updated 06/11/13 11:24 AM
SUBMIT YOUR CU's DERIVATIVE COMMENTS
Deadline is July 29
Your credit union's comments are needed regarding the National Credit Union Administration's (NCUA) proposed derivatives rule and the potentially precedent-setting use of fees associated with the derivatives program. Whether or not your credit union is eligible for derivatives authority under this proposed rule, it may still share the cost.
Sharon Lindeman, VP of Regulatory Advocacy for the California and Nevada Credit Union Leagues
NCUA's Derivatives Proposal
The proposed rule would allow eligible credit unions limited authority to purchase simple derivatives, interest rate swaps and interest rate caps, as a hedge against interest rate risk (IRR).
The rule would apply to eligible federal credit unions and federally insured state-chartered credit unions that are permitted under state law to engage in derivatives, and that meet NCUA's criteria. California and Nevada credit unions may engage in derivatives if they receive authorization in writing from their commissioners (CA Financial Code 14653.5, Nevada NRS 678.460).
The proposal requires credit unions seeking derivatives authority to apply for one of two levels of authority and demonstrate how derivatives will be part of an overall IRR management plan. Level I and Level II authority differ on the permissible levels of transactions as well as the application, expertise, and systems requirements associated with operating a derivatives program.
Under the proposal, eligible credit unions include credit unions with a CAMEL rating of 1, 2, or 3, a management component of 1 or 2, and credit unions that have assets of at least $250 million. Credit unions seeking Level II authority must also show why the limits under Level I are insufficient to effectively mitigate interest rate risk under their plan.
Associated Fees
The NCUA is proposing application fees, as well as supervision or examination fees. This is the first time the NCUA has proposed charging credit unions fees in this manner, and some are concerned this might set a precedent for use of fees for other credit union activities the NCUA deems carries a higher level of risk.
The proposed rule calls for application fees for those credit unions that apply for derivatives authority. Level I application fees would start at $25,000, and Level II applications would range from $75,000 to $125,000.
In addition to application fees, the NCUA is considering whether their ongoing costs associated with the supervision of credit unions engaged in derivatives should be borne entirely by those credit unions or shared by all federally insured credit unions. In addressing this cost recovery, the NCUA asks you to consider whether all federally insured credit unions and the National Credit Union Share Insurance Fund (NCUSIF) indirectly benefit when credit unions that purchase derivatives successfully reduce potential losses and indirectly benefit from NCUA’s enhanced supervision of derivatives.
Your Comments Are Needed
The comment deadline is July 29, 2013. We encourage you to use PowerComment to access the Leagues’ summary of the proposed rule and other related documents, discuss the proposal with your peers, and submit your comment letter to the NCUA! Use PowerComment to let your voice be heard on this important issue!
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