October 23, 2020

NAFCU details proposed derivatives rule, seeks CU insight

RegulationNAFCU is currently seeking comment on the NCUA's notice of proposed rulemaking (NPRM) to adopt a more principles-based approach to provide credit unions with more flexibility to manage their interest rate risk through the use and purchase of derivatives. The proposed rule – issued during the NCUA Board's October meeting – makes changes to a final rule first issued in 2014.

Through a new Regulatory Alert to members, NAFCU highlights that the rule, as proposed, would:

  • eliminate the prescriptive derivative product list and moves towards a characteristic-based approach;
  • remove the regulatory loss limits and streamline the requirements for counterparty agreements, margin requirements, and eligible collateral; and
  • provide an application exemption for “complex” federal credit unions (FCU) with at least $500 million in assets and a CAMEL rating of 1 or 2.

In addition, the Regulatory Alert notes how these changes, specifically the application exemption, will impact credit unions and provide for an easier process for FCUs that which to engage in these types of investments.

The association would like members' feedback on whether:

  • the threshold for the application exemption should be higher or lower than the proposed $500 million;
  • specifying the acceptable collateral for exchange-traded and cleared derivatives create unintended consequences for FCUs; and
  • the NCUA should not set any collateral standards or revert back to the current rule.

For more on the proposed rule, including an in-depth analysis, view the Regulatory Alert. Comments are due to NAFCU 60 days after publication in the Federal Register.

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