reasonably foreseeable probability of the credit union becoming insolvent because of such condition, with a resultant claim against
the NCUSIF.
(e) Powers and purposes. The credit
union must not perform services other
than those which are consistent with
the promotion of thrift and the creation of a source of credit for its members, except as otherwise permitted by
law or regulation.
(f) Letter of disapproval. A credit
union whose application for share insurance is disapproved shall receive a
letter indicating the reasons for such
disapproval, a citation of the authority
for such disapproval, and suggested
methods by which the applying credit
union may correct its deficiencies and
thereby qualify for share insurance.
(g) Nothing in this section shall preclude the NCUA Board from imposing
additional terms or conditions pursuant to the insurance agreement.
[60 FR 58504, Nov. 28, 1995, as amended at 64
FR 41040, July 29, 1999; 65 FR 8593, Feb. 18,
2000; 67 FR 71094, Nov. 29, 2002; 77 FR 32001,
May 31, 2012; 77 FR 5162, Feb. 2, 2012; 77 FR
74112, Dec. 13, 2012; 78 FR 4037, Jan. 18, 2013;
84 FR 1608, Feb. 5, 2019]

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§ 741.4 Insurance premium and one
percent deposit.
(a) Scope. This section implements
the requirements of Section 202 of the
Act (12 U.S.C. 1782) providing for capitalization of the NCUSIF through the
maintenance of a deposit by each insured credit union in an amount equaling one percent of its insured shares
and payment of an insurance premium.
(b) Definitions. For purposes of this
section:
Aggregate amount of insured shares
means the sum of all insured shares reported by federally insured credit
unions in calendar year-end Call Reports from the calendar year for which
the Board declares an NCUSIF equity
distribution pursuant to paragraph (e)
of this section.
Aggregate average amount of insured
shares means the sum of the average
amount of insured shares as then reported by all financial institutions eligible to receive an NCUSIF equity distribution under subparagraph (e)(1) of
this section in quarterly Call Reports

over the calendar year for which the
Board declares an NCUSIF equity distribution divided by the number of reporting periods in that calendar year.
Available assets ratio means the ratio
of:
(i) The amount determined by subtracting—
(A) Direct liabilities of the NCUSIF
and contingent liabilities for which no
provision for losses has been made from
(B) The sum of cash and the market
value of unencumbered investments
authorized under § 203 of the Federal
Credit Union Act (12 U.S.C. 1783), to
(ii) The aggregate amount of insured
shares in all federally insured credit
unions.
Average amount of insured shares
means the sum of insured shares as
then reported by a financial institution
eligible to receive an NCUSIF equity
distribution under subparagraph (e)(1)
of this section over the calendar year
for which the Board declares an
NCUSIF equity distribution divided by
the number of reporting periods in that
calendar year.
Board means the NCUA Board or any
individual or group of individuals with
the delegated authority to act on behalf of the Board to implement the requirements of this section.
Equity ratio means the ratio of:
(i) The amount determined by subtracting—
(A) Direct liabilities of the NCUSIF
and contingent liabilities for which no
provision for losses has been made from
(B) The sum of all one percent deposits made by federally insured credit
unions pursuant to paragraph (c) of
this section and the retained earnings
balance of the NCUSIF, to
(ii) The aggregate amount of insured
shares in all federally insured credit
unions.
Federally insured credit union means a
federal or state-chartered credit union
that maintains federal share insurance
coverage from the NCUSIF.
Financial institution means a federally
insured credit union, non-federally insured credit union, or an insured depository institution, including a liquidation or receivership estate of any such
credit union or depository institution.

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