| (a) Limitations. Except for deposits placed in a Federal
Reserve Bank, a credit union may invest no more than 50% of its net
worth with any single obligor or related obligors. This limitation
does not apply to the extent that the investment is insured or guaranteed
by the United States government, or an agency, sponsored enterprise,
corporation, or instrumentality, of the United States government,
or to any trust or trusts established for investing, directly or collectively,
in such securities, obligations, or instruments. For the purposes
of this section, obligor is defined as an issuer, trust, or originator
of an investment, including the seller of a loan participation investment.
(b) Designated Depository. As a single exception to
subsection (a) of this section, a credit union's board of directors
may establish the maximum aggregate deposit limit for a single financial
institution approved by the board as the credit union's designated
depository. This deposit limit shall be a percentage of net worth
and must be based on the credit union's liquidity trends and funding
needs as documented by its asset/liability management policy. This
authority is contingent upon the credit union appropriately documenting
its due diligence to demonstrate that the investments in this designated
depository do not pose a safety and soundness concern. The credit
union's board of directors shall review and approve at least annually
the maximum aggregate deposit limit for its designated depository.
The review shall include a current due diligence analysis of the financial
institution.
(c) Prohibited Activities.
(1) Definitions.
(A) Adjusted trading--selling an investment to a counterparty
at a price above its current fair value and simultaneously purchasing
or committing to purchase from the counterparty another investment
at a price above its current fair value.
(B) Collateralized mortgage obligation (CMO)--a multi-class
bond issue collateralized by mortgages or mortgage-backed securities.
(C) Commercial mortgage related security--a mortgage
related security except that it is collateralized entirely by commercial
real estate, such as a warehouse or office building, or a multi-family
dwelling consisting of more than four units.
(D) Fair value--the price at which a security can be
bought or sold in a current, arm's length transaction between willing
parties, other than in a forced or liquidation sale.
(E) Real estate mortgage investment conduit (REMIC)--a
nontaxable entity formed for the sole purpose of holding a fixed pool
of mortgages secured by an interest in real property and issuing multiple
classes of interests in the underlying mortgages.
(F) Residual interest--the remainder cash flows from
a CMO/REMIC, or other mortgage-backed security transaction, after
payments due bondholders and trust administrative expenses have been
satisfied.
(G) Short sale--the sale of a security not owned by
the seller.
(H) Stripped mortgage-backed security--a security that
represents either the principal-only or the interest-only portion
of the cash flows of an underlying pool of mortgages or mortgage-backed
securities.
(I) Zero coupon investment--an investment that makes
no periodic interest payments but instead is sold at a discount from
its face value. The holder of a zero coupon investment realizes the
rate of return through the gradual appreciation of the investment,
which is redeemed at face value on a specified maturity date.
(2) A credit union may not:
(A) Use financial derivatives for replication, or for
any purposes other than hedging;
(B) Engage in adjusted trading or short sales;
(C) Purchase stripped mortgage backed securities;
(D) Purchase residual interests in CMOs/REMICs, or
other structured mortgage backed securities;
(E) Purchase mortgage servicing rights as an investment
but may retain mortgage servicing rights on a loan originated by the
credit union and sold on the secondary market;
(F) Purchase commercial mortgage related securities
of an issuer other than a U.S. Government sponsored enterprise;
(G) Purchase any security that has the capability of
becoming a first credit loss piece which supports another more senior
security;
(H) Purchase a zero coupon investment with a maturity
date that is more than 10 years from the settlement date;
(I) Purchase investments whereby the underlying collateral
consists of foreign receivables or foreign deposits;
(J) Purchase securities used as collateral by a safekeeping
concern;
(K) Purchase exchangeable mortgage backed securities,
unless they are fully compliant with the provisions outlined in Part
703 of the National Credit Union Administration Rules and Regulations;
or
(L) Purchase securities convertible into stock at the
option of the issuer.
(d) Investment pilot program.
(1) The commissioner may authorize a limited number
of credit unions to engage in other types of investment activities
under an investment pilot program. A credit union wishing to participate
in an investment pilot program shall submit a request that addresses
the following items:
(A) Board policies approving the activities and establishing
limits on them;
(B) A complete description of the activities, with
specific examples of how the credit union will conduct them and how
they will benefit the credit union;
(C) A demonstration of how the activities will affect
the credit union's financial performance, risk profile, and asset-liability
management strategies;
(D) Examples of reports the credit union will generate
to monitor the activities;
(E) A projection of the associated costs of the activities,
including personnel, computer, audit, etc.;
(F) A description of the internal systems to measure,
monitor, and report the activities, and the qualifications of the
staff and/or official(s) responsible for implementing and overseeing
the activities; and
(G) The internal control procedures that will be implemented,
including audit requirements.
(2) In connection with a request to participate in
an investment pilot program, the commissioner will consider the general
nature and functions of credit unions, as well as the specific financial
condition and management of the applicant credit union, as revealed
in the request, examinations, or such other information as may be
available to the commissioner. The commissioner may approve the request,
approve the request conditionally, approve it in modified form, or
deny it in whole or in part. A decision by the commissioner concerning
participation in an investment pilot program is not appealable.
(3) The commissioner may find that an investment pilot
program previously authorized is no longer a safe and prudent practice
for credit unions generally to engage in, that it has become inconsistent
with applicable state or federal law, or that it has ceased to be
a safe and prudent practice for one or more credit unions in light
of their financial condition or management. Upon such a finding, the
commissioner will send written notice informing the board of directors
of any or all of the credit unions engaging in such a practice that
the authority to engage in the practice has been revoked or modified.
When the commissioner so notifies any credit union, its directors
and officers shall forthwith take steps to liquidate the investments
in question or to make such modifications as the commissioner requires.
Upon demonstration of good cause, the commissioner may grant a credit
union some definite period of time in which to arrange its affairs
to comply with the commissioner's direction. The commissioner deems
credit unions that continue to engage in investment practices after
their authority to do so has been revoked or modified to be engaging
in an unsound practice.
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| Source Note: The provisions of this §91.803 adopted to be effective March 8, 1984, 9 TexReg 1155; amended to be effective July 8, 1994, 19 TexReg 4939; amended to be effective July 9, 2001, 26 TexReg 5001; amended to be effective July 11, 2004, 29 TexReg 6632; amended to be effective November 11, 2007, 32 TexReg 7922; amended to be effective November 13, 2011, 36 TexReg 7544; amended to be effective November 8, 2015, 40 TexReg 7664; amended to be effective November 24, 2019, 44 TexReg 7040 |
