NCUA Board Approves TIPS Investments and Larger Rural Districts
The NCUA Board approved two new rules during its February meeting Thursday that expand investment powers and field of membership reach.
The maximum threshold for rural district field of membership populations will increase to 250,000, a nudge up from the current 200,000 maximum. The rule also includes a new caveat that the rural district not exceed 3% of the state’s total population.
Chairman Debbie Matz said when the board revised the limit in 2010, it wrestled with settling upon an appropriate number, and chose 200,000 thinking it could be revised if needed. Credit unions in high-population states like Texas, New York and California told the NCUA it was too restrictive. And, Matz said she met one credit union CEO in South Dakota who said the limit kept him from serving a nearby Native American reservation.
Reservations are typically financially underserved, Matz said, so raising the limit is a “move in the right direction” toward fulfilling the rule’s intent to serve underserved areas, as well as showing responsiveness to credit union feedback.
NAFCU Legal Counsel Carrie Hunt said she was pleased with the increase, but said her trade was pushing for a higher 500,000 threshold. NCUA Staff Attorney Elizabeth Wirick had told the board when presenting the rule that a 500,000 limit was close to the entire population of seven states and the District of Columbia.
Hunt said that shouldn’t stop the NCUA from approving 500,000.
“The NCUA has stated an entire state can’t be a rural district, but I think it’s more of a policy argument than a legal one,” she said.
The rule will take effect 30 days after it is published in the Federal Register.
A second approved final rule allows credit unions to purchase Treasury Inflation Protected Securities. The rule was first presented as an audience question during a 2012 Town Hall hosted by Matz. Aside from cautions by staff that credit unions fully understand TIPS accounting and interest rate risk modeling before investing, the investment was approved and will be permitted 30 days after it is published in the Federal Register, which puts it on target for near the end of the first quarter.
The Board was also presented with share insurance fund year-end numbers, which showed improved CAMEL scores in 2012, but also an increase in the number of failed credit unions. Twenty-two credit unions failed in 2012; 14 were involuntarily liquidated and eight were assisted mergers. Sixteen credit unions failed in 2011.
The Temporary Corporate Credit Union Stabilization Fund year-end balance sheet showed an $807 million improvement in projected legacy asset losses in 2012, much of it coming in the 4th quarter, and an improved net position to $3.5 billion in the red. The stabilization fund closed out 2011 with a $5.25 billion negative net position.
However, that improvement is countered by an increase in outstanding Treasury borrowings, up to $5.1 billion at Dec. 31, 2012, compared to $3.5 billion one year prior. Chief Financial Officer Mary Ann Woodson told the board proceeds of $1.14 billion from the asset management estate and an $88 million distribution from the share insurance fund didn’t cover the $2.83 billion due as guaranteed income on securities issued on corporate legacy assets.