By E-mail firstname.lastname@example.org
Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Arlington, Virginia 22314-3428
Re: Proposed rule to update 12 CFR Part 708a, Conversion of Insured Credit Unions to Mutual Savings Banks, 68 Fed. Reg. 56589(2003)
Dear Ms. Baker:
This letter is in response to the National Credit Union Administration's ("NCUA") proposal to amend 12 CFR Part 708a of the NCUA's Rules and Regulations 68 Fed. Reg. 56589 (2003). The Massachusetts Division of Banks ("Division") welcomes this opportunity to comment in support of the NCUA's proposed rule governing the conversion disclosures and voting procedures of insured credit unions to mutual savings banks.
The Division is the primary regulator of the Commonwealth's state-chartered depository institutions. Its regulatory responsibilities include the supervision and examination of nearly 300 state-chartered trust companies, savings banks, cooperative banks, and credit unions, which have combined assets of over $185 billion. The Division regulates 108 credit unions with approximately $10 billion in total assets. The Division strongly supports the concept of providing full disclosure to credit union members of the ramifications of a conversion to a mutual savings bank particularly how such a conversion will impact their existing ownership and voting rights as credit union members. In states that permit such direct conversions, there may not be sufficient regulatory processes in place on the state level to address the adequacy of disclosures to credit union members for such a significant corporate transaction. Given the NCUA's regulation is applicable to state-chartered insured credit unions, the Division views the NCUA's oversight role as crucial particularly in the potential absence of applicable state oversight.
Increasingly, it appears that the credit union membership seems to have a very limited role in a conversion of a credit union to a mutual thrift institution. Although the credit union membership's vote is the final determination on the matter, it is currently unclear that the membership is made fully aware of reasons why the institution's senior management and the Board of Directors have elected to pursue such a conversion. It is also unclear whether the membership understands the ramifications and likelihood of a second stage conversion to a stock institution and how this may provide some form of economic benefit to senior management and officials of the credit union.
The 1998 Credit Union Membership Access Act ("CUMAA") applies to insured credit unions seeking to convert to mutual thrift institutions. The CUMAA requires the NCUA to review the membership voting procedures and materials to determine if the process is conducted in a fair and legal manner. These practices are governed by 12CFR part 708a.
The following comments address the proposed regulation 12 CFR 708a.4(d)(1)(i-iii) and (d)(2)(i-iii):
Under the proposed section 12 CFR 708 a.4(d)(1), the regulation sets forth information which must be included in the description of the purpose and subject matter of the membership vote and set forth in the notice to members. The Division strongly supports full disclosure of the purpose and subject matter of the vote to be taken in the notice to the membership. The purpose should be clearly justified, balanced, and in support of the strategic direction of the institution. The Division also supports a requirement under 708a.4(d)(1)(i) for a disclosure that clearly explains that a conversion from a credit union to a mutual savings bank could result in a loss of ownership rights if the institution converts to a stock institution and the members do not become stockholders. The disclosure set forth in the proposed 708a.4(d)(1)(ii) addresses the proposition that members could have lesser voting rights in a mutual savings bank than they had in the credit union. Under the Federal Credit Union Act, a member of a federal credit union is entitled to one vote, regardless of the number of shares ("one member, one vote") that individual has in the institution. This same concept of mutuality is expressed in the Massachusetts General Laws, G.L., c. 171, §11, in which each credit union member with one or more shares is entitled to one vote. A federal savings bank is permitted to implement deposit-weighted voting wherein votes are allotted based on depositor balances. The Division strongly supports the required disclosure of this significant impact on credit union member voting rights.
The Division also believes that such a notice to the membership should clearly explain any economic benefits to senior management and credit union officials per 708a.4(d)(1)(iii), as well as any potential of future benefits. In many cases, senior officials may not receive any direct benefit from the initial conversion. Such benefits are more likely to be realized if the institution converts to a stock institution in the future. Such a conversion could take place shortly after the initial conversion from a credit union. Voting members of the converting credit union may be unacquainted with such regulations and unaware that senior officials may be privy to enhanced compensation packages including stock related benefits. The Division strongly supports the full disclosure of any direct compensation to senior officials, as well as the potential of stock related benefits in the future. This information will provide the membership with a more complete picture of the future ramifications of the conversion transaction.
In the Division's view, it is also imperative that any notice should make an affirmative statement as to the institution's future intentions to convert to a stock institution, per 708a.4(d)(2) (i-iii). As such, the Division supports disclosure of economic and other benefits or potential benefits to senior officials, as detailed previously, and disclosure of information relative to weighted voting. Whether or not the institution intended to convert to stock form at the time of converting from a credit union, it would have the ability to do so within a short time frame after becoming a mutual thrift institution. The regulation as proposed states that at the time of conversion to a mutual savings bank, the credit union must state whether it does or does not intend to convert to a stock institution. It contains no specific time periods for guidance and does not necessarily present a full picture to the membership if the credit union were to change its intention subsequent to the initial conversion. The Division supports a further requirement that would require a converting credit union to make an affirmative statement and commitment as to the timing of any future conversion to stock form such as an affirmative statement that such a conversion would not take place within a prescribed time limit. Such a statement should be consummate with the institution's strategic planning process.
If you should have any questions regarding the contents of this letter, please call Senior Deputy Commissioner David Cotney (617) 956-1542. Once again, thank you for the opportunity to comment.
Very truly yours,
Thomas J. Curry
Commissioner of Banks
cc: Mary Martha Fortney, NASCUS