The guaranteed investment industry won a partial victory over federal regulators and now will be allowed to hold synthetic GICs in pooled GIC funds as long as the fund consists solely of defined contribution plan assets.
The Office of the Comptroller of the Currency, which regulates federally chartered banks, said pooled GIC funds may hold GICs and synthetic GICs at fair value without seeking its approval. The office was responding to a request by the GIC/Stable Value Association for clarification.
Larry Mylnechuk, executive director of the association, said the OCC action is good news for the industry and for banks offering pooled GIC funds.
Kelli Hueler, president of Minneapolis-based Hueler Analytics, which tracks pooled GIC funds, said the decision gives the industry "90% of what we wanted."
The OCC directive standardizes regulation of pooled GIC funds, she said, and clarifies disparities in the treatment and valuation of synthetics by different regional OCC examiners.
In some regions, she said, banks had been required to liquidate synthetic contracts because examiners questioned how they were to be valued while other regional examiners did not question the use of synthetics.
"This is good news because now banks can value these contracts in the same way as the rest of the industry," said Ms. Hueler.
The decision left open how the approximately 5% of the estimated $28 billion pooled GIC fund universe held by defined benefit plans will be valued.
According to one bank GIC fund manager, the industry will need further guidance on defined benefit assets held in bank pooled funds.
If the current ruling is not extended to defined benefit assets, he said, some banks may refuse defined benefit investments or will need to seek an exemption for each defined benefit investment.