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Cornerstone League: ‘We Object to Many of the Proposed Limitations and Requirements’ of the NCUAs Proposed Rule on Derivatives
Friday, July 26, 2013 5:50 AM

In a letter to the National Credit Union Administration (NCUA) regarding a proposed rule that would allow credit unions to use derivatives to mitigate interest rate risk, the Cornerstone Credit Union League (League) states that while “we generally support authority for derivatives, we object to many of the proposed limitations and requirements.”

Suzanne Yashewski, senior vice president of Regulatory Compliance Counsel for the League, tells the NCUA in the July 25 letter that the League is concerned with the overall cost for credit unions to obtain derivatives authority under the proposal. Under the proposed rule, credit unions would incur substantial upfront costs before they are even granted authority.

“Front loading the expense would create a huge start-up cost before approval, which could result in loss of funds if the credit union is denied,” Yashewski points out.

The proposal would also limit derivatives authority to credit unions $250 million or more in assets.

“The League opposes such a restriction and requests that such a restriction be removed from the final rule,” Yashewski urges in her letter.

The League’s letter also addressed collateral requirements, investment limits, audit requirement, reporting, legal review, and requirement of qualified derivatives personnel. Additionally, Yashewski expressed the League’s viewpoint that all CUSOs – not just wholly-owned CUSOs – should be permitted to perform functions required by the rule.

The League is encouraging credit unions to submit comments to the NCUA. Credit unions should note that the comment period ends July 29.

“It is vital that we hear our member credit unions’ concerns, so that we can best represent them on regulatory matters,” urges Yashewski. “We track comments, so be sure to get your participation on the record.”

There are a number of ways credit unions can submit their comments:

Credit unions are encouraged to share their comments with the League, by emailing them to Yashewski, at syashewski@cornerstoneleague.coop .  

Talking points include:

  • Support authority for credit unions to engage in derivatives transactions as a means to hedge against interest rate risk.
  • Generally oppose most of the limitations and requirements being proposed as too restrictive.
    • As an example, oppose the requirement that a credit union must have at least $250 million in assets. 
  • Oppose the fee structure as being too expensive and serving as a barrier to credit unions applying for derivatives authority. Credit unions should not be charged fees to take advantage of a program that will minimize risk to the National Credit Union Share Insurance Fund.
  • Oppose the proposed approach that a credit union must comply with a number of the proposed requirements before submitting an application to NCUA. Front loading the expense would create a huge start-up cost before a credit union knows if its application will even be accepted.
  • Suggest that pilot-program credit unions be allowed to continue with their derivatives program without having to reapply to NCUA.

Credit unions will find already submitted letters from their peers on the NCUA website. The proposal can be found in the Federal Register.