12 C.F.R. § 704.6 Credit risk management.
Title 12 - Banks and Banking
(a) Policies. A corporate credit union must operate according to a credit risk management policy that is commensurate with the investment risks and activities it undertakes. The policy must address at a minimum: (1) The approval process associated with credit limits; (2) Due diligence analysis requirements; (3) Maximum credit limits with each obligor and transaction counterparty, set as a percentage of capital. In addition to addressing deposits and securities, limits with transaction counterparties must address aggregate exposures of all transactions including, but not limited to, repurchase agreements, securities lending, and forward settlement of purchases or sales of investments; and (4) Concentrations of credit risk (e.g., originator of receivables, insurer, industry type, sector type, and geographic). (b) Exemption. The requirements of this section do not apply to investments that are issued or fully guaranteed as to principal and interest by the U.S. government or its agencies or enterprises (excluding subordinated debt) or are fully insured (including accumulated interest) by the NCUSIF or Federal Deposit Insurance Corporation. (c) Concentration limits—(1) General rule. The aggregate of all investments in any single obligor is limited to 50 percent of capital or $5 million, whichever is greater. (2) Exceptions. Exceptions to the general rule are: (i) Aggregate investments in repurchase and securities lending agreements with any one counterparty are limited to 200 percent of capital; (ii) Investments in corporate CUSOs are subject to the limitations of §704.11; and (iii) Aggregate investments in corporate credit unions are not subject to the limitations of paragraph (c)(1) of this section. (3) For purposes of measurement, each new credit transaction must be evaluated in terms of the corporate credit union's capital at the time of the transaction. An investment that fails a requirement of this section because of a subsequent reduction in capital will be deemed nonconforming. A corporate credit union is required to exercise reasonable efforts to bring nonconforming investments into conformity within 90 calendar days. Investments that remain nonconforming for 90 calendar days will be deemed to fail a requirement of this section and the corporate credit union will have to comply with §704.10. (d) Credit ratings. (1) All investments, other than in a corporate credit union or CUSO, must have an applicable credit rating from at least one nationally recognized statistical rating organization (NRSRO). (2) At the time of purchase, investments with long-term ratings must be rated no lower than AA– (or equivalent) and investments with short-term ratings must be rated no lower than A–1 (or equivalent). (3) Any rating(s) relied upon to meet the requirements of this part must be identified at the time of purchase and must be monitored for as long as the corporate owns the investment. (4) When two or more ratings are relied upon to meet the requirements of this part at the time of purchase, the board or an appropriate committee must place on the §704.6(e)(1) investment watch list any investment for which a rating is downgraded below the minimum rating requirements of this part. (5) Investments are subject to the requirements of §704.10 if: (i) 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 (ii) 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. (e) Reporting and documentation. (1) At least annually, a written evaluation of each credit limit with each obligor or transaction counterparty must be prepared and formally approved by the board or an appropriate committee. At least monthly, the board or an appropriate committee must receive an investment watch list of existing and/or potential credit problems and summary credit exposure reports, which demonstrate compliance with the corporate credit union's risk management policies. (2) At a minimum, the corporate credit union must maintain: (i) A justification for each approved credit limit; (ii) Disclosure documents, if any, for all instruments held in portfolio. Documents for an instrument that has been sold must be retained until completion of the next NCUA examination; and (iii) The latest available financial reports, industry analyses, internal and external analyst evaluations, and rating agency information sufficient to support each approved credit limit. [62 FR 12938, Mar. 19, 1997, as amended at 67 FR 65654, Oct. 25, 2002]
Title 12: Banks and Banking
PART 704—CORPORATE CREDIT UNIONS
§ 704.6 Credit risk management.
