Latest summary takes look at derivative proposal

(Nov. 25, 2020) A proposal to modernize NCUA rules on derivatives, particularly to make it more “principles based” has been summarized by NASCUS and posted on the association’s website. The summary is available to members only.

The proposal, according to NCUA on Oct. 16 when the board approved its release for a 60-day comment period, is designed to provide more flexibility for federal credit unions to manage their interest rate risk (IRR) through the use of derivatives, while retaining key safety and soundness components.

The agency also said on proposal that 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 CEO Ito emphasized at the time the rule was proposed that state credit union derivative authority properly rests with state supervisors, and that they have the experience to apply that power. She noted that state supervisory authorities have extensive experience with derivatives and interest rate swaps both in state-chartered credit unions and community banks, and can play a role as the final rule is developed applying their experiences and lessons to the rule-making.

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.”

Summary: NCUA Proposed Rule (FCUs Only); Derivatives Part 703 (members only)