ALEXANDRIA, Va. (3/5/14)--The National Credit Union Administration has released a pair of letters to inform credit unions that are interested in using derivatives to reduce interest rate risk.
Letter to Credit Unions (14-CU-04) outlines the derivatives rule approved by the NCUA at its January meeting and explains the application process for credit unions that plan to use derivatives to reduce interest rate risk.
The rule went into effect Monday and allows well-run federal credit unions with assets of at least $250 million to use simple derivatives to hedge against interest rate risks.
An NCUA field director may permit selected federal credit unions with assets of less than $250 million to apply to engage in derivatives as well.
Credit unions must have CAMEL ratings of 1, 2, or 3, and a management rating of 1 or 2, to be eligible for the derivatives authority.
The final derivatives rule included key changes sought by the Credit Union National Association, such as removing a fee for supervision of the use of these products. CUNA in general has supported derivatives investments for credit unions. CUNA in general has supported the use of derivatives to help credit unions manage their interest rate risks.
The NCUA also detailed its supervisory expectations in Supervisory Letter No. 14-02, released as an attachment to the Letter to Credit Unions.
Use the resource link to access the NCUA letters.