12 C.F.R. Appendix B to Part 704—Expanded Authorities and Requirements
Title 12 - Banks and Banking
A corporate credit union may obtain all or part of the expanded authorities contained in this Appendix if it meets the applicable requirements of Part 704 and Appendix B, fulfills additional management, infrastructure, and asset and liability requirements, and receives NCUA's written approval. Additional guidance is set forth in the NCUA publication Guidelines for Submission of Requests for Expanded Authority. A corporate credit union seeking expanded authorities must submit to NCUA a self-assessment plan supporting its request. A corporate credit union may adopt expanded authorities when NCUA has provided final approval. If NCUA denies a request for expanded authorities, it will advise the corporate credit union of the reason(s) for the denial and what it must do to resubmit its request. NCUA may revoke these expanded authorities at any time if an analysis indicates a significant deficiency. NCUA will notify the corporate credit union in writing of the identified deficiency. A corporate credit union may request, in writing, reinstatement of the revoked authorities by providing a self-assessment plan detailing how it has corrected the deficiency. Minimum Requirement In order to participate in any of the authorities set forth in Base-Plus, Part I, Part II, Part III, Part IV, and Part V of this Appendix, a corporate credit union must evaluate monthly the changes in NEV and the NEV ratio for the tests set forth in §704.8(d)(1)(i). Base-Plus A corporate that has met the requirements for this Base-plus authority may, in performing the rate stress tests set forth in §704.8(d)(1)(i), allow its NEV to decline as much as 20 percent. Part I (a) A corporate credit union that has met the requirements for this Part I may: (1) Purchase investments with long-term ratings no lower than A– (or equivalent); (2) Purchase investments with short-term ratings no lower than A–2 (or equivalent), provided that the issuer has a long-term rating no lower than A– (or equivalent) or the investment is a domestically-issued asset-backed security; (3) Engage in short sales of permissible investments to reduce interest rate risk; (4) Purchase principal only (PO) stripped mortgage-backed securities to reduce interest rate risk; and (5) Enter into a dollar roll transaction. (b) Aggregate investments in repurchase and securities lending agreements with any one counterparty are limited to 300 percent of capital. (c) In performing the rate stress tests set forth in §704.8(d)(1)(i), the NEV of a corporate credit union that has met the requirements of this Part I may decline as much as: (1) 20 percent; (2) 28 percent if the corporate credit union has a 5 percent minimum capital ratio and is specifically approved by NCUA; or (3) 35 percent if the corporate credit union has a 6 percent minimum capital ratio and is specifically approved by NCUA. (d) The maximum aggregate amount in unsecured loans and lines of credit to any one member credit union, excluding pass-through and guaranteed loans from the CLF and the NCUSIF, must not exceed 100 percent of the corporate credit union's capital. The board of directors must establish the limit, as a percent of the corporate credit union's capital plus pledged shares, for secured loans and lines of credit. Part II (a) A corporate credit union that has met the requirements for this Part II may: (1) Purchase investments with long-term ratings no lower than BBB (flat) (or equivalent). The aggregate of all investments rated BBB+ (or equivalent) or lower in any single obligor is not to exceed 25 percent of capital; (2) Purchase investments with short-term ratings no lower than A–2 (or equivalent), provided that the issuer has a long-term rating no lower than BBB (flat) (or equivalent) or the investment is a domestically issued asset-backed security; (3) Engage in short sales of permissible investments to reduce interest rate risk; (4) Purchase principal only (PO) stripped mortgage-backed securities to reduce interest rate risk; and (5) Enter into a dollar roll transaction. (b) Aggregate investments in repurchase and securities lending agreements with any one counterparty are limited to 400 percent of capital. (c) In performing the rate stress tests set forth in §704.8(d)(1)(i), the NEV of a corporate credit union which has met the requirements of this Part II may decline as much as: (1) 20 percent; (2) 28 percent if the corporate credit union has a 5 percent minimum capital ratio and is specifically approved by NCUA; or (3) 35 percent if the corporate credit union has a 6 percent minimum capital ratio and is specifically approved by NCUA. (d) The maximum aggregate amount in unsecured loans and lines of credit to any one member credit union, excluding pass-through and guaranteed loans from the CLF and the NCUSIF, must not exceed 100 percent of the corporate credit union's capital. The board of directors must establish the limit, as a percent of the corporate credit union's capital plus pledged shares, for secured loans and lines of credit. Part III (a) A corporate credit union that has met the requirements of either Part I or Part II of this Appendix and the additional requirements for Part III may invest in: (1) Debt obligations of a foreign country; (2) Deposits and debt obligations of foreign banks or obligations guaranteed by these banks; (3) Marketable debt obligations of foreign corporations. This authority does not apply to debt obligations that are convertible into the stock of the corporation; and (4) Foreign issued asset-backed securities. (b) All foreign investments are subject to the following requirements: (1) Investments must be rated no lower than the minimum permissible domestic rating under the corporate credit union's Part I or Part II authority; (2) A sovereign issuer, and/or the country in which an obligor is organized, must have a long-term foreign currency (non-local currency) debt rating no lower than AA– (or equivalent); (3) For each approved foreign bank line, the corporate credit union must identify the specific banking centers and branches to which it will lend funds; (4) Obligations of any single foreign obligor may not exceed 50 percent of capital; and (5) Obligations in any single foreign country may not exceed 250 percent of capital. Part IV (a) A corporate credit union that has met the requirements for this Part IV may enter into derivative transactions specifically approved by NCUA to: (1) Create structured products; (2) Manage its own balance sheet; and (3) Hedge the balance sheets of its members. (b) Credit Ratings: (1) All derivative transactions are subject to the following requirements: (i) If the counterparty is domestic, the counterparty rating must be no lower than the minimum permissible rating for comparable term permissible investments; and (ii) If the counterparty is foreign, the corporate must have Part III expanded authority and the counterparty rating must be no lower that the minimum permissible rating for a comparable term investment under Part III Authority. (iii) Any rating(s) relied upon to meet the requirements of this part must be identified at the time the transaction is entered into and must be monitored for as long as the contract remains open. (iv) Section 704.10 of this part if: (A) one rating was relied upon to meet the requirements of this part and that rating is downgraded below the minimum rating requirements of this part; or (B) two or more ratings were relied upon to meet the requirements of this part and at least two of those ratings are downgraded below the minimum rating requirements of this part. (2) Exceptions. Credit ratings are not required for derivative transactions with: (i) Domestically chartered credit unions; (ii) U.S. government sponsored enterprises; or (iii) Counterparties if the transaction is fully guaranteed by an entity with a minimum permissible rating for comparable term investments. Part V A corporate credit union that has met the requirements for this Part V may participate in loans with member natural person credit unions as approved by the OCCU Director and subject to the following: (a) The maximum aggregate amount of participation loans with any one member credit union must not exceed 25 percent of capital; and (b) The maximum aggregate amount of participation loans with all member credit unions will be determined on a case-by-case basis by the OCCU Director. [67 FR 65658, Oct. 25, 2002]
Title 12: Banks and Banking
PART 704—CORPORATE CREDIT UNIONS
Appendix B to Part 704—Expanded Authorities and Requirements
