Appendix B to Part 704 - Expanded Authorities and Requirements
12:7.0.2.3.5.0.11.23.14 : Appendix B
Appendix B to Part 704 - Expanded Authorities and Requirements
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.
A state chartered corporate credit union may not exercise any
expanded authority that exceeds the powers and authorities provided
for under its state laws. Accordingly, requests by state chartered
corporate credit unions for expansions under this part must be
approved by the state regulator before being submitted to NCUA.
Minimum Requirement
In order to participate in any of the authorities set forth in
Base-Plus, Part I, Part II, Part III, or Part IV of this Appendix,
a corporate credit union must evaluate monthly, including once on
the last day of the month, the changes in NEV, NEV ratio, NII, WAL,
and duration as required by paragraphs (d)(1)(i), (e), (f), (g),
and (i) of § 704.8.
Base-Plus
A corporate credit union 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 all the requirements
established by NCUA for this Part I, including a minimum leverage
ratio of at least six percent, may:
(1) Purchase an investment after conducting and documenting an
analysis that reasonably concludes the investment is at least
investment grade;
(2) Engage in short sales of permissible investments to reduce
interest rate risk;
(3) Purchase principal only (PO) stripped mortgage-backed
securities to reduce interest rate risk; and
(4) Enter into a dollar roll transaction.
(b) In performing the rate stress tests set forth in § 704.8(d),
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 seven percent
minimum leverage ratio and a two and a half percent retained
earnings ratio, and is specifically approved by the NCUA; or
(3) 35 percent if the corporate credit union has an eight
percent minimum leverage ratio and a three percent retained
earnings ratio and is specifically approved by the NCUA.
(c) 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 total capital. The board of
directors must establish the limit, as a percent of the corporate
credit union's total capital plus pledged shares, for secured loans
and lines of credit.
(d) The aggregate total of investments purchased under the
authority of Part I (a)(1) and Part I (a)(2) may not exceed the
lower of 500 percent of the corporate credit union's total capital
or 25 percent of assets.
Part II
(a) A corporate credit union that has met the requirements of
Part I of this Appendix and the additional requirements established
by NCUA for Part II 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 made pursuant to an explicit policy
established by the corporate credit union's board of directors.
Before purchasing an investment, the corporate credit union must
conduct and document an analysis that reasonably concludes the
foreign issue or issuer has no more than a minimal amount of credit
risk;
(2) For each approved foreign bank line, the corporate credit
union must identify the specific banking centers and branches to
which it will lend funds;
(3) Obligations of any single foreign obligor may not exceed 25
percent of total capital or $5 million, whichever is greater;
and
(4) Obligations in any single foreign country may not exceed 250
percent of capital.
Part III
(a) A corporate credit union that has met the requirements
established by NCUA for this Part III may enter into derivative
transactions specifically approved by NCUA to:
(1) Create structured products;
(2) Mitigate interest rate risk and credit risk on its own
balance sheet; and
(3) Hedge the balance sheets of its members.
(b) Credit Quality:
All derivative transactions are subject to the following
requirements:
(1) If the intended counterparty is domestic, the counterparty
must meet minimum credit quality standards as established by the
corporate credit union's board of directors;
(2) If the intended counterparty is foreign, the corporate
credit union must have Part II expanded authority and the
counterparty must meet minimum credit quality standards as
established by the corporate credit union's board of directors;
(3) The corporate credit union must identify the criteria relied
upon to determine that the counterparty meets the credit quality
requirements of this part at the time the transaction is entered
into and monitor those criteria for as long as the contract remains
open; and
(4) The corporate credit union must comply with § 704.10 of this
part if the credit quality of the counterparty deteriorates below
the minimum credit quality standards established by the corporate
credit union's board of directors.
Part IV
A corporate credit union that has met all the requirements
established by NCUA for this Part IV may participate in loans with
member natural person credit unions as approved by the NCUA 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 NCUA.
[75 FR 64851, Oct. 20, 2010, as amended at 77 FR 74111, Dec. 13,
2012; 80 FR 25939, May 6, 2015; 82 FR 55500, Nov. 22, 2017; 85 FR
62212, Oct. 2, 2020]