May 16, 2013

NAFCU: 'Pay to play' on derivatives bad precedent

May 17, 2013 – The NCUA Board's decision to include a "pay to play" provision in Thursday's proposed derivatives rule sets a bad precedent for addressing future additions to credit unions' authorized activities, NAFCU President and CEO Fred Becker said.

NAFCU has long advocated for expanded investment authorities for credit unions, and Becker said the association appreciates that NCUA has continued the rulemaking process for derivatives. But he said the pay-to-play proposal raises concerns.

"A ‘pay-to-play' requirement would be a first for our industry and would pose a significant long-term strategic question," Becker said. "This could set a bad precedent for other activities in which credit unions might seek to engage in the future. NAFCU has very significant concerns that pay-to-play may create a barrier to entry as well as divide the industry."

In Thursday's open meeting, the NCUA Board released for a 60-day comment period a proposed rule that would give qualified credit unions limited authority to engage in derivatives activities to mitigate interest rate risk. The proposed rule would limit that authority to institutions with more than $250 million in assets. Other requirements are that the participating credit union have a CAMEL code of 1, 2 or 3, with a management component code of 1 or 2. Credit unions would be able to apply to one of two levels of authority.

NCUA says it estimates between 75 and 150 credit unions might participate next year, and it is seeking comments on whether to institute a fee structure to cover related supervision costs. The agency also published a question-and-answer document to further explain the proposed rule.

NAFCU is reviewing the full proposal. It is preparing an online Regulatory Alert seeking members' input.

Thursday's meeting also included the board's approval of several technical amendments to the agency's rules. NAFCU sought several clarifications and corrections during last year's NCUA regulatory review process. Becker welcomed Thursday's adoption of the technical amendments.