WASHINGTON (4/25/12)--The Credit Union National Association (CUNA) on Tuesday said it supports the Small Business Credit Availability Act (H.R. 3336), which would preserve the rights of credit unions and other small financial institutions to use swaps to hedge interest rate risk.
Under the terms of the legislation, credit unions and other small financial institutions with under $1 billion in cumulative current uncollateralized credit risk exposure and potential future credit risk exposure would be granted an exception from portions of the Dodd-Frank Act that barred certain institutions from engaging in swap transactions.
CUNA President/CEO Bill Cheney in the letter thanked H.R. 3336 sponsor Vicky Hartzler (R-Mo.) for introducing the legislation, and said CUNA looks forward to working with her as the bill moves through Congress.
Relatively few credit unions use derivatives to hedge interest rate risk, but the National Credit Union Administration (NCUA) is considering allowing more credit unions to use derivatives to hedge those risks.
The NCUA currently allows a limited number of federal credit unions to engage in derivatives through an investment pilot program, and the agency could permit more credit unions to independently use derivatives to hedge IRR. The agency in an advanced notice of proposed rulemaking has suggested that credit unions that demonstrate a relevant, material IRR exposure, have demonstrated the ability to manage derivatives, and have the net worth and financial health needed to manage derivatives could be allowed to invest in interest rate swaps and interest rate caps.
CUNA earlier this month commended the NCUA for taking on the derivatives issue, and said it supports allowing well-managed credit unions to invest in derivatives through third-parties. CUNA also supports granting independent derivative investment authority for certain credit unions with adequate derivatives experience. (See related April 5 News Now story: Allow CU derivative investments as risk management tool: CUNA to NCUA)