12 USC 1790 - Prompt corrective action

View all text of Subchapter II [§ 1781 - § 1790e]

§ 1790d. Prompt corrective action

(a) Resolving problems to protect Fund

(1) Purpose

(2) Prompt corrective action required

(b) Regulations required

(1) Insured credit unions

(A) In generalThe 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 unionsThe 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

(B) Criteria for alternative systemThe 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.

(1) In generalFor purposes of this section the following definitions shall apply:

(A) Well capitalizedAn 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).

(B) Adequately capitalizedAn 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).

(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).

(D) Significantly undercapitalizedAn 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); or(bb) materially fails to implement a net worth restoration plan accepted by the Board.

(E) Critically undercapitalized

(2) Adjusting net worth levels

(A) In general

(B) Determinations requiredThe 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.

(d) Risk-based net worth requirement for complex credit unions

(1) In general

(2) Standard

(e) Earnings-retention requirement applicable to credit unions that are not well capitalized

(1) In general

(2) Board’s authority to decrease earnings-retention requirement

(A) In generalThe 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

(f) Net worth restoration plan required

(1) In general

(2) Assistance to small credit unions

(3) Deadlines for submission and review of plansThe 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 planIf 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 planIf 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

(g) Restrictions on undercapitalized credit unions

(1) Restriction on asset growthAn 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

(2) Restriction on member business loans

(h) More stringent treatment based on other supervisory criteriaWith 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 generalThe 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

(3) Appointment of liquidating agent required if other action fails to restore net worth

(A) In general

(B) ExceptionNotwithstanding 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

(B) Exception

(j) Reviews required when share insurance fund experiences losses

(1) In generalIf the Fund incurs a material loss with respect to an insured credit union, the Inspector General of the Board shall—

(A) submit to the Board a written report reviewing the supervision of the credit union by the Administration (including the implementation of this section by the Administration), which shall include—

(i) a description of the reasons why the problems of the credit union resulted in a material loss to the Fund; and

(ii) recommendations for preventing any such loss in the future; and

(B) submit a copy of the report under subparagraph (A) to—

(i) the Comptroller General of the United States;

(ii) the Corporation;

(iii) in the case of a report relating to a State credit union, the appropriate State supervisor; and

(iv) to any Member of Congress, upon request.

(2) Material loss definedFor purposes of determining whether the Fund has incurred a material loss with respect to an insured credit union, a loss is material if it exceeds the sum of—

(A) $25,000,000; and

(B) an amount equal to 10 percent of the total assets of the credit union on the date on which the Board initiated assistance under section 1788 of this title or was appointed liquidating agent.

(3) Public disclosure required

(A) In generalThe Board shall disclose a report under this subsection, upon request under section 552 of title 5, without excising—

(i) any portion under section 552(b)(5) of title 5; or

(ii) any information about the insured credit union (other than trade secrets) under section 552(b)(8) of title 5.

(B) Rule of construction

(4) Losses that are not material

(A) Semiannual reportFor the 6-month period ending on March 31, 2010, and each 6-month period thereafter, the Inspector General of the Board shall—

(i) identify any losses that the Inspector General estimates were incurred by the Fund during such 6-month period, with respect to insured credit unions;

(ii) for each loss to the Fund that is not a material loss, determine—(I) the grounds identified by the Board or the State official having jurisdiction over a State credit union for appointing the Board as the liquidating agent for any Federal or State credit union; and(II) whether any unusual circumstances exist that might warrant an in-depth review of the loss; and

(iii) prepare and submit a written report to the Board and to Congress on the results of the determinations of the Inspector General that includes—(I) an identification of any loss that warrants an in-depth review, and the reasons such review is warranted, or if the Inspector General determines that no review is warranted, an explanation of such determination; and(II) for each loss identified in subclause (I) that warrants an in-depth review, the date by which such review, and a report on the review prepared in a manner consistent with reports under paragraph (1)(A), will be completed.

(B) Deadline for semiannual reportThe Inspector General of the Board shall—

(i) submit each report required under subparagraph (A) expeditiously, and not later than 90 days after the end of the 6-month period covered by the report; and

(ii) provide a copy of the report required under subparagraph (A) to any Member of Congress, upon request.

(5) GAO reviewThe Comptroller General of the United States shall, under such conditions as the Comptroller General determines to be appropriate—

(A) review each report made under paragraph (1), including the extent to which the Inspector General of the Board complied with the requirements under section 419 of title 5 with respect to each such report; and

(B) recommend improvements to the supervision of insured credit unions (including improvements relating to the implementation of this section).

(k) Appeals process

(l) Consultation and cooperation with State credit union supervisors

(1) In general

(2) Evaluating net worth restoration plan

(3) Deciding whether to appoint conservator or liquidating agentWith 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 exemptedThis 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

(o) DefinitionsFor purposes of this section the following definitions shall apply:

(1) Federal banking agency

(2) Net worthThe term “net worth”—

(A) with respect to any insured credit union, means the retained earnings balance of the credit union, as determined under generally accepted accounting principles, together with any amounts that were previously retained earnings of any other credit union with which the credit union has combined;

(B) with respect to any insured credit union, includes, at the Board’s discretion and subject to rules and regulations established by the Board, assistance provided under section 1788 of this title to facilitate a least-cost resolution consistent with the best interests of the credit union system; and

(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

(4) New credit unionThe 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, § 216, as added Pub. L. 105–219, title III, § 301(a), Aug. 7, 1998, 112 Stat. 923; amended Pub. L. 109–351, title V, § 504, title VII, § 726(25), Oct. 13, 2006, 120 Stat. 1975, 2003; Pub. L. 111–203, title IX, § 988(a), July 21, 2010, 124 Stat. 1938; Pub. L. 111–382, § 3, Jan. 4, 2011, 124 Stat. 4135; Pub. L. 117–286, § 4(b)(33), Dec. 27, 2022, 136 Stat. 4346.)