ALEXANDRIA, Va. – The NCUA Board is expected to approve a new permissible investment for federally insured credit unions at next week’s monthly meeting, Treasury Inflation Protected Securities, or TIPS.
TIPS provide protection against inflation and the principal of a TIPS increases with inflation and decreases with deflation. 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 propose a rule that would increase the definition of a small credit union from $10 million, which would exempt more credit unions from recent rules on interest rate risk and liquidity risk.