ARLINGTON, Va. The National Association of State Credit Union Supervisors (NASCUS) has told NCUA it will not support a proposed derivatives regulation in its current form as the proposal would limit the authority of state regulators to supervise derivatives activities in their states.
Under the current NCUA proposal, the agency would grant new authority to federal credit unions to engage in certain limited derivatives transactions. Federally insured, state-chartered credit unions (FISCUs), however, are granted no new authority in the proposal and instead the proposal limits the ability of states to allow FISCUs to engage in derivatives transactions, in some cases preempting long-standing state authorities.
NASCUS said 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 preemption,” NASCUS said in a letter to the agency. “There is no such case.” As a result, said NASCUS, NCUA’s rule should address only federal credit unions.
“NASCUS sees this proposal as sweeping aside state laws and authority,” said NASCUS CEO Mary Martha Fortney.
In its letter, NASCUS also cautions NCUA about overly restrictive provisions that may stray from industry norms. “The rationale for permitting credit unions to engage in derivatives transactions is predominantly to provide a means of offsetting interest rate risk,” NASCUS said. “However, restricting derivatives to such an extent out of an abundance of caution may render moot the purpose for which the transactions are undertaken. Furthermore, such stringently prescribed requirements provide little flexibility for either regulators or credit unions to adapt in the future.”
