Part 6.
CREDIT UNION DEPARTMENT
Chapter 91.
CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS
Subchapter A. GENERAL RULES
7 TAC §91.101
The Credit Union Commission adopts an amendment to rule §91.101
relating to definitions and interpretations without changes to the text published
in the July 9, 2004 issue of the
Texas Register
(29
TexReg 6481).
The amendment clarifies the definitions of "Construction or development
loan" and "Loan to Value ratio". A grammatical revision is also made to the
definition of "Reserves".
No comments were received on the proposal.
The amendment is adopted under the provision of the Texas Finance
Code, Section 15.402, which authorizes the commission to adopt reasonable
rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the
Texas Finance Code and Texas Finance Code Section 123.201, which authorizes
the Commission to adopt rules governing credit unions’ lending of funds.
The specific sections affected by the amendment are Texas Finance Code,
Sections 123.201, 124.001, 124.003, and 124.052.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on October 25, 2004.
TRD-200406406
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: November 14, 2004
Proposal publication date: July 9, 2004
For further information, please call: (512) 837-9236
7 TAC §91.201
The Credit Union Commission adopts an amendment to rule §91.201
relating to incorporation procedures without changes to the text published
in the July 9, 2004 issue of the
Texas Register
(29
TexReg 6483).
The amendment sets out the items that need to be included in the three
year business plan submitted with an application to incorporate. Specifically,
the business plan must describe the credit union’s business, including
the products, member services, and other activities; provide pro forma financial
information for the three years of operation, including annual totals for
the income statement; describe in detail all of the assumptions used to prepare
the projected financial information; discuss the capital goals and the means
to achieve them; discuss the overall marketing/advertising strategy to reach
potential members; and describe the economic forecast.
No comments were received on the proposal.
The amendment is adopted under the provision of the Texas Finance
Code, Section 15.402, which authorizes the Commission to adopt reasonable
rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the
Texas Finance Code and Texas Finance Code Section 122.001, which authorizes
the Commission to prescribe the form of charter applications.
The specific section affected by the amendment is Texas Finance Code, Section
122.001.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on October 25, 2004.
TRD-200406405
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: November 14, 2004
Proposal publication date: July 9, 2004
For further information, please call: (512) 837-9236
7 TAC §91.302
The Credit Union Commission adopts an amendment to rule §91.302,
relating to election or other vote by electronic device, absentee ballot,
or mail ballot with non-substantive changes to the text published in the July
9, 2004, issue of the
Texas Register
(29 TexReg
6484).
The amendment adds a new subsection (a) requiring that a board of directors
have established written election rules, including procedures to control,
tabulate, and retain ballots; capture invalid ballots; and handle disputed
election results and tie votes, before holding an election or other vote by
electronic device, absentee ballot, or mail ballot. The amendment also makes
this rule applicable to special meetings and votes other than just elections.
No comments were received regarding adoption of the amendment.
The amendment is adopted under the provision of the Texas Finance
Code, Section 15.402, which authorizes the Commission to adopt reasonable
rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the
Texas Finance Code and Texas Finance Code Section 122.052, which authorizes
the Commission to adopt rules governing balloting.
The specific section affected by the amendment is Texas Finance Code, Section
122.052.
§91.302.Election or Other Vote By Electronic Device, Absentee Ballot, or Mail Ballot.
(a)
The board of directors, before holding an election or other
vote by the membership that utilizes an electronic device, absentee ballot,
or mail ballot, shall establish written election rules, including procedures
to: control, tabulate and retain ballots; capture invalid ballots; and handle
disputed election results and tie votes.
(b)
The use of an electronic device, absentee or mail ballot
by any credit union shall ensure fair and equitable opportunity for any qualified
member to seek office, including a provision for nomination by petition, and
providing the appropriate notice and information to all members.
(c)
Any elections or other vote held by electronic device or
mail ballot are subject to the following conditions:
(1)
The election tellers shall be appointed by the board of
directors;
(2)
At least 30 days prior to the annual or special meeting,
the board of directors will cause either a printed ballot or notice of a ballot,
along with appropriate instructions, to be mailed to all members eligible
to vote;
(3)
Ballots must be received no later than midnight 5 calendar
days prior to the annual or special meeting;
(4)
The votes will be tallied by the tellers and the results
of the vote will be made public at the annual or special meeting.
(d)
In the event of a malfunction of the electronic balloting
system, the board of directors may in its discretion order elections or other
vote to be held by mail ballot only. The board may make reasonable adjustments
to the voting time frames in subsection (c) of this section, or postpone the
annual or special meeting if necessary, to complete the elections prior to
the annual or special meeting.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on October 25, 2004.
TRD-200406402
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: November 14, 2004
Proposal publication date: July 9, 2004
For further information, please call: (512) 837-9236
7 TAC §91.802
The Credit Union Commission adopts an amendment to rule §91.802,
relating to other investments with non-substantive changes to the text published
in the July 9, 2004, issue of the
Texas Register
(29 TexReg 6485).
The amendment clarifies that a credit union's investment policy must contain
an appropriate risk management framework of the level of risk in the investment
portfolio, including methods for evaluating, monitoring, and managing the
various risks associated with its investment activities. The amendment adds
some new definitions for clarity. In addition, a subsection (f) was added
which imposes a new requirement that third-party entities, used by a credit
union to purchase or sell investments, must be registered with the Securities
and Exchange Commission or be a financial institution. It also allows the
purchase and sale of investments through broker-dealers if certain due diligence
conditions are met. Finally, a new subsection (g) was added to deal with discretionary
control over investments and investment advisers.
One comment was received on the proposal from a consultant to the credit
union industry suggesting a non-substantive grammatical change. The Commission
on its own initiative made a non-substantive change to clarify the scope of
the annual investigation of a broker dealer.
The amendment is adopted under the provision of the Texas Finance
Code, Section 15.402, which authorizes the Commission to adopt reasonable
rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the
Texas Finance Code and Texas Finance Code Section 124.351, which authorizes
the Commission to adopt rules authorizing other investments permissible for
credit unions that are responsive to (a) changes in economic conditions or
competitive practices and (b) the need for safety and soundness of credit
union investments.
The specific section affected by the amendment is Texas Finance Code, Section
124.351.
§91.802.Other Investments.
(a)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
Asset-backed security--A bond, note, or other obligation
issued by a financial institution, trust, insurance company, or other corporation
secured by either a pool of loans, extensions of credit which are unsecured
or secured by personal property, or a pool of personal property leases.
(2)
Bailment for hire contract--A contract whereby a third
party, bank, or other financial institution, for a fee, agrees to exercise
ordinary care in protecting the securities held in safekeeping for its customers;
also known as a custodial agreement.
(3)
Bankers' acceptance--A time draft that is drawn on and
accepted by a bank, and that represents an irrevocable obligation of the bank.
(4)
Cash forward agreement--An agreement to purchase or sell
a security with delivery and acceptance being mandatory and at a future date
in excess of 30 days from the trade date.
(5)
Counterparty--An entity with which a credit union conducts
investment-related activities in such a manner as to create a credit risk
exposure for the credit union to the entity.
(6)
Eurodollar deposit--A deposit denominated in U. S. dollars
in a foreign branch of a United States financial institution.
(7)
Federal funds transaction--A short-term or open-ended transfer
of funds to a financial institution.
(8)
Financial institution --A bank or savings association,
the deposits of which are insured by the Federal Deposit Insurance Corporation,
a federal or state-chartered credit union, or the National Credit Union Central
Liquidity Facility.
(9)
Investment--Any security, obligation, account, deposit,
or other item authorized for investment by the Act or this section other than
an investment authorized by §124.351(a)(1) of the Act.
(10)
Mortgage related security--A security which meets the
definition of mortgage related security in United States Code Annotated, Title
15, §78c(a)(41); i.e., a privately-issued security backed by mortgages
secured by real estate upon which is located a dwelling, a mixed residential
and commercial structure, a residential manufactured home, or a commercial
structure.
(11)
Nationally recognized statistical rating organization
(NRSRO)--A rating organization recognized by the Securities and Exchange Commission.
(12)
Ordinary care--The degree of care, which an ordinarily
prudent and competent person engaged in the same line of business or endeavor
should exercise under similar circumstances.
(13)
Repurchase transaction--A transaction in which a credit
union agrees to purchase a security from a counterparty and to resell the
same or any identical security to that counterparty at a later date and at
a specified price.
(14)
Reverse repurchase transaction--A transaction whereby
a credit union agrees to sell a security to a counterparty and to repurchase
the same or any identical security from that counterparty at a future date
and at a specified price.
(15)
Security--An investment that has a CUSIP number or that
is represented by a share, participation, or other interest in property or
in an enterprise of the issuer or an obligation of the issuer that:
(A)
either is represented by an instrument issued in bearer
or registered form or, if not represented by an instrument, is registered
in books maintained to record transfers by or on behalf of the issuer;
(B)
is of a type commonly traded on securities exchanges or
markets or, when represented by an instrument, is commonly recognized in any
area in which it is issued or traded as a medium for investment; and
(C)
either is one of a class or series or by its terms is divisible
into a class or series of shares, participations, interests, or obligations.
(16)
Settlement date--The date originally agreed to by a credit
union and a vendor for settlement of the purchase or sale of a security.
(17)
Trade date--The date a credit union originally agrees,
whether orally or in writing, to enter into the purchase or sale of a security.
(18)
Yankee dollar deposit--A deposit in a United States branch
of a foreign bank, the deposits of which are insured by the Federal Deposit
Insurance Corporation, that is licensed to do business in the state in which
it is located, or a deposit in a state chartered, foreign controlled bank.
(b)
Policy. A credit union may invest funds not used in loans
to members, subject to the conditions and limitations of the written investment
policy of the board of directors. The investment policy may be part of a broader,
asset-liability management policy. The board of directors must review the
investment policy at least annually to ensure that the policies adequately
address the following issues:
(1)
The types of investments that are authorized by the board
of directors.
(2)
A specific limit on the amount that may be invested in
any single investment or investment type.
(3)
The delegation of investment authority to the credit union's
officials or employees, including the person or persons authorized to purchase
or sell investments, and a limit of the investment authority for each individual
or committee.
(4)
A list of authorized broker-dealers or other third-parties
that may be used to purchase or sell investments, and an internal process
for assessing the credentials and previous record of the individual or firm.
(5)
An appropriate risk management framework for the level
of risk in the investment portfolio. This will include specific methods for
evaluating, monitoring, and managing the credit risk, interest-rate risk,
and liquidity risk from the investment activities.
(6)
A list of authorized third-party safekeeping agents.
(7)
If the credit union operates a trading account, the policy
shall specify the persons authorized to engage in trading account activities,
trading account size limits, stop loss and sale provisions, time limits on
inventoried trading account investments, and internal controls that specify
the segregation of risk-taking and monitoring activities related to trading
account activities.
(8)
The procedure for reporting to the board of directors investments
and investment activities that become noncompliant with the credit union's
investment policy subsequent to the initial purchase.
(c)
Authorized activities.
(1)
General authority. A credit union may contract for the
purchase or sale of a security provided that delivery of the security is by
regular-way settlement. Regular-way settlement means delivery of a security
from a seller to a buyer within the time frame that the securities industry
has established for that type of security. All purchases and sales of investments
must be delivery versus payment (i.e., payment for an investment must occur
simultaneously with its delivery).
(2)
Cash forward agreements. A credit union may enter into
a cash forward agreement to purchase or sell a security, provided that:
(A)
the period from the trade date to the settlement date does
not exceed 90 days;
(B)
if the credit union is the purchaser, it has written cash
flow projections evidencing its ability to purchase the security;
(C)
if the credit union is the seller, it owns the security
on the trade date; and
(D)
the cash forward agreement is settled on a cash basis at
the settlement date.
(3)
Repurchase transactions. A credit union may enter a repurchase
transaction provided:
(A)
the purchase price of the security obtained in the transaction
is at or below the market price;
(B)
the repurchase securities are authorized investments under
Texas Finance Code §124.351 or this section;
(C)
the credit union has entered into signed contracts with
all approved counterparties;
(D)
the counterparty is rated no lower than BBB by Standard &
Poor's or an equivalent rating by another NRSRO; and
(E)
the credit union receives a daily assessment of the market
value of the repurchase securities, including accrued interest, and maintains
adequate margin that reflects a risk assessment of the repurchase securities
and the term of the transaction.
(4)
Reverse repurchase transactions. A credit union may enter
into a reverse repurchase transaction, which is a borrowing transaction subject
to the Act, provided:
(A)
any securities received are authorized investments under
Texas Finance Code §124.351 and this section;
(B)
the credit union has entered into signed contracts with
all approved counterparties; and
(C)
for transaction with a maturity greater than one month,
the credit union receives a monthly assessment of the market value of the
securities received, including accrued interest, and maintains adequate margin
that reflects a risk assessment of the securities and the term of the transaction.
(5)
Federal funds. A credit union may enter into a federal
funds transaction with a financial institution, provided that the interest
or other consideration received from the financial institution is at the market
rate for federal funds transactions and that the transaction has a maturity
of one or more business days or the credit union is able to require repayment
at any time.
(6)
Yankee dollars. A credit union may invest in yankee dollar
deposits.
(7)
Eurodollars. A credit union may invest in eurodollar deposits.
(8)
Bankers' acceptance. A credit union may invest in bankers'
acceptances.
(9)
Open-end Investment Companies (Mutual Funds). A credit
union may invest funds in an open-end investment company established for investing
directly or collectively in any authorized investment, including qualified
money market mutual funds as defined by Securities and Exchange Commission
regulations.
(10)
Government-sponsored enterprises. A credit union may invest
in government-sponsored enterprise obligations such as Federal Home Loan Banks,
the Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association and the Student Loan Marketing Association.
(11)
Commercial paper. A credit union may invest in commercial
paper issued by corporations domiciled within the United States and having
a rating of no less than A1 or P1 by Standard & Poor's or Moody's, respectively,
or an equivalent rating by a NRSRO.
(12)
Corporate bonds. A credit union may invest in corporate
bonds which are rated in one of the three highest rating categories by a NRSRO
(e.g. Standard & Poor's ratings AAA, AA, and A) and have remaining maturities
of five years or less.
(13)
Municipal bonds. A credit union may invest in municipal
bonds which are rated in one of the three highest rating categories by a NRSRO
and have remaining maturities of five years or less.
(14)
Mortgage related securities. A credit union may invest
in mortgage related securities, except not in the "accrual bond" (or Z-bonds)
or the residual interest of the mortgage related security which are rated
in one of the three highest rating categories by a NRSRO.
(15)
Asset-backed securities. A credit union may invest in
asset-backed securities rated in one of the two highest rating categories
by a NRSRO provided the underlying collateral is domestic- and consumer-based.
(d)
Documentation. A credit union shall maintain files containing
credit and other information adequate to demonstrate evidence of prudent business
judgment in exercising the investment powers under the Act and this rule.
Except for investments that are issued, insured or fully guaranteed as to
principal and interest by the U.S. Government or its agencies, enterprises,
or corporations or fully insured (including accumulated interest) by the National
Credit Union Administration or the Federal Deposit Insurance Corporation,
a credit union must conduct and document a credit analysis of the issuing
entity and/or investment before purchasing the investment. The credit union
must update the credit analysis at least annually as long as the investment
is held. Credit and other due diligence documentation for each investment
shall be maintained as long as the credit union holds the investment and until
it has been both audited and examined. Before purchasing or selling a security,
a credit union must obtain either price quotations on the security (or a similarly-structured
security) from at least two broker-dealers or a price quotation on the security
(or similarly-structured security) from an industry-recognized information
provider.
(e)
Classification. A credit union must classify a security
as hold-to-maturity, available-for-sale, or trading, in accordance with generally
accepted accounting principles and consistent with the credit union's documented
intent and ability regarding the security.
(f)
Purchase or Sale of Investments Through a Third-Party.
(1)
A credit union may purchase and sell investments through
a broker-dealer as long as the broker-dealer is registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C.
78a et seq.) or is a financial institution whose broker-dealer activities
are regulated by a federal or state regulatory agency.
(2)
Before purchasing an investment through a broker-dealer,
a credit union must analyze and annually update the following information.
(A)
The background of the primary sales representative and
the local broker-dealer firm with whom the credit union is doing business,
using information available from federal or state securities regulators and
securities industry self-regulatory organizations, such as the National Association
of Securities Dealers and the North American Securities Administrators Association,
about any enforcement actions against the broker-dealer firm, its affiliates,
or associated personnel.
(B)
If the broker-dealer is acting as the credit union's counterparty,
the ability of the broker-dealer and its subsidiaries or affiliates to fulfill
commitments, as evidenced by capital strength, liquidity, and operating results.
The credit union should consider current financial data, annual reports, reports
of nationally-recognized statistical rating organizations, relevant disclosure
documents, and other sources of financial information.
(3)
Requirements (1) and (2) of this subsection do not apply
when a credit union purchases a certificate of deposit or share certificate
directly from a bank, credit union, or other financial institution.
(g)
Discretionary Control Over Investments and Investment Advisers.
(1)
Except as provided in paragraph (2) of this subsection,
a credit union must retain discretionary control over its purchase and sale
of investments. A credit union has not delegated discretionary control to
an investment adviser when the credit union reviews all recommendations from
investment adviser and is required to authorize a recommended purchase or
sale transaction before its execution.
(2)
A credit union may delegate discretionary control over
the purchase and sale of investments in and aggregate amount not to exceed
100% of its reserves and undivided earnings at the time of delegation to persons
other than the credit union's officials or employees, provided each such person
is an investment adviser registered with the Securities and Exchange Commission
under the Investment Advisers Act of 1940 (15 U.S.C. 80b).
(3)
Before transacting business with an investment adviser
to which discretionary control has been granted, an annually thereafter, a
credit union must analyze the adviser's background and information available
from federal and state securities regulators and securities industry self-regulatory
organizations, including any enforcement actions against the adviser, associated
personnel, and the firm for which the adviser works.
(4)
A credit union may not compensate an investment adviser
with discretionary control over the purchase and sale of investments on a
per transaction basis or based on capital gains, capital appreciation, net
income, performance relative to an index, or any other incentive basis.
(5)
A credit union must obtain a report from its investment
adviser at least monthly that details the investments under the adviser's
control and their performance.
This agency hereby certifies that the adoption has been
reviewed by legal counsel and found to be a valid exercise of the agency's
legal authority.
Filed with the Office of
the Secretary of State on October 25, 2004.
TRD-200406403
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: November 14, 2004
Proposal publication date: July 9, 2004
For further information, please call: (512) 837-9236
Chapter 153.
HOME EQUITY LENDING
Subchapter B. ORGANIZATION PROCEDURES
Subchapter C. MEMBERS
Subchapter H. INVESTMENTS
Part 8.
JOINT FINANCIAL REGULATORY AGENCIES