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NASCUS: Derivatives Proposal Ignores State Expertise
WASHINGTON (7/30/13)--The National Credit Union Administration's derivatives proposal "would limit the authority of state regulators to supervise derivatives activities in their states," the National Association of State Credit Union Supervisors wrote in a recent comment letter. NASCUS said it cannot support the proposed derivatives regulation in its current form.

The NCUA derivatives proposal, released at the May open board meeting, would allow well-run federal credit unions to use simple derivatives to hedge 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. Swaps and caps will be the only approved investments. Fees will be charged to cover costs related to application processing and supervision of the program.

Around 75 to 150 credit unions would apply for derivatives authority within the first two years of the program, the NCUA has estimated.

Federally insured state-chartered credit unions (FISCUs), however, are granted no new authority in the proposal, NASCUS noted in the letter. "Rather, the proposal limits the ability of states to allow FISCUs to engage in derivatives transactions, in some cases pre-empting long-standing state authorities," NASCUS added.

Overall, NASCUS said, the NCUA's proposal fails to recognize state expertise and experience. "Many state credit union regulatory agencies have experience supervising derivatives activities at the state level in state credit unions, and substantially more experience supervising the activity in state banks. That state experience, coupled with the historic independence of states to determine appropriate investments for state-chartered credit unions, should mean that NCUA has a compelling case for such sweeping pre-emption. There is no such case," NASCUS said.

The NCUA's derivatives rule "should address only federal credit unions," NASCUS added.

The Credit Union National Association has also filed a comment letter on the proposal. CUNA in that letter said it strongly opposes the imposition of application and/or supervision fees paid to the agency in order for credit unions to apply for or maintain derivatives programs or for any other financial activity that is directly authorized by statute or incidental to such authority.

CUNA also said it does not support an asset eligibility threshold for derivatives participation, and is concerned that the investment limitations set forth in the proposal are too restrictive. The CUNA comment letter urged the agency to provide for waivers and/or permit additional derivatives authority that would permit more flexibility for qualified credit unions. (See July 25 News Now story: CUNA Seeks Key Changes In NCUA Derivatives Proposal.)

For more on the CUNA and NASCUS letters, use the resource links.

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