The NCUA's recently announced corporate resolution plan wasdesigned to have minimal effects on the critical functions thecorporates provide to their members. However, investment optionswith corporate credit unions have been significantly impacted bythe plan. As part of the corporate resolution, the conservedcorporates were barred from issuing certificates longer than sixmonths. The surviving corporates have been affected too with mostlimiting their term offerings and others lowering the rates theyare able to pay on share certificates.

As a result, many credit unions that had used corporates for terminvestments are now considering alternatives, namely marketablesecurities like agency bullets and callables. Most larger creditunions are quite familiar with the prerequisites for buyingsecurities, tasks like conducting due diligence of brokers,establishing safekeeping relationships and accounting for thepurchased bonds. Smaller institutions may not have thesearrangements in place, and before undertaking the effort it makessense for them to ask, "Is our credit union big enough to buysecurities?"

There is no precise way to answer this question. There arequantifiable costs associated with investing in securities, butcalculating the benefits, particularly the liquidity advantagesthat agency bullets offer relative to certificates, is an inexactmatter. But if I had to pick a number, I would say that any creditunion with more than $10 million in overnights and investments isbig enough to consider adding term securities.

How did I arrive at this number? First, all institutions need tomaintain overnights for settlements and to provide a readyliquidity cushion. However, low overnight rates and a very steepyield curve mean that there are significant opportunity costs tokeeping too much in overnights. We want to pare overnightinvestments to as low as possible while properly managing theinstitution's liquidity risk. Let's say that 25% of the portfolio,or $2.5 million, goes into overnights. (Incidentally, for mostcredit unions, the corporate remains the best place for overnights.The rates are competitive and the temporary share guarantee is atremendous benefit.) The next place to invest is in short bulletsecurities. Here, the goal is to build a future stream of cashflows while earning yields better than what you can earn onovernights. In this sector, the decision commonly boils down tocorporate certificates or insured bank CDs. Because of limitedliquidity-especially for the bank CDs-you don't want too much ofyour portfolio in this sector, but allocating 25% to 50% to theseproducts works for most credit unions. That leaves us $2.5 to $5million to invest in securities, and this is more than enough toget started with an investment program.

Many institutions that I work with routinely invest $250k at a timein securities-this figure is not too small. Admittedly, there is alink between position size and the secondary liquidity of thatposition-you'll get a better bid back from Wall Street if you'reselling $5 million of a bond versus $250k, but there are plenty ofbrokers out there willing to buy and sell these smaller sizes. Ourexample credit union with $2.5 to $5 million to invest would have10 or 20 positions on the books if it bought in $250k increments,and this is a sufficient number. What you want to avoid is onlyhaving a handful of relatively large positions. If you had a bigfraction of your investment portfolio maturing in October 2010, youwould not be happy with your reinvestment options at today's lowyields. We can mitigate some of these unique reinvestment risks byspreading the portfolio across multiple positions.

Because of slow loan growth and continuing deposit inflows, creditunions are relying more and more on their investment portfolios forincome. In this time of uncertainty with corporate credit unions,it makes sense to have a host of investment options available toyou, and now's a good time to consider adding marketable securitiesto your credit union's portfolio.

Andrew McGeorge is a senior portfolio strategist with CNBSin Overland Park, Kan.