[Code of Federal Regulations]

[Title 12, Volume 6]

[Revised as of January 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 12CFR703.3]



[Page 397-398]

 

                       TITLE 12--BANKS AND BANKING

 

            CHAPTER VII--NATIONAL CREDIT UNION ADMINISTRATION

 

PART 703_INVESTMENT AND DEPOSIT ACTIVITIES--Table of Contents

 

Sec. 703.3  Investment policies.



    A Federal credit union's board of directors must establish written 

investment policies consistent with the Act, this part, and other 

applicable laws and regulations and must review the policy at least 

annually. These policies may be part of a broader, asset-liability 

management policy. Written investment policies must address the 

following:

    (a) The purposes and objectives of the Federal credit union's 

investment activities;

    (b) The characteristics of the investments the Federal credit union 

may make including the issuer, maturity, index, cap, floor, coupon rate, 

coupon formula, call provision, average life, and interest rate risk;

    (c) How the Federal credit union will manage interest rate risk;

    (d) How the Federal credit union will manage liquidity risk;

    (e) How the Federal credit union will manage credit risk including 

specifically listing institutions, issuers, and counterparties that may 

be used, or criteria for their selection, and limits on the amounts that 

may be invested with each;

    (f) How the Federal credit union will manage concentration risk, 

which can result from dealing with a single or related issuers, lack of 

geographic distribution, holding obligations with similar 

characteristics like maturities and indexes, holding bonds having the



[[Page 398]]



same trustee, and holding securitized loans having the same originator, 

packager, or guarantor;

    (g) Who has investment authority and the extent of that authority. 

Those with authority must be qualified by education or experience to 

assess the risk characteristics of investments and investment 

transactions. Only officials or employees of the Federal credit union 

may be voting members of an investment-related committee;

    (h) The broker-dealers the Federal credit union may use;

    (i) The safekeepers the Federal credit union may use;

    (j) How the Federal credit union will handle an investment that, 

after purchase, is outside of board policy or fails a requirement of 

this part; and

    (k) How the Federal credit union will conduct investment trading 

activities, if applicable, including addressing:

    (1) Who has purchase and sale authority;

    (2) Limits on trading account size;

    (3) Allocation of cash flow to trading accounts;

    (4) Stop loss or sale provisions;

    (5) Dollar size limitations of specific types, quantity and maturity 

to be purchased;

    (6) Limits on the length of time an investment may be inventoried in 

a trading account; and

    (7) Internal controls, including segregation of duties.