WASHINGTON (8/6/13)--Credit Union National Association concerns regarding potential credit union derivatives changes received a broad audience this week, as Deputy General Counsel Mary Dunn outlined CUNA's objections to the National Credit Union Administration's proposal in The Wall Street Journal
The NCUA derivatives proposal, released at the May open board meeting, would allow well-run federal credit unions to use simple derivatives for the sole purpose of hedging against interest rate risks. The NCUA plan would allow only well-managed credit unions with $250 million or more in assets, and which have appropriate expertise, to apply for an agency derivatives investment program. Simple swaps and caps will be the only approved investments, and fees will be charged to cover costs related to application processing and supervision of the program.
"If derivatives reduce [interest rate risk], then NCUA should be encouraging credit unions to make appropriate use of permissible derivative options instead of erecting barriers to their use, such as fees to apply the authority or for supervision," Dunn told the Journal
CUNA in a comment letter filed last month said the proposed derivatives rule compliance costs are excessive and would place derivatives authority out of reach for many, if not most, credit unions seeking derivatives authority.
Credit unions are also concerned by portions of the rule addressing:
The possibility of waivers to gain additional derivatives authority;
The $250 million net worth requirement to qualify for derivatives authority; and
CUNA and credit unions do not think the NCUA's derivatives proposal framework enables reasonable participation subject to appropriately calibrated requirements.
If the regulation is adopted as proposed, the NCUA "will virtually assure minimal use of derivatives, thus undermining the very purpose of the agency's own rule," Dunn said.