Texas Administrative Code › Title 7 - BANKING AND SECURITIES › Part 6 - CREDIT UNION DEPARTMENT › Chapter 91 - CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS › Subchapter H - INVESTMENTS › Section 91.803 - Investment Limits and Prohibitions

Current through Reg. 49, No. 28; July 12, 2024
(a) Limitations. Except for deposits placed
				  in a Federal Reserve Bank, a credit union may invest no more than 50% of its
				  net worth with any single obligor or related obligors. This limitation does not
				  apply to the extent that the investment is insured or guaranteed by the United
				  States government, or an agency, sponsored enterprise, corporation, or
				  instrumentality, of the United States government, or to any trust or trusts
				  established for investing, directly or collectively, in such securities,
				  obligations, or instruments. For the purposes of this section, obligor is
				  defined as an issuer, trust, or originator of an investment, including the
				  seller of a loan participation investment.
(b) Designated Depository. As a single
				  exception to subsection (a) of this section, a credit union's board of
				  directors may establish the maximum aggregate deposit limit for a single
				  financial institution approved by the board as the credit union's designated
				  depository. This deposit limit shall be a percentage of net worth and must be
				  based on the credit union's liquidity trends and funding needs as documented by
				  its asset/liability management policy. This authority is contingent upon the
				  credit union appropriately documenting its due diligence to demonstrate that
				  the investments in this designated depository do not pose a safety and
				  soundness concern. The credit union's board of directors shall review and
				  approve at least annually the maximum aggregate deposit limit for its
				  designated depository. The review shall include a current due diligence
				  analysis of the financial institution.
(c) Prohibited Activities.
(1) Definitions.
(A) Adjusted trading--selling an investment
				  to a counterparty at a price above its current fair value and simultaneously
				  purchasing or committing to purchase from the counterparty another investment
				  at a price above its current fair value.
(B) Collateralized mortgage obligation
				  (CMO)--a multi-class bond issue collateralized by mortgages or mortgage-backed
				  securities.
(C) Commercial mortgage
				  related security--a mortgage related security except that it is collateralized
				  entirely by commercial real estate, such as a warehouse or office building, or
				  a multi-family dwelling consisting of more than four units.
(D) Fair value--the price at which a security
				  can be bought or sold in a current, arm's length transaction between willing
				  parties, other than in a forced or liquidation sale.
(E) Real estate mortgage investment conduit
				  (REMIC)--a nontaxable entity formed for the sole purpose of holding a fixed
				  pool of mortgages secured by an interest in real property and issuing multiple
				  classes of interests in the underlying mortgages.
(F) Residual interest--the remainder cash
				  flows from a CMO/REMIC, or other mortgage-backed security transaction, after
				  payments due bondholders and trust administrative expenses have been
				  satisfied.
(G) Short sale--the sale
				  of a security not owned by the seller.
(H) Stripped mortgage-backed security--a
				  security that represents either the principal-only or the interest-only portion
				  of the cash flows of an underlying pool of mortgages or mortgage-backed
				  securities.
(I) Zero coupon
				  investment--an investment that makes no periodic interest payments but instead
				  is sold at a discount from its face value. The holder of a zero coupon
				  investment realizes the rate of return through the gradual appreciation of the
				  investment, which is redeemed at face value on a specified maturity
				  date.