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BUREAU OF BANKING
Department of Professional and Financial Regulation
State of Maine
January 25, 1990
BULLETIN #47 RISK ASSETS DEFINITION FOR CREDIT UNIONS
To the Chief Executive Officer Addressed:
During the past year, it has become apparent that considerable confusion exists regarding the definition of "risk assets" as contemplated by Title 9-B M.R.S.A. §832.2, which establishes the statutory guaranty fund requirements for state-chartered credit unions. Specifically, §832 requires credit unions to achieve and maintain a guaranty fund of 6% of "outstanding loans and risk assets." The term "risk assets" is not specifically defined in the Maine Banking Code, but §832.4 provides the Superintendent with the authority to determine which assets of a credit union are to be deemed "risk assets."
The National Credit Union Administration ("NCUA") has recently revised its definition of risk assets as contained in 12 CFR Part 700.1(k) of its rules and regulations. The Bureau of Banking has determined that Part 700.1(k) of NCUA rules and regulations is a reasonable definition of what constitutes "risk assets," and the Bureau of Banking desires that state-chartered credit unions have parity with their federal counterparts. Therefore, the Bureau of Banking has adopted provisions similar to those of 12 CFR Part 700.1(k) as the definition of "risk assets" as contemplated by Title 9-B M.R.S.A. §832. The definition is as follows:
For the purposes of establishing the guaranty fund pursuant to Title 9-B M.R.S.A. §832, all assets except the following shall be considered risk assets:
- Cash on hand.
- Deposits and/or shares in federally or state insured banks, savings and loan associations, and credit unions that have a remaining maturity of three years or less.
- Assets that have a remaining maturity of three years or less and are insured by, fully guaranteed as to principal and interest by, or due from the U.S. Government, its agencies, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. Collateralized mortgage obligations that are comprised of government guaranteed mortgage loans shall be included in this asset category.
- Student loans insured under the provisions of Title IV, Part B of the Higher Education Act of 1965 (20 U.S.C. 1071 et seq.) or similar state insurance programs that have a remaining maturity of three years or less.
- Loans that have a remaining maturity of three years of less and are fully insured or guaranteed by the federal or a state government or any agency of either.
- Shares or deposits in a central or corporate credit union that have a remaining maturity of three years or less. For purposes of defining risk assets, a central or corporate credit union is defined as a credit union whose membership primarily consists of:
- Other credit unions organized under state or federal law,
- Officials, committee members, and employees of any credit union organized under state or federal law, or
- Any combination of the categories described in subdivisions (a) and (b) of this subparagraph.
- Common trust investments, including mutual funds, which deal exclusively in investments authorized by the Federal Credit Union Act (specifically, §107(7) of the Federal Credit Union Act and 12 CFR Part 703 of NCUA Rules and Regulations) that are being carried at the lower of cost or market, or are marked to market value monthly.
- Prepaid expenses.
- Accrued interest on non-risk investments.
- Loans fully secured by a pledge of shares in the lending credit union, equal to and maintained to at lJuly 23, 2008which are purchased from liquidating credit unions and guaranteed by the NCUA.
- National Credit Union Share Insurance Fund Guaranty Accounts established with authorization of the NCUA under authority of §208(a)(1) of the Federal Credit Union Act.
- Investments in shares of the NCUA Central Liquidity Facility.
- Investments in numbered items (2), (3), (4), (5), (6), and (7) with remaining maturities greater than three years are exempt from risk assets if the investment is being carried on the credit union’s records at lower of cost or market, or are being marked to market value monthly.
- Fixed assets as defined in Title 9-B M.R.S.A. §337.
- Deposits in the National Credit Union Share Insurance Fund representing a federally insured credit union’s capitalization account balance of one percent of insured shares.
The definition of the phrase "remaining maturity" as contained above is the time period from the date of the required guaranty fund transfer to the stated date of maturity of the instrument.
All credit unions should clearly document what assets on their books which are considered to be non-risk.
Credit unions are reminded that this definition of risk assets applies only to guaranty fund calculations pursuant to Title 9-B M.R.S.A. §832. Some assets which may be considered "non-risk" for purposes of the above definition may actually carry varying degrees of credit and interest rate risk. These risks need to be accounted for when determining appropriate levels and diversification of investments.
Credit unions should also be aware that §832.4 permits the Superintendent to vary the amount of the guaranty fund required for individual credit unions. Those credit unions with an unusual mix of assets, relative high past due loans, etc. may become subject to more stringent guaranty fund requirements as warranted by specific circumstances. Such individualized guaranty fund requirements will be formally communicated to credit unions in examination reports or other formal supervisory correspondence.
/s/ Donald W. Groves