Michigan Laws 490.431 – Investment of funds not used in member loans; limitations; maintenance of files; plan for divestiture of investment
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Terms Used In Michigan Laws 490.431
- Affiliate: means a person, other than an individual or governmental entity, to which any of the following apply:
(i) A credit union directly or indirectly owns or controls a majority of the person's voting shares or other voting ownership interests. See Michigan Laws 490.102Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account. Bank: means a bank that is organized under the laws of this state, any other state, the District of Columbia, or a territory or protectorate of the United States, or a national banking association chartered by the federal government under the national bank act, 12 USC 21 to 216d, and whose deposits are insured by an agency of the federal government. See Michigan Laws 490.102 Corporate credit union: means a credit union whose field of membership consists primarily of other credit unions. See Michigan Laws 490.102 Credit union: means a domestic or foreign credit union. See Michigan Laws 490.102 Director: means the director of the department. See Michigan Laws 490.102 Domestic credit union: means a cooperative, nonprofit entity organized under this act for the purposes of encouraging thrift among its members, providing a variety of financial services to its members, and providing an opportunity for its members to use and control their own money on a democratic basis in order to improve their economic and social condition. See Michigan Laws 490.102 Equitable: Pertaining to civil suits in "equity" rather than in "law." In English legal history, the courts of "law" could order the payment of damages and could afford no other remedy. See damages. A separate court of "equity" could order someone to do something or to cease to do something. See, e.g., injunction. In American jurisprudence, the federal courts have both legal and equitable power, but the distinction is still an important one. For example, a trial by jury is normally available in "law" cases but not in "equity" cases. Source: U.S. Courts Evidence: Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other. Net worth: means the sum of a credit union's undivided earnings and reserves. See Michigan Laws 490.103 Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period. United States: shall be construed to include the district and territories. See Michigan Laws 8.3o
(1) A domestic credit union may invest funds that are not used in loans to members in any of the following:
(a) Securities, obligations, or other instruments of or issued by or fully guaranteed as to principal and interest by the United States or an agency or instrumentality of the United States, or in any trust or trusts established for investing directly or collectively in those securities, obligations, or instruments.
(b) Securities, obligations, or other instruments of or issued by any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or a territory organized by Congress, or any of their political subdivisions.
(c) Securities, obligations, or other instruments of any central liquidity facility or corporate credit union established under the laws of this state, the laws of another state or territory of the United States, or the laws of the United States, or any federal reserve bank.
(d) An obligation that meets all of the following:
(i) In the domestic credit union‘s prudent judgment, which may be based in part on estimates that it believes are reliable, there is adequate evidence that the obligor of the obligation will be able to perform all it undertakes to perform in connection with the obligation, including all debt service requirements, and that the obligation may be sold with reasonable promptness at a price that corresponds to its fair value.
(ii) The investment characteristics of the obligation are not considered distinctly or predominantly speculative.
(iii) The obligation is not in default in the payment of principal or interest.
(iv) The obligation is a marketable obligation in the form of a bond, note, or debenture, commonly regarded as an investment security, and salable under ordinary circumstances with reasonable promptness at a fair value.
(e) Shares or certificates of an open-end management investment company registered with the Securities and Exchange Commission under the investment company act of 1940, 15 USC 80a-1 to 80a-64, if all of the following conditions are met:
(i) At least 90% of the fund’s assets consist of and are limited to securities in which a domestic credit union may invest directly.
(ii) The domestic credit union has an equitable and undivided interest in the underlying assets of the fund.
(iii) The domestic credit union is not liable for acts or obligations of the fund.
(iv) The domestic credit union’s investment in any 1 fund does not exceed the amount of its net worth.
(f) Investments in mortgage-backed securities either issued by or guaranteed by a private organization if the securities involved meet the investment standards for an obligation described in subdivision (d).
(2) A domestic credit union other than a corporate credit union shall not invest an amount that exceeds 25% of its net worth in an obligor or affiliate of the obligor. This subsection does not apply to the extent that the investment is insured or guaranteed by the United States government or an agency of the United States government or a state or local government, or the investment is in a corporate credit union.
(3) A domestic credit union may not invest in or hold common stock or another equity investment except as provided in section 401(2), or in bank and bank holding company stock legally acquired before December 19, 1986. If a domestic credit union possesses capital stock or another equity investment as the result of a loan default, it shall dispose of that investment within a reasonable period of time that does not exceed 1 year, or a longer period of time approved by the director for that domestic credit union.
(4) In addition to investments authorized by this act, a domestic credit union may make any other type of investment approved by the director by rule, order, or declaratory ruling.
(5) A domestic credit union shall maintain files containing credit and other information adequate to demonstrate evidence of prudent business judgment in exercising the investment powers granted under this act or by rule, order, or declaratory ruling of the director.
(6) If a domestic credit union invests funds in a security, obligation, or other instrument that at the time is permitted under this section, the investment subsequently becomes impermissible because of a change in circumstances or law, and the director finds that continuing to hold the investment will have an adverse effect on the safety and soundness of the credit union, the director may require that the credit union develop a reasonable plan for the divestiture of the investment.