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NCUA Proposes Draft Program For CU Derivatives

by Ken Anderson | May 17, 2013
On Thursday, the National Credit Union Administration (NCUA) issued a draft proposal regarding the use of derivatives by credit unions that are seeking to hedge against interest rate risks.

On Thursday, the National Credit Union Administration (NCUA) issued a draft proposal regarding the use of derivatives by credit unions that are seeking to hedge against interest rate risks.

Under the terms of the draft NCUA proposal, only credit unions that have assets of more than $250 million, are well-managed, and have the appropriate expertise will be eligible to apply for an agency derivatives investment program. Swaps and caps will be the only approved derivatives investments, the NCUA said. There will be an application process, and fees will be charged to cover costs related to application processing and supervision.

The NCUA estimated that 75 to 150 credit unions would apply for derivatives authority within the first two years of the program. The agency said it would need to add new resources to handle application processing and supervision if the program is approved.

Credit unions are invited to review this proposal and submit comments to the NCUA within the next 60 days.

The Credit Union National Association (CUNA) is reviewing the proposal in detail and encourages credit unions interested in engaging in derivatives to share their reactions and provide their feedback on specific recommendations in the proposal with CUNA's Examination and Supervision Subcommittee, which will work on the official CUNA comments.