12 CFR Part 703 - INVESTMENT AND DEPOSIT ACTIVITIES

NCUA is issuing a final rule to implement certain statutory requirements in Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) pertaining to the use of credit ratings to assess creditworthiness. The final rule removes references to credit ratings in NCUA regulations or replaces them with other appropriate standards of creditworthiness as required by the Dodd-Frank Act.

NCUA is removing certain regulations and eliminating the Regulatory Flexibility Program (RegFlex) to provide regulatory relief to federal credit unions. NCUA is also removing or amending related rules to ease compliance burden while retaining certain safety and soundness standards. Those rules pertain to eligible obligations, charitable contributions, nonmember deposits, fixed assets, investments, incidental powers, and member business loans. In addition, NCUA is issuing an interim final rule with a request for comment to amend a provision in the fidelity bond rule to remove references to RegFlex.

NCUA is issuing a final rule to implement certain statutory requirements in Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) pertaining to the use of credit ratings to assess creditworthiness. The final rule removes references to credit ratings in NCUA regulations or replaces them with other appropriate standards of creditworthiness as required by the Dodd-Frank Act.

The NCUA Board (Board) proposes to amend its investment regulation to allow federal credit unions (FCUs) to purchase Treasury Inflation Protected Securities (TIPS). This proposed amendment adds TIPS to the list of permissible investments for FCUs in part 703. The Board believes TIPS will provide FCUs with an additional investment portfolio risk management tool that can be useful in an inflationary economic environment.

NCUA is removing certain regulations and eliminating the Regulatory Flexibility Program (RegFlex) to provide regulatory relief to federal credit unions. NCUA is also removing or amending related rules to ease compliance burden while retaining certain safety and soundness standards. Those rules pertain to eligible obligations, charitable contributions, nonmember deposits, fixed assets, investments, incidental powers, and member business loans. In addition, NCUA is issuing an interim final rule with a request for comment to amend a provision in the fidelity bond rule to remove references to RegFlex.

Through this Advance Notice of Proposed Rulemaking (“ANPR”), the NCUA Board (Board) requests additional public comments to identify the conditions for federal credit unions (FCUs) to engage in certain derivatives transactions for the purpose of offsetting interest rate risk (IRR). 1 This ANPR follows an earlier Advance Notice of Proposed Rulemaking (ANPR I) on derivatives transactions issued for comment (76 FR 37030, June 24, 2011). This ANPR asks additional questions regarding the conditions under which NCUA may grant authority for an FCU to engage in derivatives transactions independently. 1 Interest rate risk refers to the vulnerability of a credit union's financial condition to adverse movements in market interest rates. For example, changes to a credit union's funding costs generally are considered part of the inherent interest rate risk associated with a fixed-rate mortgage loan. A borrower with a fixed-rate mortgage loan is unaffected by increases in market interest rates because his payment is based on a “fixed” rate. The credit union that originated the mortgage loan, however, is subject to losses in the market value of these mortgages from the increases in market interest rates. Furthermore, as market interest rates rise, there is a concomitant increase in the credit union's funding costs, or the interest rate the credit union pays on the money it uses to “fund” the mortgage loan.