ALEXANDRIA, Va.-NCUA said last week it will insure CDs issued to non-member municipalities through a third-party placement service, such as the Certificate of Deposit Account Registry Service, the well-known CDARs service that places municipal CDs in several states.
In a new legal opinion posted last week, NCUA said federally insured credit unions could participate in a share or deposit placement service and the National CU Share Insurance Fund would insure funds from public municipalities on a pass-through basis, subject to proper disclosure and titling and recordkeeping requirements.
The legal opinion was issued to the Michigan CU League and comes just as Oakland County (home of Detroit) passed a resolution accepting CUs as valid depositories for the county's funds.
CDARS is a deposit placement service provided by Promontory Interfinancial Network, which spreads deposits to banks in Michigan and several other states. CUs, said NCUA, could participate in a share placement service similar to CDARS but it would most likely be feasible only for funds from "public units," which includes states, municipalities, and political subdivisions.
"Although, generally, NCUSIF coverage only extends to member accounts, federal credit unions, and we believe most state-chartered credit unions, may accept funds from public units or government depositors without regard to membership," said NCUA. "For purposes of NCUSIF coverage, nonmember public unit accounts are insured as member accounts."
Careful titling and recordkeeping for accounts established through a placement service would be crucial, requiring disclosure of the custodial relationship, in order to provide flow-through insurance coverage, according to NCUA. Under NCUA's share insurance rules, a beneficial owner of federally insured CU (FICU) shares is entitled to receive NCUSIF insurance coverage if: (1) the beneficial owner is a member of the FICU or otherwise eligible, as is the case for public units, to maintain an insured account at the FICU; (2) the FICU's account records disclose the existence of a relationship that may provide a basis for coverage; and (3) the records of the FICU or the beneficial owner maintained in good faith and in the regular course of business identify the beneficial owner and the extent of the owner's interest.
The titling language on the account and account records must indicate the custodial relationship and that those funds are being held for the beneficial owner, namely a public unit.
In addition, funds from public units at a FICU may not exceed the greater of 20% of the total shares of the credit union or $1.5 million, unless a greater amount is approved by the appropriate NCUA regional director or the FICU qualifies for the RegFlex designation, NCUA said.
