Ohio Administrative Code › Title 1301:9 - Division of Financial Institutions: Credit Unions › Chapter 1301:9-2 - General Provisions › Section 1301:9-2-07 - Investments

Current through all regulations passed and filed through July 1, 2024
(A) For
			 the purchase of notes of liquidating other credit unions, notes made by
			 individual members of a credit union may be purchased by another credit union
			 at a price agreed upon by the credit unions and subject to the prior written
			 approval of the superintendent.
(B)
			 Authorized investments and investment restrictions
(1)
									
									A credit union may invest funds in securities or other
			 property not specifically authorized in section
			 1733.30 of the Revised Code if
			 the superintendent has approved of the investment policy in writing. The
			 credit union shall file with the superintendent such investment policy with a
			 copy of a resolution of the board of directors of such credit union approving
			 the investment policy. The superintendent shall notify the credit union not
			 more than fifteen business days after the filing of the policy whether it is
			 denied, approved, or needs modification. If the superintendent does not respond
			 within fifteen business days after the filing of the policy,
			 
									such
			 policy is deemed approved.
									Alternatively, the superintendent
			 may
									
									notify the credit union in writing within fifteen
			 business days of the credit union's request being filed
			 
									of the need
			 for additional documentation 
									or information.
			 
									The credit union shall have thirty
			 days to 
									provide the additional documentation
			 or information
									
									to the
			 superintendent. If the superintendent does not respond within fifteen business
			 days of receipt of the additional documentation or
			 information, 
									such policy 
									is deemed approved.
(2) In addition to investments authorized by
			 section 1733.30 of the Revised Code,
			 credit unions may invest in the following, subject to paragraph (B)(1) of this
			 rule:
(a) Government security mutual funds and
			 government security money market funds not to exceed in the aggregate ten per
			 cent of its shares and undivided earnings;
(b) Shares, stocks, deposits in, or other
			 obligations of any organization, corporation, or association providing services
			 associated with the general purposes of the credit union or engaging in
			 activities incidental to the operations of a credit union, provided that such
			 investments in the aggregate do not exceed five per cent of the credit union's
			 shares and undivided earnings;
(c)
			 Shares, share certificates, share deposits, or other investments of insured
			 credit unions
										( including corporate credit unions);
(d)
										Bank accounts, bank certificates of deposit, bank
			 deposits;
(e) Investments for the
			 purpose of funding an employee benefit plan, including credit union owned life
			 insurance policies, not to exceed in the aggregate ten per cent of its shares
			 and undivided earnings;
(f) Any securities or
			 other properties not specifically described in section
			 1733.30 of the Revised Code and
			 paragraph (B)(2) of this rule, to an extent not exceeding in the aggregate five
			 per cent of shares and undivided earnings or fifty per cent of the net worth
			 ratio, whichever is greater, as of the thirty-first day of December of the
			 previous year.
(3)
			 Participation loans with the prior approval of the superintendent. This
			 division does not apply to the purchase of an investment interest in a pool of
			 loans.
The credit union shall file with the superintendent a copy of
				the credit union participation policy prior to engaging in participation loans
				with other credit unions or credit union organizations or financial
				institutions as defined by 15 U.S.C.
				78c(a)(46), as in effect on
				
										July
				18, 2023, or any state or federal government agency and its subdivisions.
				The superintendent shall notify the credit union not more than fifteen business
				days after the filing of the policy whether it is denied, approved, or needs
				modification. If the superintendent does not respond within fifteen business
				days after the filing of the policy, it shall be deemed approved; unless the
				superintendent notifies the credit union in writing within fifteen business
				days of the credit union's request being filed that additional information is
				required. If additional information is required, the credit union shall have
				thirty days to file the additional information with the superintendent. If the
				superintendent does not respond within fifteen business days of receipt of the
				additional information, the request or policy shall be deemed approved.
(a) A credit union may purchase a
			 participation interest in a loan only if the loan is one the purchasing credit
			 union is empowered to grant and the following additional conditions are
			 satisfied:
(i) The purchase complies with all
			 regulatory requirements to the same extent as if the purchasing credit union
			 had originated the loan;
(ii) The
			 purchasing credit union has executed a written loan participation agreement
			 with the originating lender and the agreement meets the minimum requirements
			 for a loan participation agreement as described in paragraph (B)(3)(c) of this
			 rule;
(iii) The originating lender
			 retains an interest in each participated loan of at least five per cent of the
			 outstanding balance of the loan through the life of the loan; and
(iv) The purchase complies with the
			 purchasing credit union's internal written loan participation policy, which, at
			 a minimum, must:
(a) Establish underwriting
			 standards for loan participations;
(b) Establish a limit on the aggregate amount
			 of loan participations that may be purchased from any one originating lender,
			 not to exceed the greater of five million dollars or one hundred per cent of
			 the credit union's net worth, unless this amount is waived by the
			 superintendent;
(c) Establish
			 limits on the amount of loan participations that may be purchased by each loan
			 type, not to exceed a specified percentage of the credit union's net worth;
			 and
(d) Establish a limit on the
			 aggregate amount of loan participations that may be purchased with respect to a
			 single borrower, or group of associated borrowers, not to exceed fifteen per
			 cent of the credit union's net worth, unless waived by the
			 superintendent.
(b)
										.
			 A credit union may seek waiver from the limitations in
			 paragraph (B)(3)(a) of this rule if it submits a written request for a waiver
			 along with a complete and detailed explanation of why it is requesting a
			 waiver. The superintendent shall respond to the waiver request within
			 forty-five days of receiving the waiver request. The superintendent's decision
			 will be based on safety and soundness, as well as other considerations. If the
			 superintendent does not respond within forty-five days to the waiver request
			 such request is deemed approved.
(c) A loan participation agreement must:
(i) Be properly executed by authorized
			 representatives of all parties under applicable law;
(ii) Be properly authorized by the credit
			 union's board of directors or, if the board has so delegated in its policy, a
			 designated committee or senior management official, under the credit union's
			 articles, code, or bylaws and all applicable law;
(iii) Be retained (original or copies) in the
			 credit union's office; and
(iv)
			 Include provisions which, at a minimum, address the following:
(a) Prior to purchase, the identification of
			 the specific loan participation(s) being purchased, either directly in the
			 agreement or through a document which is incorporated by reference into the
			 agreement;
(b)
												
												Confirmation that the originating lender will retain
			  at least five per cent of the outstanding balance of
			 the loan through the life of the loan;
(c) The location and custodian for original
			 loan documents;
(d) An explanation
			 of the conditions under which parties to the agreement can gain access to
			 financial and other performance information about a loan, the borrower, and the
			 servicer so the parties can monitor the loan;
(e) An explanation of the duties and
			 responsibilities of the originating lender, servicer, and participants with
			 respect to all aspects of the participation, including servicing, default,
			 foreclosure, collection, and other matters involving the ongoing administration
			 of the loan; and
(f) Circumstances
			 and conditions under which participants may replace the servicer.
(4) No
			 investment in any securities of the United States, any state or territory of
			 the United States, or the District of Columbia, or any municipal corporation
			 may be made if the issuer has not been in existence for at least ten years. Nor
			 may any such aforementioned investment be made if the issuing government has,
			 within the preceding ten-year period from which the investment is to be made,
			 defaulted for more than ninety days in the payment of any part of either
			 principal or interest of any debt contracted by it.
(5) In addition to investments authorized by
			 section 1733.30 of the Revised Code, a
			 corporate credit union may invest in the following, subject to paragraph (B)(1)
			 of this rule:
(a) Deposits in, the sale of
			 federal funds to, and debt obligations of foreign banks subject to the
			 following requirements:
(i) The bank
			 
											has
			 assets of at least United States twenty billion dollars and the investment
			 
											is rated no lower than
			 A-1 (or equivalent for short-term (initial maturity of one year or less) by a
			 rating agency recognized by the securities and exchange commission (SEC), and
			 not lower than AA- (or equivalent) for long-term (initial maturity over one
			 year) investments. The corporate credit union must divest itself of short-term
			 investments, if material in amount, downgraded below A-2 (or equivalent) and
			 long-term investments downgraded below A- (or equivalent) by the same rating
			 agency used when the investment was purchased.
(ii) The investment
			 
											is
			 dominated in United States dollars;
(iii) The country in which the issuing bank
			 is located 
											is rated AAA (or equivalent) for political and
			 economic stability by a SEC- recognized rating agency;
(iv) The aggregate investments in any single
			 foreign bank 
											is less than five per cent of the corporate
			 credit union's net assets.
(b) Debt obligations of U.S. bank holding
			 companies and other U.S. chartered corporations subject to the following
			 requirements:
(i) The investments
			 
											are rated no lower than
			 A-1 (or equivalent for short-term (initial maturity of one year or less)
			 investment by a SEC-recognized rating agency and not lower than AA- (or
			 equivalent) for long-term (initial maturity of over one year) investments. The
			 corporate credit union must divest itself of short- term investments, if
			 material in amount, downgraded below A-2 (or equivalent) and long-term
			 investments downgraded below A- (or equivalent) by the same rating agency used
			 when the investment was purchased.
(ii) The aggregate investments in the
			 obligations of any single issuer shall not exceed five per cent of the
			 corporate credit union's net assets.
(iii) This authority does not apply to debt
			 obligations that are convertible into the stock of the corporation or the
			 holding company.
(c)
			 Asset-backed securities subject to the following requirements:
(i) The security 
											is rated
			 no lower than AAA (or equivalent) by a
			 SEC-recognized rating agency. The corporate credit union must divest itself of
			 asset-backed securities, if material in amount, downgraded below AA- (or
			 equivalent) by the same rating agency used when the investment was
			 purchased;
(ii) The investment in
			 any single security or trust shall not exceed five per cent of the corporate
			 credit union's net assets; and
(iii) The security 
											has an
			 average life at time of purchase of no more than five years.
(d) Federally issued
			 collateralized mortgage obligations (CMOs) and real estate mortgage investment
			 conduits (REMICs) and privately issued CMOs and REMICs as defined in section
			 3(a)(41) of the Securities and Exchange Act of 1934, as in effect on
			 
										September 11, 2023 subject to the following
			 requirements:
(i)
											
											For an investment
			 in a fixed rate obligation, the obligation
											
											has
			 an average life at time of purchase and on subsequent review dates not to
			 exceed five years given an immediate increase of three hundred basis points in
			 mortgage loan commitment rates assuming market interest rates and prepayment
			 speeds at the time the tests are applied. Industry consensus prepayment models
			 will be used when computing the average life. This limitation does not apply if
			 principal payments of the investment are specifically matched to principal
			 payments of the corresponding liability.
(ii) For an investment in a variable rate
			 obligation with a cap, the lesser of the highest interest rate cap or the final
			 interest rate cap during the average life at the time of purchase must be at
			 least two hundred basis points above the rate of the corresponding liability
			 that the investment is matched against. This limitation does not apply if
			 principal payments of the investment are specifically matched to principal
			 payments of the corresponding liability.
(iii) The corporate credit union
			  divests
			 itself of any CMO or REMIC security, if material in amount,
			 upon the security being downgraded below AA- (or
			 equivalent) by the same SEC-recognized rating agency used when the investment
			 was purchased;
(iv) The investment
			 in any single issuer shall not exceed five per cent of the corporate credit
			 union's net assets;
(e)
			 Additional investments provided the corporate credit union has obtained prior
			 written approval from the superintendent.
(f) The requirements of this rule to divest
			 investments downgraded below the minimum acceptable ratings do not apply if the
			 expected maturity of the downgraded investment is three months or less. The
			 corporate credit union has ten business days to divest itself of any investment
			 downgraded below the minimum credit ratings specified in this rule or to
			 request in writing permission from the superintendent to retain the
			 investment.
(g) The following
			 definitions apply for purposes of this rule for corporate credit union
			 investments:
(i) "Capital" means the total of
			 regular or statutory reserves, undivided earnings, net income, and membership
			 capital share deposit accounts.
(ii) "Material" means an amount that exceeds
			 five per cent or more of the corporate credit union's capital.
(iii) "Net assets" mean total assets minus
			 central liquidity facility (CLF) stock subscriptions, CLF loans guaranteed by
			 the national credit union share insurance fund, U.S. central credit union CLF
			 certificates, and member reverse repurchase transactions.
(6) For any investments not
			 expressly authorized in division (A) of section
			 1733.30 of the Revised Code, or
			 paragraph (B)(2) of this rule, the superintendent may
			 
									condition approval upon the
			 establishment and maintenance of a reserve to be used as a reserve
			 against losses resulting from such investments. The superintendent may, in his
			 discretion, require an allowance for investment losses to be maintained based
			 on the degree of risk and exposure of the investment.
(7) The provisions of this rule shall not
			 affect the propriety 
									or legality of an investment made by any credit
			 union which was in accordance with the laws of this state at the time such
			 investment was made, nor shall this rule affect the propriety or legality of
			 any investment or investment policy authorized by the division of financial
			 institutions prior to December 31, 1975; except where a program exists which
			 provides for the automatic reinvestment of income or capital gains in
			 additional securities from which such income is derived and the reinvestment of
			 which income would exceed the limits of this rule.
(8) In applying the provision of this rule,
			 membership fees and annual assessments 
									referenced in sections
			 1761.01 to
			 1761.18 of the Revised Code
			 shall not be considered an investment for the purpose of this rule.