WASHINGTON – NCUA spokesman John McKechnie said the agency hopes the new Credit Union System Investment Program (CU SIP) will kill two birds with one stone: it will infuse liquidity into the corporate system using the Central Liquidity Facility, and offer a 25 basis points return to natural person credit unions along the way.
Here's how the cash flow works: natural person credit unions will apply for a CU SIP advance, which carries a one-year term maturing no later than Dec. 31, 2010, with a rate equal to the greater of the Primary Credit Rate at a Federal Reserve Bank discount window, and the rate on a comparable maturity Treasury security, plus 1/8th percent.
Credit unions are then required to invest the funds in CU SIP notes, which will be issued by corporates and will carry an NCUSIF-backed guarantee. Notes will have maximum one-year terms and the return will equal the advance rate plus 0.25%.
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U.S. Central Credit Union's Dave Dickens, executive vice president of asset liability management, said his team is still reviewing the details, but said it's his understanding that corporates will use the incoming CU SIP funds to pay off collateralized borrowings at institutions like the Federal Home Loan Bank and Federal Reserve, not to replace losses resulting from undervalued securities or other investments.
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