ALEXANDRIA, Va. — Federally insured credit unions that areinsolvent, in conservatorship or have ratings of CAMEL 4 and 5would be prohibited from offering golden parachutes to theirexecutives under a proposed rule unveiled by the NCUA at lastThursday's meeting.

The agency defines golden parachutes as payments that are“contingent on the termination of that person's employment andreceived when the credit union making the payment is troubled,capitalized or insolvent.”

The proposed rule would also prohibit any federally insuredcredit union, regardless of its financial health, from paying legalor professional expenses incurred in federal or stateadministrative proceedings that result in a monetary punishment,cease and desist order or removal from office.

The proposed rule, which is subject to a 30-day comment period,is identical to the one the agency issued in 2009 for corporatecredit unions.

NCUA Attorney Pamela Yu said there are exemptions to the goldenparachute rules to allow for previously agreed to deferredcompensation plans and legitimate “nondiscriminatory” severance payplans. Troubled credit unions that hire new managers to improvetheir financial health would be allowed to offer golden parachuteplans, Yu explained.

The NCUA Board would have final authority over whether a goldenparachute is allowed and the criteria it uses will include whatdegree the employee had managerial or fiduciary responsibility; thelength of time the employee was affiliated with the credit unionand does the payment represent a reasonable payment; and any otherfactors that could be considered.

NCUA Chairman Debbie Matz said the proposed rules will reducesome of the risks to the NCUSIF posed by troubled creditunions.

At the meeting, NCUA CFO Mary Ann Woodson gave another bleakassessment of the state of the NCUSIF.?She told the NCUA Board thatthe fund lost $11.3 million in June. It's less than the $54.7million that the fund was projected to lose. The fund's reservebalance at the end of June was $1 billion.

The fund's equity ratio was 1.21% at the end of May, down from1.22% at the end of June. Matz said on July 22 that if currentprojections are correct, the equity ratio could drop below 1.2% bythe fall.

Woodson said 23.14% of insured shares were in credit unions witha rating of CAMEL 3 or higher at the end of June, compared with20.8% at the end of May.

At the end of June, 17.45% of insured shares were in CAMEL 3credit unions, compared with 14.57% at the end of May. There were1,739 CAMEL 3 credit unions at the end of June, compared with 1,724at the end of May and 1,520 at the end of June 2009.

Woodson also reported that 5.69% of insured shares were in CAMEL4 and 5 credit unions at the end of June, compared with 6.23% atthe end of May. There were 366 Camel 4 and 5 credits at the end ofJune, compared with 351 at the end of May and 291 in June 2009.

There have been 18 failures of federally insured credit unionsthis year, including three in June compared with 28 in all of2009.

The NCUA Board also approved changes to the regulations onoverdraft fees to comply with the Federal Reserve's changes to theTruth in Savings Act.

Credit union members have until Aug. 15 to decide whether to optin to overdraft protection programs, Credit unions have until Oct.1 to begin spelling out total overdraft fee costs in their periodicstatements. They must itemize costs and use the phrase “totaloverdraft fees” to specify the total.

The rules also require that if a member has an overdraft line ofcredit that can't be accessed when using a debit card, thatinformation must be displayed on any automated system the memberaccesses.

The NCUA Board also approved a $2 million reduction in theagency's 2010 operating budget. The agency projects it will reduceexpenditures by $9.2 million-$7.1 million of which will come fromsavings due to staff departures and vacancies-but it is using $7.2million of that for new expenditures.

These include a $1.l7 million consumer education advertisingcampaign featuring personal finance specialist Suze Ormanexplaining that accounts at credit unions are federally insured; a$725,000 allocation to the chief financial officer's office to hireconsultants to help strengthen the agency's internal controls andfinancial reporting; and $650,000 to the Office of Examination andInsurance to fund additional operational reviews.

The changes will result in a $198.9 million operating budget for2010, compared with the $200.9 million that the board originallyapproved.

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