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How Will Corporate Restructure Change Short-Term Investment Strategies?

February 4, 2011

While much progress has been made toward a revamped corporate credit union system, uncertainty still surrounds the questions of which corporates will emerge and what products and services they will offer.  One thing that does seem certain, though, is the eventual lifting of the Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP).

The TCCUSGP is currently extended until the end of 2012, but when it is allowed to expire, credit unions will be faced with the question of what to do with their newly-uninsured money.  This is no small chunk of change.  As of third quarter 2010, natural person credit unions had $40B in cash on deposit and $21B in other investments with CCUs (not counting corporate capital).  That $61B represents about two thirds of total natural person credit union equity.

The decision to keep lots of money in corporates has almost been a non-decision.  Credit unions have historically high levels of cash they need to invest.  The return on corporate investments isn’t great, but it isn’t great anywhere and they are fully insured as long as they have maturities of two years or less.  How will your investment strategy change when the insurance drops to $250K?

  • How much in uninsured deposits are you comfortable having in a single entity, including a corporate credit union?  What is your due diligence process?
  • When the guarantee expires, how will the transition process work?  How will you assess the adequacy of your corporate credit union’s liquidity?
  • If you choose to branch out by purchasing investments that are new to you, do you have the resources and expertise to perform proper due diligence and evaluation?
  • If you decide to stay under the $250K insurance limit, will the sheer number of investments be too time-consuming to evaluate and manage?

It’s a good idea to keep these questions in mind as the corporate system restructuring continues so you will be prepared to make a decision when the time comes.

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