0129 Justification, 12-2006

Supporting Statement for Paperwork Reduction Act Submission

Corporate Credit Unions

OMB Control Number 3133-0129

December 2006

For a Collection of Information by the National Credit Union Administration

A. Justification

1. Explain the circumstances that make the collection of information necessary. Identify any legal or administrative requirements that necessitate the collection. Attach a copy of the appropriate section of each statute and of each regulation mandating or authorizing the collection of information.

NCUA has established and regulates corporate credit unions pursuant to its authority under Sections 116, 120, 201, and 209 of the Federal Credit Union Act, 12 U.S.C. 1762, 1766(a), 1781, and 1789. Corporate credit unions were organized to provide investment, liquidity, and payment services to natural person credit unions. The collection of information is necessary to ensure that corporate credit unions operate in a safe and sound manner.

2. Indicate how, by whom, how frequently, and for what purpose the information is to be used. Except for a new collection, indicate the actual use the agency has made of the information received from the current collection.

The information will be used by corporate credit union management and staff in making critical operational decisions on an ongoing basis. Sound business practices dictate that this type of data should be routinely obtained and analyzed by financial institutions with the asset composition exhibited in most corporate credit unions. Shifts in market conditions, even those that are subtle in nature, can have a profound impact on the condition of a corporate credit union. Current and comprehensive information will allow corporate credit unions the ability to make informed decisions and take corrective action before a negative market trend can cause a significant impact on the financial or operational condition of the institution. Additionally, information will be utilized by NCUA during the annual examination and the ongoing supervision process. It is essential for NCUA in carrying out its mission to ensure the safety and soundness of the credit union system and prevent losses to the National Credit Union Share Insurance Fund to have access to contemporary and comprehensive financial information on corporate credit unions.

3. Describe whether, and to what extent, the collection of information involves the use of automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g. permitting electronic submission of responses, and the basis for the decision for adopting this means of collection. Also describe any consideration of using information technology to reduce burden.

Corporate credit unions may use any available information technology to satisfy the information collection requirements.

4. Describe efforts to identity duplication. Show specifically why any similar information already available cannot be used or modified for use for the purposes described in Item 2 above.

The information collection is unique to corporate credit unions and is not duplicated from another information collection source.

5. If the collection of information impacts small businesses or other small entities (item 5 of OMB Form 83-I), describe any methods used to minimize burden.

The collection of information impacts only corporate credit unions. These institutions range in asset size from $9 million to $34 billion. Small business or other small entities are not impacted.

6. Describe the consequences to Federal program or policy activities if the collection is not conducted or is conducted less frequently, as well as any technical or legal obstacles to reducing burden.

The consequences to Federal program if the information collection requirements of the regulation are not implemented could be devastating. Without the ability to review and analyze the type of information that is required by the regulation, corporate credit union management and Federal supervisors would not be guaranteed the availability of timely, comprehensive information. The lack of such information could jeopardize the ability of corporate credit union management to make appropriate decisions, and could hamper NCUA’s ability to implement timely corrective measures. In either case, the potential impact could cause a crisis within the credit union system and could imperil the National Credit Union Share Insurance Fund.

7. Explain any special circumstances that would cause an informational collection to be conducted in a manner inconsistent with 5 CFR 1320.5(d)(2).

None. The collection is conducted within OMB’s guidelines.

8. Describe efforts to consult with persons outside the agency.

The NCUA provided a 90-day public comment period.

9. Explain any decision to provide any payment or gift to respondents, other than remuneration of contractors or grantees.

No payments or gifts have been provided respondents.

10. Describe any assurance of confidentiality provided to respondents and the basis for the assurance in statute, regulation, or agency policy.

No assurance of confidentiality is provided.

11. Provide additional justification for any questions of a sensitive nature, such as sexual behavior and attitudes, religious beliefs, and other matters that are commonly considered private. This justification should include the reasons why the agency considers the questions necessary, the specific uses to be made of the information, the explanation to be given to persons from whom the information is requested, and any steps to be taken to obtain their consent.

No questions of a sensitive nature.

12. Provide estimates of hour burden.

There are currently 31 corporate credit unions that will be subject to the paperwork burden contained in the draft proposed rule. All corporate credit unions will be required to comply with Section 704.1 through 704.18 and Appendix A. The requirements related to Section 704.19 and the expanded authorities in Appendix B are only applicable to those corporate credit unions that request those authorities and are approved by NCUA.

(a) NCUA believes that the requirement to develop and document written policies and plans for all aspects of a financial institution’s operations is a usual and customary business practice. Therefore, no new or additional burden is added with this requirement. 12 CFR 704.3(a), 704.4(a) and (b), 704.5(a), 704.6(a), 704.7(a), 704.8(a), and 704.9(a).

(b) NCUA estimates that fewer than 10 corporate credit unions each year will fail to meet their minimum capital levels and have to submit capital restoration plans. Therefore, the collection requirements do not fall within the guidelines for review under the Paperwork Reduction Act of 1995. 12 CFR 704.3(f).

(c) The requirement to perform stress tests has been eliminated from the regulation. 12 CFR 704.5(c).

(d) Seven corporate credit unions have requested and been approved for expanded authorities under Appendix B.

(i) NCUA estimates that it will take each such corporate credit union 1,040 hours annually to complete the collection requirements regarding credit analysis. Thus, the total hour burden of these requirements is 7,280 hours (1,040 * 7). If this figure were divided by all respondents, the yearly burden per respondent would be 235 hours (7,280 / 31). 12 CFR 704.6(e).

(ii) NCUA estimates that it will take each such corporate credit union 1,040 hours annually to complete the collection requirements regarding asset and liability testing. Thus, the total hour burden of these requirements is 7,280 hours (1,040 * 7). If this figure were divided by all respondents, the yearly burden per respondent would be 235 hours (7,280 / 31). 12 CFR 704.8(d).

(e) NCUA estimates that fewer than ten corporate credit unions each year will have investments that fail to meet the requirements of Part 704. Therefore, the collection requirements of the divestiture section of the regulation do not fall within the guidelines for review under the Paperwork Reduction Act of 1995. 12 CFR 704.10.

(f) Currently 22 of the 31 corporate credit unions have assets in excess of $400 million which would require them, under the regulation, to have an internal audit function. It is estimated that approximately half of those institutions (11) have the institutional complexity to warrant hiring a staff internal auditor. It is expected that the other half of those institutions (11) will contract with an outside party to perform the internal audit functions. The annual hour burden for those corporate credit unions which choose to hire an internal auditor would be 2,080. Thus, the total hour burden of the requirement is 22,880 (2,080 * 11). If this figure were divided by all respondents, the yearly burden per respondent would be 738 (22,880 / 31). 12 CFR 704.15(b). The cost associated with contracting for internal audit services with an outside source for the other 11 respective corporate credit unions is determined in item 13.

(g) NCUA estimates that it will take each corporate credit union 1 hour per year per member to process and track the disclosures required to be provided regarding membership capital and paid-in capital accounts. Since most natural person credit unions are member of a corporate credit union, and there are 8,908 natural person credit unions as of December 31, 2004, the total burden of the requirement is 8,908 hours. If this figure were divided by all respondents, the yearly burden per respondent would be 287 hours (8,908 / 31). 12 CFR Appendix A.

(h) Seven corporate credit unions have requested and been approved for expanded authorities under Appendix B. NCUA estimates it will take each such corporate credit union 4,160 hours per year to comply with the reporting and documentation requirements of Appendix B. Thus, the total hour burden of these requirements is 29,120 (4,160 * 7). If this figure were divided by all the respondents, the yearly burden per respondent would be 939 hours (29,120 / 31). 12 CFR Appendix B.

TOTAL HOUR BURDEN

31 respondents/recordkeepers x 2,434 hours = 75,454 total burden hours.

13. Provide an estimate of the total annual cost burden.

(a) Total capital and start up costs. The major initial capital cost to the corporate credit unions will be the cost to those that choose to perform in-house asset liability management testing. 12 CFR 704.8(d). As the capital and start up costs have already been incurred by those seven corporate credit unions that have requested and been approved for expanded authority under Appendix B, no additional cost estimation is provided.

(b) Maintenance and service costs. The estimates for annual maintenance and service costs for in-house asset and liability management systems vary greatly. To ensure all potential expenses are considered, NCUA will use the high estimate of $10,000 for the seven corporate credit unions that have been approved for expanded authority under Appendix B. Thus, the total cost burden of these requirements is $70,000 ($10,000 * 7). If this figure were divided by all respondents, the burden per respondent would be $2,258 ($70,000 / 31).

(c) Depreciation costs. The high estimate for the annual depreciation expense associated with the equipment to perform the asset and liability management functions is $15,000. Thus, the total cost burden of these requirements is $105,000 ($15,000 * 7). If this figure were divided by all the respondents, the burden per respondent would be $3,387 ($105,000 / 31).

(d) Contracting for asset and liability management testing. NCUA believes that the 24 corporates that do not obtain expanded authority under Appendix B will not acquire in-house testing. Therefore, the corporates will contract for such services from a vendor. Estimates on the cost vary from $17,000 to $70,000. An annual cost of $50,000 was the high range in most of the estimates provided. As indicated above, NCUA will use the higher estimate to ensure all potential costs are considered. Thus, the total cost burden of these requirements is $1,200,000 ($50,000 * 24). If this figure were divided by all respondents, the burden per respondent would be $38,710 ($1,200,000 / 31).

(e) Contracting for credit ratings. The 24 corporates that do not seek expanded authority under Appendix B are expected to contract with an outside source to obtain credit ratings to meet the requirements of Section 704.6. NCUA estimates that this will cost the average corporate credit union $12,000 annually. Thus, the total cost burden of these requirements is $288,000 ($12,000 * 24). If this figure were divided by all respondents, the burden per respondent would be $9,290 ($288,000 / 31).

(f) Contracting internal audit services. There are 22 out of 31 corporate credit unions that will be required, due to their asset size, to have an internal audit function. It is estimated that approximately one-half (11) will hire an internal auditor on staff, and the other half (11) will contract with another party to perform those services. It is estimated that contracting with an outside party will cost half as much as hiring a staff internal auditor. The estimated cost, including benefits, for hiring a staff internal auditor is $50,000. Therefore, the estimated cost of contracting for the internal audit function is $25,000. Thus the total cost burden of contracting for the internal audit function is $275,000 ($25,000 * 11). If this figure were divided by all respondents, the burden per respondent would be $8,871 ($275,000 / 31).

TOTAL COST BURDEN

31 respondents/recordkeepers x $62,516 = $1,937,996.

14. Provide estimates of annualized cost to the Federal Government.

Not applicable.

15. Explain the reasons for any program changes or adjustments reported in Items 13 or 14 of the OMB Form 83-I.

There are no program changes from the submission three years ago. The estimated hour burden in item 12 is higher and estimated cost burden in item 13 is lower than were projected in the previous submission. Previous estimated hour burden 70,142, current estimated hour burden 75,454. The overall increase in hour burden is due to the decline in the number of corporate credit unions, increase in number of corporate credit unions that applied and were approved for expanded authority (7 versus 5), and a decline in the number of corporate credit unions with assets in excess of $400 million. Those corporates that merged did not have the expanded authorities associated with the higher hour burden. Therefore the number of hours is divided among a smaller group of corporate credit unions. Previous estimated cost burden $2,248,000, current estimated cost burden $1,937,996. The actual cost burden per corporate declined ($62,516 versus $66,118), and the total cost burden declined as that cost burden per corporate was applied to a smaller pool of corporate credit unions (31 versus 34).

16. For collections of information whose results will be published, outline plans for tabulation and publication.

No plans to publish results.

17. If seeking approval to not display the expiration date for OMB approval of the information collection, explain the reasons that display would be inappropriate.

Not applicable.

18. Explain each exception to the certification statement identified in Item 19, “Certification for Paperwork Reduction Act Submissions,” of OMB Form 83-I.

There are no exceptions to the certification statement.

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