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NCUA Actions Expand Rural District FOM, Allow CU TIPS Investment
ALEXANDRIA, Va. (2/22/13)--The National Credit Union Administration on Thursday approved separate final rules that expand the definition of "rural district" for field of membership purposes, and grant new investment authority to credit unions.

Credit Union National Association President/CEO Bill Cheney said he was pleased that the February NCUA meeting focused on items that are positive, such as rule changes that will help credit unions going forward, and the reduction in CAMEL Code 3, 4 and 5 credit unions. "We will continue to push NCUA to take more steps that will give all federally insured credit unions more flexibility in their operations, particularly in light of the fact that credit unions' financial performance is doing so well," he said. (See News Now story: Strong NCUSIF, TCCUSF Performance Decrease Premium Chances).

The NCUA's "rural district" rule sets the definition at the greater of no more than 250,000 persons or 3% of the population of the state in which the majority of the district's persons are located. The NCUA noted that the rule does not change the other elements required to designate an area a rural district: Federal credit unions serving rural districts will still need to develop business and marketing plans to show how they will serve their surrounding communities.

NCUA Chairman Debbie Matz said, "This is really a move in the right direction and is responsive to be the needs of credit union members." She added that she looks forward to having the rule in effect to provide "federal credit unions serving rural areas greater flexibility to improve access to consumers who otherwise might not have access to affordable financial services."

The rural district changes are similar to those advocated by CUNA in meetings and a comment letter on the NCUA proposal. CUNA Board Member Roger Heacock presented data to NCUA to support making the changes.

CUNA Deputy General Counsel Mary Dunn urged the NCUA to allow as much authority as legally permissible to federal credit unions to facilitate their presence in these areas of the country that are often are in serious need of financial institution services. Dunn suggested that the NCUA, in the long-term, should allow credit unions that serve rural areas to determine for themselves the size of their fields of membership, governed by the credit union's resources to serve the area sufficiently and its ability to manage safety and soundness concerns.

The agency also moved to grant credit unions new investment authority by adding Treasury Inflation Protected Securities (TIPS) to the list of permissible investments in NCUA's Investment and Deposit Activities rule. "NCUA's research and analysis showed these securities could be a valuable tool for federal credit unions if properly managed, so we've acted to prudently provide greater regulatory flexibility," Matz said. Allowing such investments will help credit unions protect against inflation and manage interest-rate risk, Dunn has noted.

However, NCUA staff said credit unions should not just dive into TIPS investments. Due diligence will be needed, and investing in TIPS may not be appropriate for every federal credit union. Credit unions should also take care to ensure that TIPS remain a small part of their investment portfolio, the NCUA said.

Both rules will go into effect 30 days after they are published in the Federal Register.

For more on the NCUA meeting, use the resource links.
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