In other action Thursday, the NCUA Board issued a proposed rule the agency said would streamline its regulations on derivatives, and heard a report on cybersecurity.
Regarding the derivatives proposal, the agency said it is intended to modernize the current rule and make it more “principles-based.” “This proposal retains key safety and soundness components, while providing more flexibility for federal credit unions to manage their interest rate risk (IRR) through the use of Derivatives,” the agency said in proposing the rule.
Further, NCUA said, the changes would “streamline” the rule and give credit unions more authority to purchase and use derivatives for managing interest-rate risk. The proposal also, NCUA said, reorganizes rule content related to loan pipeline management into one section, which it said would aid in readability and clarity.
NASCUS’ Ito asserted that state credit union derivative authority “properly rests” with state supervisors, and that they have the experience to apply that power. “State credit union regulators have extensive experience with derivatives and interest rate swaps both in state-chartered credit unions and community banks,” Ito said. “The state system looks forward to assisting NCUA in raising awareness of derivative oversight in the broader credit union system by bringing state regulator credit union experience and lessons to the learning table.”
She also described NCUA’s move to streamline its derivative regulation as “pro-active in anticipation of increased interest rate risk given current low-rate environment and likely long-term rate increases.”
Meanwhile, during the discussion on cybersecurity (which featured a staff presentation outlining risks related to the coronavirus crisis), NCUA Board Chairman Rodney Hood was joined by Board Members J. Mark McWatters and Todd Harper in voicing support for third-party vendor examination authority for the agency. Unlike federal banking regulators, NCUA lacks direct statutory exam authority over those vendors.
NASCUS has supported the agency obtaining examination authority over technology service providers (TSPs) that provide services to federally insured credit unions, provided that any such authority requires NCUA to rely on state examinations of such service providers where such authority exists at the state level.
The association has also supported efforts to strengthen state regulatory examination and supervision of third parties providing services to state chartered institutions.