Iowa Admin. Code r. 189-17.14 - Permissible investments
(1)
Variable rate investment. A credit union may invest in a
variable rate investment, as long as the index is tied to domestic interest
rates. Except in the case of U.S. Treasury inflation-protected securities, the
variable rate investment cannot, for example, be tied to foreign currencies,
foreign interest rates, domestic or foreign commodity prices, equity prices, or
inflation rates. For purposes of this subrule, the U.S. dollar-denominated
London Interbank Offered Rate (LIBOR) is a domestic interest rate.
(2)
Corporate credit union shares or
deposits. A credit union may purchase shares or deposits in a
corporate credit union, except when the superintendent or the NCUA has notified
it that the corporate credit union is not operating in compliance with NCUA
rules and regulations, 12 CFR Part 704. A credit union's aggregate amount of
paid-in capital and membership capital, as defined in NCUA rules and
regulations, 12 CFR Part 704, in one corporate credit union is limited to 2
percent of its assets measured at the time of investment or adjustment. A
credit union's aggregate amount of paid-in capital and membership capital in
all corporate credit unions is limited to 4 percent of its assets measured at
the time of investment or adjustment.
(3)
Registered investment
company. A credit union may invest in a registered investment company
or collective investment fund, as long as the prospectus of the company or fund
restricts the investment portfolio to investments and investment transactions
that are permissible for federal credit unions.
(4)
Collateralized mortgage
obligation/real estate mortgage investment conduit. A credit union may
invest in a fixed or variable rate collateralized mortgage obligation/real
estate mortgage investment conduit.
(5)
Municipal security. A
credit union may purchase and hold a municipal security, as defined in the
Federal Credit Union Act, 12 U.S.C. Section 1757(7)(K), only if the credit
union conducts and documents an analysis that reasonably concludes the security
is at least investment grade. The credit union must also limit its aggregate
municipal securities holdings to no more than 75 percent of the credit union's
net worth and limit its holdings of municipal securities issued by any single
issuer to no more than 25 percent of the credit union's net worth.
(6)
Instruments issued by
institutions described in the Federal Credit Union Act, 12 U.S.C. Section 1757(8). A credit union may invest in the following instruments issued
by an institution described in Section 1757(8) of the Federal Credit Union Act:
a. Yankee dollar deposits;
b. Eurodollar deposits;
c. Banker's acceptances;
d. Deposit notes; and
e. Bank notes with weighted average
maturities of less than five years.
(7)
European financial options
contract. A credit union may purchase a European financial options
contract or a series of European financial options contracts only to fund the
payment of dividends on member share certificates or interest on member
certificates of deposit when such dividend or interest rate is tied to an
equity index provided:
a. The option and
dividend/interest rate are based on a domestic equity index;
b. Proceeds from the options are used only to
fund dividends/interest on the equity-linked certificates;
c. Dividends or interest, or both, on the
certificates are derived solely from the change in the domestic equity index
over a specified period;
d. The
options' expiration dates are no later than the maturity date of the
certificate;
e. The certificate may
be redeemed prior to the maturity date only upon the member's death or
termination of the corresponding option;
f. The total costs associated with the
purchase of the option is known by the credit union prior to effecting the
transaction;
g. The options are
purchased at the same time the certificate is issued to the member;
h. The counterparty to the transaction is a
domestic counterparty and has been approved by the credit union's board of
directors;
i. The counterparty to
the transaction meets the minimum credit quality standards as approved by the
credit union's board of directors;
j. Any collateral posted by the counterparty
is a permissible investment for federal credit unions and is valued daily by an
independent third party along with the value of the option;
k. The aggregate amount of equity-linked
member share certificates does not exceed 50 percent of the credit union's net
worth;
l. The terms of the
certificate include a guarantee that there can be no loss of principal to the
member regardless of changes in the value of the option unless the certificate
is redeemed prior to maturity; and
m. The credit union provides its board of
directors with a monthly report detailing, at a minimum:
(1) The dollar amount of outstanding
equity-linked certificates;
(2) The
certificates' maturities; and
(3)
The fair value of the options as determined by an independent third
party.
(8)
Debt obligations of U.S.-chartered corporations. An Iowa
state-chartered credit union may invest in unsecured notes and acceptances,
commonly referred to as "commercial paper" and "corporate bonds," of
U.S.-chartered corporations pursuant to Iowa Code section
533.301(5)
"h" and "i" and this rule, only if:
a. The investment in a corporate bond debt
obligation is investment grade and has a maturity of less than five
years;
b. The investment in a
commercial paper debt obligation is investment grade and has a maturity of less
than one year;
c. An investment in
a nonrated equivalent value issue of a commercial paper debt obligation shall
be investment grade. A credit union shall retain documentation supporting its
determination and the current and previous two years of year-end financial
statements which indicate acceptable operating performance of the issuing U.S.
corporation;
d. If, subsequent to
the date of purchase but prior to the date of maturity, the investment no
longer meets the investment grade standard and the investment exceeds the
credit union's net worth by 5 percent or more, the credit union shall have no
more than 30 days to divest of the security unless the credit union seeks and
receives a waiver from the superintendent as provided by rule;
e. The total investment by a credit union in
debt obligations in a lone U.S. corporation and its subsidiaries shall not
exceed 25 percent of the credit union's net worth;
f. The total aggregate investment by a credit
union in debt obligations of U.S. corporations and their subsidiaries shall not
exceed the lesser of 100 percent of the credit union's net worth or 20 percent
of the credit union's investment portfolio;
g. An investment will be considered
speculative and unauthorized if it contains any of the following
characteristics, and the credit union shall be required to divest of the
security in accordance with 17.14(8)"d" without an opportunity
of waiver:
(1) It is issued by a business
entity not recognized in the market place or by other than a U.S.-chartered
corporation, or by both;
(2) It has
a maturity that exceeds that established in this subrule; or
(3) It is issued to cover or underwrite
foreign market operations, or for new-line products or services, or both, which
exceed 25 percent of the investment offering;
h. If the net worth level of a credit union
falls or remains below an amount which causes the limitations of this subrule
to be exceeded for two consecutive quarters and the amount of difference is 5
percent or more of the net worth, the credit union shall divest of a sufficient
amount of debt obligations so the credit union no longer exceeds the
limitations or seek a waiver from the superintendent as provided by
rule;
i. A corporate credit union
chartered in accordance with Iowa Code chapter 533 is exempt from the
provisions and limitations of this subrule and, instead, shall have the powers,
restrictions and obligations contained in NCUA rules and regulations, 12 CFR
Part 704, for federally insured corporate credit unions.
(9)
Mortgage note repurchase
transactions. A credit union may invest in securities that are offered
and sold pursuant to Section 4(5) of the Securities Act of 1933, 15 U.S.C. 77d(5), only as a part of an investment repurchase agreement under subrule
17.13(3), subject to all of the following conditions:
a. The aggregate of the investments with any
one counterparty is limited to 25 percent of the credit union's net worth and
50 percent of its net worth with all counterparties.
b. At the time the credit union purchases the
securities, the counterparty, or a party fully guaranteeing the counterparty,
must meet the minimum credit quality standards as approved by the credit
union's board of directors.
c. The
credit union must obtain a daily assessment of the market value of the
securities under paragraph 17.13(3) "a" using an independent
qualified agent.
d. The mortgage
note repurchase transaction is limited to a maximum of 90 days.
e. All mortgage note repurchase transactions
will be conducted under triparty custodial agreements.
f. A credit union must obtain an undivided
interest in the securities.
(10)
Zero-coupon
investments. A credit union may only purchase a zero-coupon investment
with a maturity date that is no greater than ten years from the related
settlement date, unless authorized by the superintendent.
(11)
Commercial mortgage-related
security (CMRS). A credit union may purchase a CMRS that would be a
permissible investment for a federal credit union under 12 U.S.C. Section 1756(7)(E) or Section 1756(15)(B) subject to all of the following conditions:
a. The credit union conducts and documents a
credit analysis that reasonably concludes the CMRS is at least investment
grade.
b. The CMRS meets the
definition of commercial mortgage security in 189-17.2 (533).
c. The CMRS's underlying pool of loans
contains more than 50 loans with no one loan representing more than 10 percent
of the pool.
d. The aggregate
amount of private label CMRS purchased by the credit union does not exceed 25
percent of its net worth, unless otherwise authorized by the
superintendent.
(12)
Charitable donation accounts. An Iowa-chartered credit union
may apply to the superintendent for authorization to fund a charitable donation
account (CDA) as approved by the National Credit Union Administration. The
request to the superintendent should address the items listed in
17.19(2)"a" to "c."
a. If the superintendent grants the request,
the CDA must satisfy all of the conditions in 12 CFR 721.3(b)(2)(i) to (vii),
including but not limited to the following:
(1) The book value of investments in all CD
As in the aggregate must be limited to 5 percent of a credit union's net worth
at all times as measured at every call report.
(2) The assets must be held in a segregated
custodial account and be specifically identified as a CDA.
(3) If a trust is chosen as the vehicle for
the CDA, the trustee must be regulated by the Office of the Comptroller of the
Currency (OCC), the U.S. Securities and Exchange Commission (SEC), another
federal regulatory agency, or a state regulatory agency. A regulated trustee or
other person or entity that is authorized to make investment decisions for a
CDA, other than the credit union itself, must be either a registered investment
adviser or regulated by the OCC.
(4) The parties to the CDA, typically the
funding credit union and trustee or other manager of the account, must document
the terms and conditions controlling the account in a written agreement. The
terms of the agreement must be consistent with the federal rule. The credit
union's board of directors must adopt written policies governing the creation,
funding, and management of the CDA that are consistent with the federal rule,
must review the policies annually, and may amend them from time to time.
Charitable contributions and donations can only be made to organizations that
are exempt from taxation under Section 501(c)(3) of the Internal Revenue
Code.
(5) Credit unions utilizing
CDAs are required to distribute 51 percent of the total return on investment to
one or more qualified charities no less frequently than every five
years.
b. CDAs are
investments that carry risk. It is expected that any credit union that makes
this type of investment will conduct the necessary due diligence and retain the
due diligence documentation for examiner review. The board must also document
the investment strategies and risk tolerances and must account for the CD A in
accordance with generally accepted accounting principles.
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
No prior version found.