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TIPS Final Rule Gives CUs New Investment Option
Monday, March 11, 2013 9:20 AM

Federal credit unions now have an additional risk-management tool with the National Credit Union Administration’s (NCUA) board approval of a final rule adding Treasuring Inflation Protected Securities (TIPS) as a permissible investment.

“The idea of permitting TIPS came up during one of my listening sessions last year,” NCUA Chairman Debbie Matz tells The NCUA Report readers.  “NCUA’s research and analysis showed these securities could be a valuable tool for federal credit unions if properly managed, so we’ve acted to prudently provider greater regulatory flexibility.”

TIPS are securities issued by the U.S. Treasury Department that differ from other types of securities by providing protection against inflation. The principal increases or decreases with inflation, as measured by the Consumer Price Index.  When TIPS mature, holders are paid the adjusted principal or the original principal, whichever is greater.  Previously, federal credit unions couldn’t invest in TIPS, because the Consumer Price Index is generally a prohibited index for variable-rate securities.

The board noted investing in TIPS may not be appropriate for every federal credit union, and that sound due diligence and demonstrated ability to manage this risk should precede a decision to purchase tips.

The final TIPS rule is effective March 29. 

Click here to read more on TIPs, as well as other highlights in the March 2013 issue of The NCUA Report.