August 19, 1991

Patrick J. Brennan, Jr.
Western Credit Union, Inc
. 750 Georgesville Road
Columbus, Ohio 43228-2898

Re: Risk Assets and Reserve Transfers (Your July 3, 1991, Letter)

Dear Mr. Brennan:

You have asked whether funds deposited in a federally insured financial institutions in excess of $100,000 are risk assets. Such an investment is not a risk asset under NCUA's Rules and Regulations.

ANALYSIS

The Western Credit Union, Inc. ("CU") has adopted an invest- ment policy permitting the CU to make deposits in large, well capitalized regional banks in excess of $100,000. The CU hopes to obtain a higher yield on deposits in excess of $100,000 than can be earned with deposits at the $100,000 level. The CU believes this type of investment satisfies NCUA's safety and soundness provisions for the CU's excess funds. Before selecting a bank to deposit these funds, the CU evaluates the public financial position of each institu- tion on a bi-weekly basis. None of these investments have a maturity in excess of three years. The CU has accounted for these funds in excess of $100,000 as risk assets and has made appropriate reserve transfers.

Section 700.1(i)(2) of NCUA's Rules and Regulations (12 C.F.R. 700.1(i)(2)) exempts from the definition of risk asset "deposits and/or shares in federally or state insured banks, savings and loan associations, and credit unions that have a remaining maturity of 3 years or less." CU deposits in federally insured institutions, in excess of $100,000, are not defined as risk assets for the purpose of establishing reserves required by Section 116 of the FCU Act (l2 U.S.C. ~1762). Therefore the CU policy of making reserve transfers on this type of investment is not legally required.

Sincerely,

James J. Engel
Deputy General Counsel

GC/MM:sg
SSIC 3501
91-0716