Supporting Statement 3133-0170_2016

SUPPORTING STATEMENT
Fidelity Bond and Insurance Coverage for Federal Credit Unions
12 C.F.R. Part 713
OMB Control Number 3133–0170

A. JUSTIFICATION
1. Necessity of Information Collection
The Federal Credit Union Act (at 12 USC 1761(b)(2))requires that the boards of federal credit
unions (FCU) arrange for adequate fidelity coverage for officers and employees having custody
of or responsibility for handling funds.
Part 713 of the National Credit Union Administration’s (NCUA) regulations implements this
requirement by describing the responsibilities of credit union boards of directors in this area and
establishing coverage and deductible limits.
The regulation contains a number of reporting requirements where a credit union seeks to
exercise flexibility under the regulations. These requirements enable NCUA to monitor the
FCU’s financial condition for safety and soundness purposes and helps to assure that FCUs are
properly and adequately protected against potential losses due to insider abuse such as fraud and
embezzlement.
2. Purpose and Use of the Information Collection
The reporting requirements in this regulation are used by the NCUA to determine whether any
deviations from standard practice by an FCU is a risk to the safety and soundness of the
institution and, by extension, the National Credit Union Share Insurance Fund.
The regulations require that FCUs seek written approval of the board to use a bond form not
currently approved by the NCUA (12 CFR 713.4(b). Similarly, if an FCU wishes to reduce its
required fidelity bond coverage, it must seek approval to do so, in writing, at least 20 days before
the proposed reduction would go into effect (12 CFR 713.5(e)).
The regulation allows FCUs to increase the deductible on its bonds if they meet certain risk and
capital requirements. However, the regulation calls for an FCU that falls out of eligibility for the
higher deductible to obtain a policy with the required coverage and to notify the appropriate
NCUA regional office of its changed status and confirming that it has obtained the required
coverage (12 CFR 713.6(c)). The information will be used by the regional office in its efforts to
monitor credit unions for safe and sound operations and is critically important in helping to avert
or minimize losses to the National Credit Union Share Insurance Fund (NCUSIF), which
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provides federally guaranteed account insurance for all federally insured credit unions.
Adequate insurance coverage can avert a credit union failure due to insolvency; alternatively,
where insolvency and failure do occur, the NCUA, in its capacity as receiver for the failed FCU,
can recoup some of its losses through a claim under an insurance policy.
3. Consideration Given to Information Technology.
Credit unions can provide the required notifications and seek the required approvals through
electronic means. However, the specifics motivating an individual application for an alternative
approach will be case specific and not amenable to automation.
4. Duplication
Eligibility for the higher deductible permissible under the rule is a function, in part, of the credit
union’s financial condition. Several NCUA rules already call for the monitoring and reporting of
this information, and such monitoring is a matter of good business practice in any case. Credit
unions may rely on the form 5300 call report, which must be filed quarterly, in reviewing
whether they continue to qualify for the higher deductible. As noted in the response to the
preceding section, however, the specific notice to NCUA about having obtained the required
coverage is unique and not addressed in any of our other rules.
5. Effect on Small Entities
The burden associated with the notification requirements are minimal (an hour per occurrence)
on any individual credit union, regardless of size. The burden represents the minimum necessary
to provide flexibility to credit unions while maintaining some level of oversight over safety and
soundness.
6. Consequences of not Conducting Collection
The requirements to seek approval to purchase a non-standard bond or to reduce the required
level of coverage are required to ensure that any deviation from the minimum legal coverage
requirements are justified by the circumstances faced by the credit union seeking such approval.
Without requiring notification and approval of departures from the minimums become difficult
to enforce and lose their effectiveness in protecting individual credit unions and the NCUSIF.
The rule’s requirements for written confirmation to the regional office are triggered, if at all, only
when a change in the credit union’s financial condition requires it to lower its deductible. Failure
to provide this confirmation to the NCUA would diminish its knowledge about the financial
condition of FCUs and could result in losses to the NCUSIF.
7. Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)
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No special circumstances exist that would cause this collection to be conducted in a manner
inconsistent with OMB guidelines.

8. Consultations Outside the Agency
Notice of the proposed collection and a request for public comment was published in the Federal
Register with a 60-day comment period on October 7, 2016 (81 FR 69872). No comments were
received regarding this collection.

9. Payment or Gift
NCUA will not make any payment, gift or remuneration to anyone in connection with the
information collection.
10. Confidentiality
Certain financial information about credit unions is publicly available through the filing of
quarterly call reports. However, a credit union’s eligibility for a higher fidelity bond and
insurance deductible is not public information. Like information contained in an agency
examination report, this information is exempt from public disclosure under exemption 8 of the
Freedom of Information Act. 5 U.S.C. 522(b)(8)
11. Sensitive Questions
The information collection does not include any sensitive questions or collect any Personally
Identifiable Information (PII).
12. Burden of Information Collection
NCUA estimates that it will take one hour to prepare and submit an application for approval of a
deviation from an approved bond form or to require a lower level of required coverage. Based on
NCUA’s recent experience, such requests are not common. We estimate that such requests could
occur as often as 7 times per year. The burden associated with each request includes the time
required to prepare and transmit the request and the time required to work with the NCUA to
obtain the approval of the request.
NCUA estimates it will take an average of one hour for a credit union to provide notice to both
its bond carrier and its regulator of its changed status. Based on NCUA’s information, the
number FCUs that fall out of eligibility for the higher deductible is minimal.
Thus, the burden associated with this collection of information may be summarized as follows:
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Information
Collection
Activity
1.

2.

3.

Obtain Prior
Written Approval
from NCUA Board
to Use a Basic
Form Not on the
Approved List or
to Adopt a Rider
to an Approved
Form that Limits
Coverage. (12
CFR 713.4(b))
Obtain Prior
Written Approval
for a Reduction in
the Required
Bond Coverage.
(12 CFR 713.5(e))
Notice in Change
of Status
Disqualifying the
Credit Union
from Use of
Higher
Deductible Limit.
(12 CFR 713.6(c))

Number of
Respondents
5

Frequency of
Response
(Annual (1),
Quarterly (4),
etc.)
1

Number of
Responses
5

1

1

1

1

Total (Sum)

7

Burden
Hours per
Response
1 Hour

Annual Hourly
Burden
5 Hours

1

1 Hour

1 Hour

1

1 Hour

1 Hour

7

7 hours

The resource cost of this collection (measured in dollars) is estimated by multiplying the total
burden hours by $35 – the approximate loaded average wage rate of credit union employees –
resulting in an estimated cost to respondents of $245.
13. Capital, Startup, and Operations and Maintenance Costs
All equipment necessary to prepare, manage, and submit this information to NCUA is equipment
already in use by the credit unions. There are no startup or operations and maintenance costs
associated with this collection.
14. Costs to the Federal Government
We estimate that the cost to review and approve requests submitted under Section 713 to be
roughly equivalent to the time it takes the public to prepare such a request. This results in an
estimated cost to the Federal Government of $560.
15. Changes to Burden
This is a reinstatement. However, additional burden was added to account for the requirements in
Sections 713.4 and 713.5.
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16. Information Collection Planned for Statistical Purposes
This information will not be used for statistical purposes.
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.
There is no physical form for this submission of information. The OMB Control Number, along
with the expiration date, will be displayed on the Federal electronic docket at ww.reginfo.gov as
well as in the Federal Register Notice of the Submission.
18. Exceptions to Certification for Purposes of Paperwork Reduction Act Submissions
There are no exceptions to the certification statement.
B. Collections of Information Employing Statistical Methods
This collection does not employ statistical methods.

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