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Comment letter backs NCUA low risk definition expansion
WASHINGTON (11/30/10)--The Credit Union National Association (CUNA) in a Monday comment letter to the National Credit Union Administration (NCUA) said that it “strongly supports” the NCUA’s expansion of its definition of “low-risk assets” under prompt corrective action (PCA). CUNA asked for this change after an October meeting with several of its member credit unions. The NCUA last month amended the low-risk asset definition to include “debt instruments unconditionally guaranteed by the National Credit Union Administration.” This move allowed credit unions to purchase senior debt instruments known as “NCUA Guaranteed Notes” (NGNs). The NGNs are comprised of $35 billion of distressed assets that were conserved from failed and conserved corporate credit unions, and the NGNs are currently available on the open market. The NGNs carry a zero risk weight, as they are fully backed by the U.S. government. The NCUA in late October settled the first two NGN offerings, with its Senior Series I-A notes paying a floating-rate coupon of one-month London Interbank Offered Rate (LIBOR) plus 0.45% per annum, subject to a maximum note interest rate cap equal to 7% annually. The NCUA's Senior Series II-A notes will pay a fixed-rate coupon of 1.84% annually, according to the NCUA. CUNA in its comment letter advocated expanding the low-risk definition to include “other types of permissible credit union investments,” and asked the NCUA to “consider issuing a separate rulemaking to broaden the scope of the new definition to include similar low-risk investments, such as credit union investments in Federal Home Loan Bank securities.” CUNA also backed the NCUA’s decision to make the final rule effective upon publication in the Federal Register, saying that delaying the effective date would have made the first two NGN offerings “much less successful” or could have harmed the credit union system as a whole by delaying the sale of the NGNs. For the comment letter, use the resource link.


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