ALEXANDRIA, Va.-At its meeting last week, the NCUA board added Treasury Inflation Protected Securities, Treasury securities indexed to the rate of inflation that are known as TIPS, as permissible investments for federally chartered credit unions.
NCUA said TIPS will provide credit unions with an additional risk management tool that can be useful in an inflationary economic environment.
The principal amount of TIPS increases with inflation and decreases with deflation, as measured by the Bureau of Labor Statistics' Consumer Price Index. When TIPS mature, holders are paid the adjusted principal or original principal, whichever is greater.
TIPS pay interest twice a year at a fixed rate. The rate is applied to the adjusted principal, so, like the principal, interest payments rise with inflation and fall with deflation. In a deflationary period, it is possible to experience a contractual decline in the principal balance, which is not an event of default. The final rule will be effective 30 days after it is published in the Federal Register.
New Threshold
The NCUA board last week also expanded the definition of "rural district" in the agency's Chartering and FOM Manual. The new definition sets the maximum population of a rural district at 250,000 or 3% of the population of the state in which the majority of the district is located, whichever is greater. Previously, the population limit was 200,000, regardless of the population of the state with the majority of the rural district.
NCUA said that 43 federal credit unions currently have a rural district charter. The new definition allows rural districts of up to 250,000 people in all states, and larger rural districts for federal credit unions seeking rural district community charters in the 11 most populous states. The rule does not change the other elements required to designate an area a rural district.
Other Agency Announcements
NCUA also reported:
* The Share Insurance Fund ended 2012 with a 1.30% equity ratio. NCUA calculated the ratio on an insured share base of $839.4 billion, compared to $795.3 billion at the end of 2011, a growth of 5.5%.
* The net position of the Share Insurance Fund improved by 4.6% for the year to $11.3 billion at the end of 2012 from $10.8 billion at the end of 2011.
* The total number of CAMEL code 3, 4 and 5 credit unions dropped 9.8% to 1,940 at year-end 2012 from 2,150 in 2011.
* Assets of CAMEL code 3 credit unions decreased to $119.3 billion at the end of the fourth quarter of 2012, a 16.3% drop from $142.5 billion on Dec. 31, 2011.
* Assets of CAMEL code 4 and 5 credit unions fell 35.4 percent, to $19 billion at the end of 2012, down from $29.4 billion for 2011.
* Overall, the amount of assets in CAMEL Code 3, 4 and 5 CUs have decreased 32.7% since reaching a high in September 2010. The continuation of these positive trends and other factors resulted in a net decrease of $194.1 million, or 32%, in the Share Insurance Fund's reserve for insurance losses during 2012.
For 2012, the total net position of the Stabilization Fund improved by nearly $1.8 billion. The Stabilization Fund had $5.1 billion in outstanding borrowings with the U.S. Treasury on Dec. 31, 2012.
