December 28, 2020

NAFCU voices support, offers recommendations for NCUA's proposed derivatives rule

NCUANAFCU Senior Regulatory Affairs Counsel Kaley Schafer last week voiced support for the NCUA's notice of proposed rulemaking on derivatives – issued during the NCUA Board's October meeting. The proposal would 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 and make changes to a final rule first issued in 2014.

“The proposal provides broader authority for permissible investments, maintains strong prudential controls, and removes more burdensome requirements such as the prescriptive product list and loss limits,” wrote Schafer. “NAFCU supports the application threshold exemption and encourages the NCUA to explore the possibility of lowering the thresholds for credit unions under $500 million in assets that meet certain requirements.”

Schafer asked the agency to refrain from specifying acceptable collateral standards, as this could create duplicative and unnecessary due diligence efforts on credit unions. In addition, she encouraged the NCUA to provide credit unions with all possible training opportunities and resources regarding implementation and management of derivative programs.

NAFCU previously broke down how the proposed rule, specifically the application exemption, will impact credit unions and provide for an easier process for federal credit unions that engage in these types of investments in a Regulatory Alert sent to members in October.

For more on the proposed rule, including an in-depth analysis, view the Regulatory Alert