NCUA Issues Letter on Investment Due Diligence
Days after finalizing its plan for dealing with the financial problems of some corporate credit unions, the NCUA is reminding credit unions about the importance of investment due diligence.
"Management must consistently demonstrate a comprehensive understanding of the investments purchased and ensure that these instruments fit within both the policies and business strategies of your credit union,'' NCUA Chairman Debbie Matz wrote.
She added that that before credit unions purchase any investment instrument they need to evaluate and document seven items. The nature of the instrument; what, if any, federal guarantees are there; is the investment backed by collateral?; what is in the interest-rate structure?; does the size of the instrument pose an undue risk to the credit union?; Is the investment's maturity fixed or does it vary based on market conditions?; and does the investment fall within the credit union's investment policy and asset-liability management constraints.
To read the letter, go to: http://www.ncua.gov/letters/2010/CU/10-CU-18.pdf