ALEXANDRIA, Va. – The NCUA Board is expected to approve a new permissible investment for federally insured credit unions at this week’s meeting: Treasury Inflation Protected Securities (TIPS).
TIPS provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.
TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.
The new investment option comes as NCUA is preparing to allow more credit unions to invest in certain financial derivatives, mostly interest rate swaps and options. Only a small number of credit unions do so now through NCUA’s pilot program.
The NCUA Board is also expected to introduce an item on regulatory relief for small credit unions. The Board will propose a rule that would increase the definition of a small credit union to $10 million from the current $5 million, which would exempt more credit unions from recent rules on interest rate risk and liquidity risk.