Low-Income Designation (LID) provides credit unions with expanded authority to accept non-member deposits, enabling funding strategies that are otherwise unavailable to non-designated institutions. One common application of this authority is participation in reciprocal deposit arrangements, including deposit placement networks.
For Low-Income Credit Unions (LICUs), reciprocal deposits can be used to support large member relationships, manage share insurance limits, and diversify liquidity. While LID makes this activity permissible, it remains subject to statutory caps, safety and soundness expectations, and ongoing NCUA oversight.
Statutory Authority for Non-Member Deposits
Section 107(6) of the Federal Credit Union Act (12 U.S.C. § 1757(6)) authorizes federally insured credit unions to accept member shares. Congress provided additional flexibility for Low-Income Credit Unions by allowing them to accept non-member deposits.
Specifically, a LICU may accept non-member deposits from any source, provided that total non-member deposits do not exceed the greater of:
• $3 million, or
• 50 percent of total shares
This authority is one of the most significant balance-sheet benefits associated with LID and serves as the legal foundation for a LICU’s ability to participate in reciprocal deposit programs.
How Reciprocal Deposit Networks Fit Within This Authority
Reciprocal deposit networks allow participating financial institutions to place deposits for their customers across a network of insured institutions while simultaneously receiving deposits from other network participants.
From a regulatory perspective, incoming reciprocal deposits are treated as non-member deposits, count toward the LICU’s statutory non-member deposit cap, and are permitted for credit unions that hold Low-Income Designation, up to the statutory limits noted above.
LID does not create a separate regulatory category for reciprocal deposits. Instead, these deposits are evaluated under the same statutory framework that governs all non-member deposits accepted by a LICU.
Illustrative Use Case: Managing Share Insurance Limits for Large Depositors
A common driver of interest in reciprocal deposits is the need to manage federal share insurance limits for large depositors.
For example, a business member may wish to place $1 million on deposit with the credit union but is concerned that only $250,000 would be insured under standard NCUSIF coverage limits.
Through a reciprocal deposit network, the arrangement can be structured so that:
• The credit union retains the full relationship with the business member.
• $250,000 remains on deposit at the credit union and is insured by the NCUSIF.
• The remaining $750,000 is placed at three or more other participating institutions, where each portion is separately insured.
• Those institutions simultaneously place an equivalent amount of deposits back into the credit union as reciprocal deposits.
From the member’s perspective, the full $1 million is federally insured. From the credit union’s perspective, the total amount of funding available for lending and liquidity remains largely unchanged.
Regulatory Treatment of the Incoming Funds
Although the originating business is a member of the credit union, the reciprocal deposits received through the network are placed by non-members. As a result, the incoming deposits are classified as non-member deposits—permissible for a LICU up to the statutory deposit cap—and remain subject to standard examiner review and safety and soundness expectations.
This distinction is critical. The ability to accept reciprocal deposits at scale is directly tied to LID status. A credit union without LID would generally be prohibited from engaging in this activity beyond very limited circumstances.
Supervisory and Safety-and-Soundness Considerations.
While LID expands what is legally permissible, it does not remove supervisory scrutiny. In practice, NCUA examiners continue to evaluate reciprocal deposit activity through a safety-and-soundness lens, with particular attention to how non-member funding is used and managed.
Deposit concentration and liquidity risk.
Reciprocal deposits can provide a stable source of funding, but increased reliance on non-member deposits may heighten balance-sheet sensitivity under stress scenarios. Examiners typically assess concentration levels, maturity structures, and the extent to which reciprocal deposits are incorporated into contingency funding plans.
Cost of funds and interest rate risk.
Deposit networks involve pricing dynamics, fees, and terms that differ from traditional member shares. Credit unions are expected to understand and monitor how these costs affect overall funding strategy and asset-liability management, particularly in changing rate environments.
Governance and policy alignment.
Participation in reciprocal deposit programs should be clearly addressed in relevant policies, such as liquidity, funds management, or investment policies. Examiners often look for documented board awareness and oversight, along with defined limits and monitoring practices.
Monitoring of statutory limits.
Because reciprocal deposits are classified as non-member deposits, growth in these balances, when combined with other non-member funding sources, can cause a Low-Income Credit Union to approach its statutory deposit cap more quickly than anticipated. Ongoing monitoring is essential to ensure continued compliance with LID-related limits.
What LID Does Not Change
It is equally important to understand the boundaries of LID authority. LID does not permit unlimited non-member deposits or eliminate safety and soundness expectations. Nor does it reduce examiner discretion if funding risk becomes elevated.
Reciprocal deposits are allowed, but not risk-free, and they must be managed accordingly.
Practical Takeaways for Newly Designated LICUs
For credit unions that have recently obtained LID, reciprocal deposits can be a useful tool, particularly for:
• Supporting large member or business relationships
• Managing share insurance coverage concerns
• Diversifying liquidity sources
Most successful LICUs treat reciprocal deposits as a complement to core member funding, not a replacement. Conservative initial limits, clear policies, and proactive examiner communication are key to using this authority effectively.
Learning More About Reciprocal Deposit Options
For Low-Income Credit Unions, reciprocal deposits can be a useful tool for managing large deposit relationships and share insurance limits when used appropriately and within statutory boundaries. As discussed above, the authority to accept non-member reciprocal deposits is enabled by Low-Income Designation, while the operational setup and ongoing administration are handled through specialized deposit network providers.
CUCollaborate has partnered with Landing Rock, a provider of insured deposit and reciprocal deposit network solutions that works directly with credit unions to offer these programs.
For credit unions interested in learning more about reciprocal deposits or exploring whether a deposit network may be a good fit, CUCollaborate is happy to make an introduction to Landing Rock.
To learn more, credit unions can reach out to Ben Hering, Director of Partnerships at CUCollaborate, who can help facilitate an introduction and share additional information.
Low-Income Designation
