NCUA Requirements - 3 - Management Issues Flashcards
Board minutes are important documents that record all the actions taken at board meetings and should be complete and current. List the items these minutes should reflect.
The board minutes should reflect the following items; (1) various committee reports to the board; (2) any changes made to policies; (3) any follow-up actions the board and management have taken to correct problems identified in the last audit and examination; and (4) regular reports on the ongoing financial condition of the credit union. (Page 3-2 and 3-4)
All members of a credit union’s board of directors are subject to the principles of fiduciary duty. What are the two standards by which a director’s conduct is measured, and how does the “business judgement rule” protect him or her from liability?
The two standards used to measure directors’ conduct are: (1) duty of care — directors must act with due care while developing policy and monitoring credit union operations; and (2) duty of loyalty — directors are prohibited from using
their position as director to gain personal advantage. (Page 3-4)
The business judgment rule is a creation of court rulings stating that directors are not liable for honest mistakes of judgment if they acted with due care, without a conflict of interest, in good faith, and in furtherance of the credit union’s purpose. (Page 3-5)
NCUA says there are only three eligibility requirements for FCU board membership. What are those three requirements?
Three eligibility requirements for FCU board membership: (1) the individual must be a member of the FCU; (2) the individual cannot have been convicted of a crime involving dishonesty or breach of trust; and (3) the bylaws allow the
board to set a minimum age requirement. (Page 3-12 to 3-13)
The Federal Credit Union Act contains an extensive list of the FCU’s board of director responsibilities. List seven of these responsibilities.
FCU Board of Director’s Responsibilities Listed in the Federal Credit Union Act
* Maintain general direction and control.
* Meet at least monthly and maintain minutes.
* Establish operating policies and procedures.
* Elect board officers and fix compensation, if any, of one specified officer.
* If bylaws provide for it, appoint credit committee or loan officer(s).
* Appoint supervisory committee.
* Appoint membership officer, executive committee, and other committees.
* Hire employees, fix their duties and compensation, and set personnel policies.
* Maintain confidential relations with members.
* Act on membership applications.
* Determine classes of accounts and fix maximum individual share limit.
* Set loan policies regarding loan maximums, interest rates, maturities, and collateral.
* Establish late charges and collection policies and procedures.
* Designate depository for funds.
* Authorize investments and borrowings.
* Declare dividends and interest refunds.
* Determine surety bond needs at least annually.
* Authorize necessary insurance.
* Provide necessary service facilities.
* Act on loans to directors and credit and supervisory committee members in excess
of $20,000.
* Appoint a security officer and supervise the security program.
* Establish a records preservation program.
* Request approval of charter and nonstandard bylaw amendments.
* Plan and hold an annual meeting, report to members, and maintain minutes.
(Page 3-3)
What is the one mandatory ongoing committee that a federal credit union must maintain?
Every federal credit union must have a supervisory committee. (Page 3-11)
The Federal Credit Union Bylaws stipulate that specific groups must have access to the credit union’s books and records. What are two of the groups named in the
bylaws?
Members of the board of directors, the supervisory committee, the credit committee, the nominating committee, and the executive committee. (Page 3-9)
Can a credit union’s CEO/manager serve on the board directors? Yes or No?
Yes - The standard bylaw amendments and the 1999 revision to the standard bylaws allow a credit union manager to serve on the board of directors. (Page 3-17)
According to the Federal Credit Union Act, what must a federal credit do to expel a member?
In order to expel a member, the Federal Credit Union Act states: A member may be expelled by a two-thirds vote of the members of the FCU present at a special
meeting called for that purpose but only after opportunity has been given to the member to be heard. (Page 3-18)
How often does the NCUA records preservation program require federally insured credit unions to store their records?
Records must be stored every three months. (Page 3-31)
Which of the following are requirements of NCUA’s investment regulation (Section 703)?
a) That federal credit unions have written investment policies which specify and control the investment activities the credit union will undertake.
b) That those responsible for the investment function have sufficient knowledge to understand the risks involved.
c) That investment risks be reported in a level of detail appropriate for the level of risk assumed.
d) All of the above.
NCUA requires: (d) All of the above. (Page 3-20 to 3-21)
NCUA requires the board of directors of federally chartered credit unions to commit their investment policy to writing and review that policy annually. The policy must contain ten items of information. List four risk factors that the board policy must address:
The written policy must include provisions addressing:
(1) how the FCU will manage the interest rate risk;
(2) how the FCU will manage liquidity risk;
(3) how the FCU will manage credit risk, including specifically listing institutions,
issuers, and counterparties that may be used, or criteria for their selection, and limits on the amounts that may be invested in each; and
(4) how the FCU will manage concentration risk, which can result from dealing with a single or related issuers, lack of geographic distribution, holding obligations with similar characteristics like maturities and indexes, holding bonds having the same trustee, and holding securities loans having the same originator, packager or guarantor. (Page 3-20 to 3-21)
Which people associated with the federal credit union are prohibited from reaping any personal gain from investment activities of the credit union?
Directors, investment committee members, senior employees such as the chief executive officer (CEO) and chief financial officer (CFO), the investment officer,
and any family members of any of these people. (Page 3-22)
What does NCUA expect a credit union to analyze about the broker-dealers and safekeepers it relies upon?
Credit unions are required in Section 703 to analyze and update annually the background, enforcement history, financial condition and other relevant information of any broker-dealers and safekeeper they rely upon in their
investment program. (Page 3-21)
List as many permissible investments that you can recall for federal credit unions and think of two that are prohibited.
Review Figure 3.3 for a list of permissible investments as well as some additional aspects of those investments in the text such as mutual funds, banker’s acceptances and collateralized mortgage obligations (CMOs).
Federal credit unions are prohibited from investing in the stocks and bonds of businesses such as publicly traded corporations (General Motors, AT&T, Disney, etc.).
(Page 3-22 to 3-24)
