Dear Ms. Husak:
You have asked if a federal credit union (FCU) can obtain an irrevocable standby letter of credit (LOC) and pledge its assets as collateral to secure member shares in excess of the share insurance limit. An FCU can only pledge its assets to guarantee deposits for the benefit of a government depositor or public unit.
Additionally, you asked for guidance regarding the appropriate disposition of existing LOCs if it is impermissible for Building Trades to guarantee uninsured member shares. We suggest Building Trades consider, as an alternative, restructuring the member account(s) to maximize share insurance coverage. For example, shares in a retirement or other employee benefit plan account are insured separately from the other share accounts of a corporation or unincorporated association. 12 C.F.R. §§ 745.6, 745.9-2. Additionally, the shares of an employee benefit plan are insured on a “pass-through” basis, meaning the interest of each plan participant is insured up to the maximum share insurance limit. 12 C.F.R. §745.9-2(a).
If you have any further questions, please feel free to contact Staff Attorney Tonya Green or me at (703) 518-6540.
Sheila A. Albin
Associate General Counsel