ALEXANDRIA, Va.—The NCUA Board this morning proposed a new derivatives rule that was almost immediately criticized by NAFCU.
Under the proposal, federal credit unions that are well-managed and are $250-million in assets or larger will be able to use simple derivatives as a hedge against interest-rate risk. Those CUs would also need to demonstrate they have the expertise to use derivatives, which in this case will be limited to swaps and caps. The program would be managed by NCUA and fees would be charged to cover any costs, such as the processing of applications and supervision, under the proposal.
The agency is estimating that somewhere between 75 and 150 credit unions will likely apply to the program in its first two years.
NCUA is seeking comment on the proposal for the next 60 days, but NAFCU has already said it has "serious concerns."
"NAFCU has strongly advocated for expanding credit union investment powers that includes limited derivatives authority," said NAFCU CEO Fred Becker. "As such, we appreciate that NCUA has continued the rulemaking process. A key aspect of NCUA's proposed rule seeks to establish a 'pay-to-play' regulatory scheme for credit unions that seek to, and subsequently are permitted to, engage in derivatives activities. A 'pay-to-play' requirement would be a first for our industry and would create a significant long-term strategic question by potentially setting a precedent for other activities that credit unions might seek to engage in the future."
CUNA indicated is it studying the proposal.
