TITLE banking-and-securities

Part VI. Credit Union Department

Chapter 95. Share and Depositor Insurance Protection

The Texas Credit Union Commission proposes the repeal of §95.2, Definitions, §95.4, Authority for the TSGCU, and §95.6, Appeals contained in Subchapter A, General; §95.101, Powers contained in Subchapter B, Powers; and §95.306, Refund of Membership Investment Shares; §95.307, Conversion to Federal Insurance, and §95.309, Membership Investment Shares contained in Subchapter C, Finance and Accounts.

The Appropriations Act of 1997, HB 1, Article IX, Section 167, requires that each state agency review and consider for readoption each rule adopted by that agency pursuant to the Government Code, Chapter 2001 (Administrative Procedures Act). Such reviews shall include, at a minimum, an assessment by the agency as to whether the reason for adopting or readopting the rule continues to exist. The current rules comprising Chapter 95 of the Texas Administrative Code pertain to the operation of the Texas Share Guaranty Credit Union (TSGCU). However, TSGCU has subsequently been liquidated and the charter cancelled on June 4, 1999. Pending receipt of any dissenting comments, the Commission believes it appropriate to repeal Chapter 95 in its entirety and adopt new rules to address the requirement for share and deposit insurance-related rules set forth in §15.410 of the Texas Finance Code.

Lynette Pool, Deputy Commissioner, has determined that for each year of the first five years the repeal is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the repeal of these sections.

Ms. Pool has determined that for each year of the first five years the repeal is in effect, the public benefit anticipated as a result of the repeal will be a set of new rules that are more clear and relevant. There will be no effect on small businesses as a result of repealing these sections. There is no anticipated economic cost to entities that are currently required to comply with these sections as result of their repeal.

Written comments on the proposed repeal must be submitted within 30 days after its publication in the Texas Register to Lynette Pool, Deputy Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699.

Subchapter A. General

7 TAC §§95.2, 95.4, 95.6

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Credit Union Department or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The repeals affected by the proposed repeal of these rules is §15.410 of the Texas Finance Code pertaining to share and depositor insurance protection.

The repeals are proposed under the provisions of §15.410 of the Texas Finance Code which authorizes the commission to adopt reasonable rules requiring a credit union to provide share and deposit insurance protection for credit union members and depositors. The specific sections being repealed are:

§95.2.Definitions.

§95.4.Authority for the TSGCU.

§95.6.Appeals.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 22, 1999.

TRD-9904434

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: September 5, 1999

For further information, please call: (512) 837-9236

Subchapter B. Powers

7 TAC §95.101

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Credit Union Department or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

This repeal is proposed under the provisions of Section 15.410 of the Texas Finance Code which authorizes the commission to adopt reasonable rules requiring a credit union to provide share and deposit insurance protection for credit union members and depositors. The specific section being repealed is:

§95.101.Powers.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 22, 1999.

TRD-9904435

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: September 5, 1999

For further information, please call: (512) 837-9236

Subchapter C. Finance and Accounts

7 TAC §§95.306, 95.307, 95.309

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Credit Union Department or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

This repeal is proposed under the provisions of Section 15.410 of the Texas Finance Code which authorizes the commission to adopt reasonable rules requiring a credit union to provide share and deposit insurance protection for credit union members and depositors. The specific sections being repealed are:

§95.306.Refund of Membership Investment Shares.

§95.307.Conversion to Federal Insurance.

§95.309.Membership Investment Shares.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 22, 1999.

TRD-9904436

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: September 5, 1999

For further information, please call: (512) 837-9236

Chapter 95. Share and Depositor Insurance Protection

The Texas Credit Union Commission proposes new Chapter 95 pertaining to share and depositor insurance protection. Under this proposal, Chapter 95 would be comprised of the following sections: §95.100 Account Insurance contained in Subchapter A, Insurance Requirements; §95.200 Appointment of Liquidating Agent contained in Subchapter B, Liquidating Agents; and §95.300 Share and Deposit Guaranty Credit Union, §95.301 Authority for A Guaranty Credit Union, §95.302 Powers, §95.303 Subordination of Right, Title, or Interest, §95.304 Accounting for Membership Investment Shares, §95.305 Audited Financial Statements; Accounting Procedures; Reports, and §95.306 Requirements of Member Credit Unions contained in Subchapter C, Guaranty Credit Union. Notice of the proposed repeal of existing Chapter 95 rules §§95.2, 95.4, 95.6, 95.101, 95.306, 95.307, and 95.309 is published elsewhere is this issue of the Texas Register .

The 1997 General Appropriations Act, House Bill 1, Article IX, Rider 167, requires that each state agency review and consider for readoption each rule adopted by that agency pursuant to Government Code, Chapter 2001. Notice of Intention to Review Chapter 95 as required by the 1997 General Appropriations Act, House Bil1 1, Article IX, Rider 167, was published in the Texas Register on June 18, 1999 (24 TexReg 4589) for the purpose of accepting public comment. No comments have been received. However, agency staff has already reviewed the existing rules, recognized the need to rewrite them to comply with statutory intent, and made a recommendation to the Commission.

Lynette Pool, Deputy Commissioner, has determined that there will be no fiscal implications for state or local government as a result of enforcing or administering the proposed rules.

She has also determined that for each year of the first five years the proposed new rules are in effect, the public benefits anticipated as a result of enforcing the rules will be that state-chartered credit unions will still be required to provide share and deposit protection to their members, but the rules will be more relevant to today's credit union environment. There is no anticipated effect on small businesses as a result of adopting the new chapter and its corresponding rules. There is no economic cost anticipated to entities that are required to comply with the new rules as a result of their adoption.

Written comments on the proposal must be submitted within 30 days after its publication in the Texas Register to Lynette Pool, Deputy Commissioner, Credit Union Department, 914 East Anderson Lane, Austin, Texas 78752-1699.

Subchapter A. Insurance Requirements

7 TAC §95.100

The new rules are proposed under the provisions of §15.410 of the Texas Finance Code that authorize the Credit Union Commission to adopt reasonable rules requiring a credit union to provide share and deposit insurance protection for credit union members and depositors. The Commission interprets this section as authorizing it to ensure share and deposit insurance protection is required for credit unions and to establish a share and deposit guaranty corporation or credit union if deemed necessary to carry out the purposes of the Texas Credit Union Act.

The specific section affected by these proposed rules is Texas Finance Code §§ 15.410.

§95.100.Account Insurance.

(a)

Before commencing business, a credit union must provide evidence to the commissioner that an insurance commitment has been obtained for its share and deposit accounts by an insuring organization which has been approved by the commissioner or, alternatively, by the National Credit Union Administration under Title II of the Federal Credit Union Act (12 USC Section 1781 et. seq.).

(b)

Any credit union that fails to maintain in full force and effect share and deposit insurance as provided in this section shall cease accepting deposits and making loans immediately and shall terminate its corporate existence in this state under such terms and conditions as the commissioner deems appropriate.

(c)

As used in this section an insuring organization is an organization that provides aid and financial assistance to credit unions that are in the process of liquidation or are incurring financial difficulty in order that the share and deposit accounts in the member credit unions shall be protected or guaranteed against loss up to a specified level for each account.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 22, 1999.

TRD-9904431

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: September 5, 1999

For further information, please call: (512) 837-9236

Subchapter B. Liquidating Agents

7 TAC §95.200

The new rule is proposed under the provisions of §15.410 of the Texas Finance Code that authorize the Credit Union Commission to adopt reasonable rules requiring a credit union to provide share and deposit insurance protection for credit union members and depositors. The Commission interprets this section as authorizing it to ensure share and deposit insurance protection is required for credit unions and to establish a share and deposit guaranty corporation or credit union if deemed necessary to carry out the purposes of the Texas Credit Union Act.

The specific section affected by this proposed rule is Texas Finance Code §§ 15.410.

§95.200.Appointment of Liquidating Agent.

If the commissioner finds that the closing of a credit union and the liquidation of the credit union's assets are in the public interest and the best interest of the credit union members, depositors, and creditors, the National Credit Union Administration or, alternatively, the insuring organization shall be appointed liquidating agent for the purpose of liquidation or the winding up of the affairs of the credit union.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 22, 1999.

TRD-9904432

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: September 5, 1999

For further information, please call: (512) 837-9236

Subchapter C. Guaranty Credit Union

7 TAC §§95.300-95.306

The new rules are proposed under the provisions of §15.410 of the Texas Finance Code that authorize the Credit Union Commission to adopt reasonable rules requiring a credit union to provide share and deposit insurance protection for credit union members and depositors. The Commission interprets this section as authorizing it to ensure share and deposit insurance protection is required for credit unions and to establish a share and deposit guaranty corporation or credit union if deemed necessary to carry out the purposes of the Texas Credit Union Act.

The specific section affected by these proposed rules is Texas Finance Code §§ 15.410.

§95.300.Share and Deposit Guaranty Credit Union.

(a)

The commissioner may authorize, with the advice and consent of the commission, the establishment of a share and deposit guaranty credit union. The charter shall be granted only on proof satisfactory to the commissioner that member credit union convenience and advantage will be promoted by the establishment of the guaranty credit union. In determining whether the convenience and advantage will be promoted, the commissioner shall consider:

(1)

Whether the organizational and capital structure and amount of initial capitalization is adequate for the business;

(2)

Whether the anticipated volume and nature of business indicates a reasonable probability of success and profitability based on the credit unions sought to be served;

(3)

Whether the credit union's guarantee fund and reserves are actuarially reasonable and computed in accordance with accepted loss reserving standards and principles;

(4)

Whether the long-term financial condition of the entity would prejudice the interest of member credit unions;

(5)

Whether the proposed officers, directors, and managers have sufficient fiduciary experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the guaranty credit union will operate in compliance with law and that the long term success of entity is probable; and

(6)

Whether the organizers are acting in good faith.

(b)

The organizers bear the burden of proof to establish that the chartering of the guaranty credit union will promote credit union member convenience and advantage. The failure of an applicant to furnish required information, data, professional opinions, and other material is considered an abandonment of the application.

(c)

The commissioner may require for submission to the department of public safety the name and fingerprints of any organizer, director or officer of any guaranty credit union.

(d)

The commissioner may, in approving a guaranty credit union, impose such conditions as he deems reasonable, necessary, or advisable in the public interest.

§95.301.Authority for a Guaranty Credit Union.

If a guaranty credit union is authorized, the commissioner shall issue a charter which shall provide that said guaranty credit union shall operate as a central credit union including share and deposit guaranty insurance protection for members subject to supervision, regulation, and examination by the department.

§95.302.Powers.

The guaranty credit union, pursuant to Texas Finance Code §15.410(b) and to the powers contained in Subtitle D, Title 3, Texas Finance Code, may:

(1)

Purchase, hold, lease, receive, use, encumber, sell, exchange, transfer, lend, advance, convey, assign, give, grant, transmit, hypothecate, or dispose of property or funds of any description, nature, or kind or of any interest, rights, title, or privileges therein from or to any member credit union or any corporation, association, or person, provided that any gift, grant, or transfer of a similar nature shall be made only with the approval of the commissioner;

(2)

Declare and pay dividends on the membership investment fund;

(3)

Make any type of investment authorized by law for a credit union chartered in this state;

(4)

Act under the order or appointment of any court of record, without giving bond, as guardian, receiver, trustee, executor, administrator, custodian, or as depository for any money paid into court for member credit unions;

(5)

Accept funds or money for deposit by fiduciaries, trustees, or receivers if managing or holding funds on behalf of a member credit union;

(6)

Accept funds or money for deposit by financial institutions, trust companies, or insurance companies, if membership or primary ownership of the institutions, associations, or companies is confined or restricted to or for the benefit of member credit unions or organizations of member credit unions, or if the institutions, associations, or companies are designed to serve or otherwise assist operations of member credit unions;

(7)

Act as custodian of individual retirement accounts or of pension funds of member credit unions, or as trustee under pension and profit sharing plans of member credit unions;

(8)

Make deposits, purchase shares, and invest in legally chartered credit unions, trust companies, or other financial institutions;

(9)

Impress a lien or exercise its right of setoff on the deposits, dividends, and interest of any member credit union to the extent of any loans or other obligations due by the member credit union;

(10)

Make or issue, with the approval of the commissioner, a guarantee or other form of written assurance to the appropriate person, association, corporation, or other entity which is reasonably necessary to facilitate the sale, conveyance, assignment, transfer, or other disposition of all or any part of the property or assets of a member credit union, and otherwise assist in the merger, consolidation, conservation, suspension, or liquidation of a member credit union upon the request and under the instruction of the commissioner;

(11)

Advance funds, with or without interest, in accordance with agreed terms and conditions, to aid member credit unions to continue to operate and to maintain solvency or to maintain account balances with any financial institution in connection with the assumption of receivables from a member credit union, or to meet liquidity requirements;

(12)

Purchase from a member credit union any equitable or other interest in its assets at book value or at some other value mutually agreed upon by such member and the board of directors of the guaranty credit union, notwithstanding that either of such values may exceed the market value of the assets so purchased, and upon such terms and conditions as the board of directors of the guaranty credit union may determine, provided, however, that all such terms, conditions, agreements and values are approved in writing by the commissioner;

(13)

Exercise any setoff or lien rights that a member credit union may have when the guaranty credit union is acting as conservator or liquidating agent for such credit union;

(14)

Exercise rights of subrogation to the extent of all rights the depositors or shareholders may have against a member credit union to the extent of any payments made by the guaranty credit union to the depositors or shareholders of such credit union, including the right to receive the same dividends, as would have been payable to the depositor or shareholder;

(15)

Raise any defense to the payment of a claim or an insured account which a member credit union could have raised, and when made, the actual payment of an insured account to any person by the guaranty credit union shall discharge the guaranty credit union to the same extent that payment to such person by the member credit union would have discharged it from liability for the insured account;

(16)

Acquire a promissory note or other asset upon which a nonmember is liable, provided such acquisition is made, in the discretion of the guaranty credit union, to protect an inferior lien held by the guaranty credit union, a member of the guaranty credit union, or a member of a member of the guaranty credit union. Such acquisitions shall not be subject to the restrictions of §91.701 et. seq. of this title (relating to Loans);

(17)

Enter into contracts of insurance or reinsurance, insuring in whole or in part its contractual guarantees to member credit unions and any other insurance or bonding company contracts necessary or advisable in the conduct of its business, provided a guaranty credit union shall not assume any risks from another insurer; and

(18)

Exercise the powers granted corporations organized under the laws of this state and such other additional incidental powers not inconsistent with these sections and Subtitle D, Title 3, Texas Finance Code, as may be necessary to enable the guaranty credit union to promote and carry out effectively its purposes.

§95.303.Subordination of Right, Title, or Interest.

No agreement which tends to diminish or defeat the right, title or interest of the guaranty credit union in any asset acquired by it, either as security for a loan or by purchase, shall be valid against the guaranty credit union unless such agreement shall be in writing; shall have been executed by the credit union and the person or persons claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the credit union; shall have been approved by the board of directors of the credit union with such approval reflected in the minutes of said board; and shall have been, continuously, from the time of its execution, an official record of the credit union.

§95.304.Accounting for Membership Investment Shares.

Membership investment shares of member credit unions shall be established as pledged assets with appropriate explanatory footnotes on the books and records and in the financial statements of the member credit unions. The guaranty credit union may utilize all of the assets of the guaranty credit union and accordingly reduce the membership investment shares of all member credit unions, as required, in the discretion of its board of directors, and utilize such assets in accordance with the powers of the guaranty credit union as set out in these rules.

§95.305.Audited Financial Statements; Accounting Procedures; Reports.

(a)

A guaranty credit union shall file with the commissioner annually audited financial statements, prepared in accordance with generally accepted accounting principles covering the fiscal year, within one hundred days after the close of such fiscal year. The audited financial statements shall be accompanied by an opinion of an independent certified public accountant.

(b)

If the opinion of the certified public accountant is other than unqualified pursuant to generally accepted auditing standards, the commissioner shall require the guaranty credit union to take such action as is considered appropriate to permit the removal of such qualification from the opinion.

(c)

The annual audit of the guaranty credit union shall include an actuarial study of the capital adequacy of the credit union.

(d)

All of the provisions of this section are in addition to those prescribed in §91.209 of this title (relating to reports and charges for late filing).

§95.306.Requirements of Member Credit Unions.

(a)

Every member credit union shall conspicuously display at each place of business a sign or signs indicating that its share and deposit accounts are cooperatively insured by the guaranty credit union. The commissioner shall prepare a standard sign for use by member credit unions.

(b)

At the time an account is established, a member credit union shall provide written notice to its members that the share or deposit account will be cooperatively insured by the guaranty credit union. The notice shall also indicate that such accounts are not backed, insured, or guaranteed by this State or the federal government.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 22, 1999.

TRD-9904433

Harold E. Feeney

Commissioner

Credit Union Department

Earliest possible date of adoption: September 5, 1999

For further information, please call: (512) 837-9236