Enclosure 2, FCU Act, Section 202

(3)
“Government-sponsored
enterprise”
defined.—For purposes of this subsection, the term
“Government-sponsored enterprise” has the meaning
given to such term in section 1404(e)(1)(A) of the
Financial
Institutions
Reform,
Recovery,
and
Enforcement Act of 1989.

shall consider—
(A) the history, financial
management policies of the applicant;

condition,

and

(B) the economic advisability of insuring the
applicant without undue risk of the fund;

(4) Employee credit union.—No provision of this
subsection shall be construed as prohibiting any employee
of a G overnment-sponsored enterprise from becoming a
member of a credit union whose field of membership is
the employees of such enterprise.

(C) the general character and fitness of the
applicant’s management;
(D) the convenience and needs of the members
to be served by the applicant; and

§1782.

(E) whether the applicant is a co operative
association organized for the purpose of promoting thrift
among its members and creating a s ource of credit for
provident or productive purposes.

§202

Administration of insurance fund.—
(a) Reports of condition.—

(2) The Board shall disapprove the application of
any credit union for insurance of its member accounts if it
finds that its reserves are inadequate, that its financial
condition and policies are unsafe or unsound, that its
management is unfit, that insurance of its member
accounts would otherwise involve undue risk to the fund,
or that its powers and purposes are inconsistent with the
promotion of thrift among its members and the creation of
a source of credit for provident or productive purposes.

(1) Each insured credit union shall make reports of
condition to the Board upon dates which shall be selected
by it. Such reports of condition shall be in such form and
shall contain such information as the Board may require.
The reporting dates selected for reports of condition shall
be the same for all insured credit unions except that when
any of said reporting dates is a nonbusiness day for any
credit union the preceding business day shall be its
reporting date. The total amount of the member accounts
of each insured credit union as of each reporting date shall
be reported in such reports of condition in accordance
with regulations prescribed by the Board. Each report of
condition shall contain a declaration by the president, by a
vice president, by the treasurer, or by any other officer
designated by the board of directors of the reporting credit
union to make such declaration, that the report is true and
correct to the best of such officer’s knowledge and belief.
Unless such requirement is waived by the Board, the
correctness of each report of condition shall be attested by
the signatures of three of the officers of the reporting
credit union with the declaration that the report has been
examined by them and to the best of their knowledge and
belief is true and correct.

(d) Certificate of insurance.—Upon the approval of
any application for insurance, the Board shall notify the
applicant and shall issue to it a certificate evidencing the
fact that it is, as of the date of issuance of the certificate,
an insured credit union under the provisions of this
subchapter.
(e) Prohibition on certain associations.—(1) In
general.—No insured credit union may be sponsored by
or accept financial support, directly or indirectly, from
any Government-sponsored enterprise, if the credit union
includes the customers of the Government-sponsored
enterprise in the field of membership of the credit union.
(2) Routine business financing.—Paragraph (1)
shall not apply with respect to advances or other forms of
financial assistance generally provided by a Governmentsponsored enterprise in the ordinary course of business of
the enterprise.

(2) The Board may call for such other reports as it
may from time to time require.
(3) The Board may require reports of condition to be
published in such manner, not inconsistent with any
applicable law, as it may direct. Any insured credit union
23

(5) Reports required under subchapter I of this
chapter shall be so prepared that they can be used for
share insurance purposes. To the maximum extent
feasible, the Board shall use for insurance purposes
reports submitted to State regulatory agencies by Statechartered credit unions.

which maintains procedures reasonably adapted to avoid
any inadvertent error and, unintentionally and as a r esult
of such an error, fails to submit or publish any report
required under this subsection or section 1756 of this title,
within the period of time specified by the Board, or
submits or publishes any false or misleading report or
information, or inadvertently transmits or publishes any
report which is minimally late, shall be subject to a
penalty of not more than $2,000 for each day during
which such failure continues or such false or misleading
information is not corrected. The insured credit union
shall have the burden of proving that an error was
inadvertent and that a report was inadvertently transmitted
or published late. Any insured credit union which fails to
submit or publish any report required under this
subsection or section 1756 of this title, within the period
of time specified by the Board, or submits or publishes
any false or misleading report or information, in a manner
not described in the 2nd preceding sentence shall be
subject to a penalty of not more than $20,000 for each day
during which such failure continues or such false or
misleading information is not corrected. Notwithstanding
the preceding sentence, if any insured credit union
knowingly or with reckless disregard for the accuracy of
any information or report described in such sentence
submits or publishes any false or misleading report or
information, the Board may assess a penalty of not more
than $1,000,000 or 1 percent of total assets of such credit
union, whichever is less, per day for each day during
which such failure continues or such false or misleading
information is not corrected. Any penalty imposed under
any of the 4 preceding sentences shall be assessed and
collected by the Board in the manner provided in section
1786(k)(2) of this title (for penalties imposed under such
section) and any such assessment (including the
determination of the amount of the penalty) shall be
subject to the provisions of such section. Any insured
credit union against which any penalty is assessed under
this subsection shall be afforded an agency hearing if such
insured credit union submits a request for such hearing
within 20 days after the issuance of the notice of
assessment. Section 1786(j) of this title shall apply to any
proceeding under this subsection.

(6) Audit requirement.—(A) In general.—Before
the end of the 120-day period beginning on August 9,
1989, and notwithstanding any other provision of Federal
or State law, the Board shall prescribe, by regulation,
audit standards which require an outside, independent
audit of any insured credit union by a certified public
accountant for any fiscal year (of such credit union)—
(i) for which such credit union has not
conducted an annual supervisory committee audit;
(ii) for which such credit union has not received
a complete and satisfactory supervisory committee audit;
or
(iii) during which such credit union has
experienced persistent and serious recordkeeping
deficiencies, as determined by the Board.
(B) Unsafe or unsound practice.—The Board
may treat the failure of any insured credit union to obtain
an outside, independent audit for any fiscal year for which
such audit is required under subparagraph (A) or (D) as an
unsafe or unsound practice within the meaning of section
1786(b) of this title.
(C) Accounting principles.—(i) In general.—
Accounting principles applicable to reports or statements
required to be filed with the Board by each insured credit
union shall be uniform and consistent with generally
accepted accounting principles.
(ii) Board determination.—If the Board
determines that the application of any generally accepted
accounting principle to any insured credit union is not
appropriate, the Board may prescribe an accounting
principle for application to the credit union that is no less
stringent than generally accepted accounting principles.

(4) The Board may accept any report of condition
made to any commission, board, or authority having
supervision of a State-chartered credit union and may
furnish to any such commission, board, or authority
reports of condition made to the Board.

(iii)
De
minimus
exception.—This
subparagraph shall not apply to any insured credit union,
the total assets of which are less than $10,000,000, unless
24

(I) the credit union; or

prescribed by the Board or an appropriate State credit
union supervisor.

(II) any institution-affiliated party.

(D) Large credit union audit requirement.—

(8) Data sharing with other agencies and
persons.—In addition to reports of examination, reports
of condition, and other reports required to be regularly
provided to the Board (with respect to all insured credit
unions, including a credit union for which the Corporation
has been appointed conservator or liquidating agent) or an
appropriate State commission, board, or authority having
supervision of a State-chartered credit union, the Board
may, in the discretion of the Board, furnish any report of
examination or other confidential supervisory information
concerning any credit union or other entity examined by
the Board under authority of any Federal law, to—

(i) In general.—Each insured credit union
having total assets of $500,000,000 or more shall have an
annual independent audit of the financial statements of the
credit union, performed in accordance with generally
accepted auditing standards by an independent certified
public accountant or public accountant licensed by the
appropriate State or jurisdiction to perform those services.
(ii) Voluntary audits.—If a F ederal credit
union that is not required to conduct an audit under clause
(i), and that has total assets of more than $10,000,000
conducts such an audit for any purpose, using an
independent auditor who is compensated for his or her
audit services with respect to that audit, the audit shall be
performed consistent with the accountancy laws of the
appropriate State or jurisdiction, including licensing
requirements.

(A) any other Federal or State agency or
authority with supervisory or regulatory authority over the
credit union or other entity;
(B) any officer, director, or receiver of such
credit union or entity; and

(7) Report to independent auditor.—(A) In
general.—Each insured credit union which has engaged
the services of an independent auditor to audit such
depository institution within the past 2 years shall
transmit to such auditor a copy of the most recent report
of condition made by such credit union (pursuant to this
chapter or any other provision of law) and a copy of the
most recent report of examination received by such credit
union.

(C) any other person that the Board determines
to be appropriate.
(b) Certified statement.—
(1) Statement required.—(A) In general.—For
each calendar year, in the case of an insured credit union
with total assets of not more than $50,000,000, and for
each semi-annual period in the case of an insured credit
union with total assets of $50,000,000 or more, an insured
credit union shall file with the Board, at such time as the
Board prescribes, a certified statement showing the total
amount of insured shares in the credit union at the close
of the relevant period and both the amount of its deposit
or adjustment of deposit and the amount of the insurance
charge due to the Fund for that period, both as computed
under subsection (c) of this section.

(B) Additional information.—In addition to the
copies of the reports required to be provided to an auditor
under subparagraph (A), each insured credit union shall
provide such auditor with—
(i) a copy of any supervisory memorandum of
understanding with such credit union and any written
agreement between the Board or a State regulatory agency
and the credit union which is in effect during the period
covered by the audit; and

(B) Exception for newly insured credit union.—
Subparagraph (A) shall not apply with respect to a credit
union that became insured during the reporting period.

(ii) a report of any action initiated or taken by
the Board during such period under subsection (e), (f),
(g), (i), (l), or (q) of section 1786 of this title, or any
similar action taken by a State regulatory agency under
State law, or any other civil money penalty assessed by
the Board under this chapter, with respect to—

(2) Form.—The certified statements required to be
filed with the Board pursuant to this subsection shall be in
such form and shall set forth such supporting information
as the Board shall require.
25

(iv) The deposit funds may be used by the fund
if necessary to meet its expenses, in which case the
amount so used shall be expensed and shall be
replenished by insured credit unions in accordance with
procedures established by the Board.

(3) Certification.—The president of the credit
union or any officer designated by the board of directors
shall certify, with respect to each statement required to be
filed with the Board pursuant to this subsection, that to
the best of his or her knowledge and belief the statement
is true, correct, complete, and in accordance with this
subchapter and the regulations issued under this
subchapter.

(2) Insurance premium charges.—
(A) In general.—Each insured credit union
shall, at such times as the Board prescribes (but not more
than twice in any calendar year), pay to the Fund a
premium charge for insurance in an amount stated as a
percentage of insured shares (which shall be the same for
all insured credit unions).

(c) Deposit with National Credit Union Share
Insurance Fund; amount, return, distribution, etc.
(1)(A)(i) Each insured credit union shall pay to and
maintain with the National Credit Union Share Insurance
Fund a deposit in an amount equaling 1 per centum of the
credit union’s insured shares.

(B) Relation of premium charge to equity
ratio of Fund.—The Board may assess a premium charge
only if—

(ii) The Board may, in its discretion, authorize
insured credit unions to initially fund such deposit over a
period of time in excess of one year if necessary to avoid
adverse effects on the condition of insured credit unions.

(i) the Fund’s equity ratio is less than 1.3
percent; and
(ii) the premium charge does not exceed the
amount necessary to restore the equity ratio to 1.3
percent.

(iii) Periodic adjustment.—The amount of
each insured credit union’s deposit shall be adjusted as
follows, in accordance with procedures determined by the
Board, to reflect changes in the credit union’s insured
shares:

(C) Premium charge required if equity ratio
falls below 1.2 percent.—If the Fund’s equity ratio is
less than 1.2 percent, the Board shall, subject to
subparagraph (B), assess a p remium charge in such an
amount as the Board determines to be necessary to restore
the equity ratio to, and maintain that ratio at, 1.2 percent.

(I) annually, in the case of an insured credit
union with total assets of not more than $50,000,000; and
(II) semi-annually, in the case of an insured
credit union with total assets of $50,000,000 or more.

(D) Fund restoration plans.—

(B)(i) The deposit shall be returned to an insured
credit union in the event that its insurance coverage is
terminated, it converts to insurance coverage from another
source, or in the event the operations of the fund are
transferred
from the
National
Credit
Union
Administration Board.

(i) In general.—Whenever—
(I) the Board projects that the equity ratio of
the Fund will, within 6 months of such determination, fall
below the minimum amount specified in subparagraph
(C); or

(ii) The deposit shall be returned in accordance
with procedures and valuation methods determined by the
Board, but in no event shall the deposit be returned any
later than one year after the final date on which no shares
of the credit union are insured by the Board.

(II) the equity ratio of the Fund actually falls
below the minimum amount specified in subparagraph (C)
without any determination under sub-clause (I) having
been made,

(iii) The deposit shall not be returned in the
event of liquidation on account of bankruptcy or
insolvency.

the Board shall establish and implement a restoration plan
within 90 days that meets the requirements of clause (ii)
and such other conditions as the Board determines to be
26

credit unions certified statements under subsection (b) of
this section for the final reporting period of the calendar
year referred to in subparagraph (A).

appropriate.
(ii) Requirements of restoration plan.—A
restoration plan meets the requirements of this clause if
the plan provides that the equity ratio of the Fund will
meet or exceed the minimum amount specified in
subparagraph (C) before the end of the 8-year period
beginning upon the implementation of the plan (or such
longer period as the Board may determine to be necessary
due to extraordinary circumstances).

(4) Timeliness and accuracy of data.—In
calculating the available assets ratio and equity ratio of
the Fund, the Board shall use the most current and
accurate data reasonably available.
(d) Remedy for failure to report; penalty for failure
to file certified statement or pay premium; dispute as
to deposit or premium charge; prohibition on
distribution of assets or dividends while in default.—

(iii) Transparency.—Not more than 30 days
after the Board establishes and implements a r estoration
plan under clause (i), the Board shall publish in the
Federal Register a d etailed analysis of the factors
considered and the basis for the actions taken with regard
to the plan.

(1) Any insured credit union which fails to make any
report of condition under subsection (a) of this section or
to file any certified statement required to be filed by it in
connection with determining the amount of its deposit or
any premium charge for insurance may be compelled to
make such report or to file such statement by mandatory
injunction or other appropriate remedy in a suit brought
for such purpose by the Board against the credit union and
any officer or officers thereof. Any such suit may be
brought in any court of the United States of competent
jurisdiction in the district or territory in which the
principal office of the credit union is located.

(3) Distributions from Fund required.—
(A) In general.—The Board shall, subject to the
requirements of section 1790e(e) of this title, effect a pro
rata distribution to insured credit unions after each
calendar year if, as of the end of that calendar year—
(i) any loans to the Fund from the Federal
Government, and any interest on those loans, have been
repaid;

(2) Penalty for failure to make accurate certified
statement or to pay deposit or premium.—

(ii) the Fund’s equity ratio exceeds the normal
operating level; and

(A) First
which—

(iii) the Fund’s available assets ratio exceeds
1.0 percent.

tier.—Any insured credit union

(i) maintains procedures reasonably adapted to
avoid any inadvertent error and, unintentionally and as a
result of such an error, fails to submit any certified
statement under subsection (b)(1) of this section within
the period of time required or submits a false or
misleading certified statement under such subsection; or

(B) Amount of distribution.—The Board shall
distribute under subparagraph (A) the maximum possible
amount that—
(i) does not reduce the Fund’s equity ratio
below the normal operating level; and

(ii) submits the statement at a time which is
minimally after the time required, shall be subject to a
penalty of not more than $2,000 for each day during
which such failure continues or such false and misleading
information is not corrected. The insured credit union
shall have the burden of proving that an error was
inadvertent or that a statement was inadvertently
submitted late.

(ii) does not reduce the Fund’s available assets
ratio below 1.0 percent.
(C)
Calculation
based
on
certified
statements.—In calculating the Fund’s equity ratio and
available assets ratio for purposes of this paragraph, the
Board shall determine the aggregate amount of the
insured shares in all insured credit unions from insured

(B) Second tier.—Any insured credit union
27

(ii) the credit union deposits security
satisfactory to the Board for payment of the deposit or
insurance premium upon final determination of the
dispute.

which—
(i) fails to submit any certified statement under
subsection (b)(1) of this section within the period of time
required or submits a f alse or misleading certified
statement in a manner not described in subparagraph (A);
or

(3) No insured credit union shall pay any dividends
on its insured shares or distribute any of its assets while it
remains in default in the payment of its deposit or any
premium charge for insurance due to the fund. Any
director or officer of any insured credit union who
knowingly participates in the declaration or payment of
any such dividend or in any such distribution shall, upon
conviction, be fined not more than $1,000 or imprisoned
not more than one year, or both. The provisions of this
paragraph shall not be applicable in any case in which the
default is due to a dispute between the credit union and
the Board over the amount of its deposit or the premium
charge due to the fund if the credit union deposits security
satisfactory to the Board for payment of its deposit or the
premium charge upon final determination of the issue.

(ii) fails or refuses to pay any deposit or
premium for insurance required under this subchapter,
shall be subject to a penalty of not more than $20,000 for
each day during which such failure continues, such false
and misleading information is not corrected, or such
deposit or premium is not paid.
(C) Third tier.—Notwithstanding subparagraphs
(A) and (B), if any insured credit union knowingly or with
reckless disregard for the accuracy of any certified
statement under subsection (b)(1) of this section submits a
false or misleading certified statement under such
subsection, the Board may assess a p enalty of not more
than $1,000,000 or not more than 1 pe rcent of the total
assets of the credit union, whichever is less, per day for
each day during which the failure continues or the false or
misleading information in such statement is not corrected.

(e) Recovery of unpaid deposit or premium;
limitations.—The Board, in a suit brought at law or in
equity in any court of competent jurisdiction, shall be
entitled to recover from any insured credit union the
amount of any unpaid deposit or premium charge for
insurance lawfully payable by the credit union to the fund,
whether or not such credit union shall have made any
report of condition under subsection (a) of this section or
filed any certified statement required under subsection (b)
of this section and whether or not suit shall have been
brought to compel the credit union to make any such
report or to file any such statement. No action or
proceeding shall be brought for the recovery of any
deposit or premium charge due to the fund, or for the
recovery of any amount paid to the fund in excess of the
amount due it, unless such action or proceeding shall have
been brought within five years after the right accrued for
which the claim is made. Where the insured credit union
has made or filed with the Board a f alse or fraudulent
certified statement with the intent to evade, in whole or in
part, the payment of its deposit or any premium charge,
the claim shall not be deemed to have accrued until the
discovery by the Board of the fact that the certified
statement is false or fraudulent.

(D) Assessment procedure.—Any penalty
imposed under this paragraph shall be assessed and
collected by the Board in the manner provided in section
1786(k)(2) of this title (for penalties imposed under such
section) and any such assessment (including the
determination of the amount of the penalty) shall be
subject to the provisions of such section.
(E) Hearing.—Any insured credit union against
which any penalty is assessed under this paragraph shall
be afforded an agency hearing if the credit union submits
a request for such hearing within 20 days after the
issuance of the notice of the assessment. Section 1786(j)
of this title shall apply to any proceeding under this
subparagraph.
(F) Special rule for disputed payments.—No
penalty may be assessed for the failure of any insured
credit union to pay any deposit or premium for insurance
if—

(f) Penalty for failure to comply with section; court
determination of failure; remedies not exclusive.—
Should any Federal credit union fail to make any report of
condition under subsection (a) of this section or to file any

(i) the failure is due to a dispute between the
credit union and the Board over the amount of the deposit
or premium which is due from the credit union; and
28

certified statement required to be filed under subsection
(b) of this section or to pay its deposit or any premium
charge for insurance required to be paid under any
provision of this subchapter, and should the credit union
fail to correct such failure within thirty days after written
notice has been given by the Board to an officer of the
credit union, citing this subsection and stating that the
credit union has failed to make any such report or file any
such statement or pay any such deposit or premium
charges as required by law, all the rights, privileges, and
franchises of the credit union granted to it under
subchapter I of this chapter shall be thereby forfeited.
Whether or not the penalty provided in this subsection has
been incurred shall be determined and adjudged by any
court of the United States of competent jurisdiction in a
suit brought for that purpose in the district or territory in
which the principal office of such credit union is located,
under direction of and by the Board in its own name,
before the credit union shall be declared dissolved. The
remedies provided in this subsection and in subsections
(d) and (e) of this section shall not be construed as
limiting any other remedies against any insured credit
union but shall be in addition thereto.

made, from

(g) Records.—Each insured credit union shall maintain
such records as will readily permit verification of the
correctness of its reports of condition, certified
statements, and deposit and premium charges for
insurance. However, no insured credit union shall be
required to retain such records for such purpose for a
period in excess of five years from the date of the making
of any such report, the filing of any such statement, or the
payment of any deposit or adjustment thereof or any
premium charge, except that when there is a dispute
between the insured credit union and the Board over the
amount of any deposit or adjustment thereof or any
premium charge for insurance the credit union shall retain
such records until final determination of the issue.

(3) Insured shares.—The term “insured shares”,
when applied to this section, includes share, share draft,
share certificate, and other similar accounts as determined
by the Board, but does not include amounts exceeding the
insured account limit set forth in section 1787(k)(1) of
this title.

(ii) the sum of cash and the market value of
unencumbered investments authorized under section
1783(c) of this title, to
(B) the aggregate amount of the insured shares in
all insured credit unions.
(2) Equity ratio.—The term “equity ratio”, which
shall be calculated using the financial statements of the
Fund alone, without any consolidation or combination
with the financial statements of any other fund or entity,
means the ratio of—
(A) the amount of Fund capitalization, including
insured credit unions’ 1 percent capitalization deposits
and the retained earnings balance of the Fund (net of
direct liabilities of the Fund and contingent liabilities for
which no provision for losses has been made); to
(B) the aggregate amount of the insured shares in
all insured credit unions.

(4) Normal operating level.—The term “normal
operating level”, when applied to the Fund, means an
equity ratio specified by the Board, which shall be not
less than 1.2 percent and not more than 1.5 percent.

§1783.

§203

National Credit Union Share Insurance
Fund.—(a) Creation; use of fund.—There is hereby

(h) Definitions.—For purposes of this section, the
following definitions shall apply:

created in the Treasury of the United States a National
Credit Union Share Insurance Fund which shall be used
by the Board as a revolving fund for carrying out the
purposes of this subchapter. Money in the fund shall be
available upon requisition by the Board, without fiscal
year limitation, for making payments of insurance under
section 1787 of this title, for providing assistance and
making expenditures under section 1788 of this title in
connection with the liquidation or threatened liquidation

(1) Available assets ratio.—The term “available
assets ratio”, when applied to the Fund, means the ratio
of—
(A) the amount determined by subtracting—
(i) direct liabilities of the Fund and contingent
liabilities for which no provision for losses has been
29