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CUNA: Derivatives Proposal, As Is, a Missed Opportunity For CUs
WASHINGTON (7/31/13)--In a second comment letter on the National Credit Union Administration's derivatives proposal, the Credit Union National Association noted that the agency's plan, if left unchanged, would impose excessive requirements and high costs on participating credit unions, resulting in "a lost opportunity for credit unions to reduce risk in a similar manner allowed for banks.

"This would place credit unions and the credit union system at a distinct disadvantage. Moreover, it would deprive credit unions of an important tool to manage [interest rate risk (IRR)] and thereby contain costs for the National Credit Union Share Insurance Fund," CUNA Deputy General Counsel Mary Dunn wrote.

The NCUA derivatives proposal, released at the May open board meeting, would allow well-run federal credit unions to use simple derivatives to hedge against interest rate risks. The NCUA plan would allow only well-managed credit unions with $250 million or more in assets, and which have appropriate expertise, to apply for an agency derivatives investment program. Swaps and caps will be the only approved investments, and fees will be charged to cover costs related to application processing and supervision of the program.

"The costs to credit unions for complying with the provisions in the proposed derivatives rule are excessive and will place derivatives authority out of reach for many, if not most, credit unions seeking derivatives authority," Dunn emphasized in the comment letter.

CUNA adamantly opposed this approach. "If derivatives reduce IRR, then NCUA should be encouraging credit unions to make appropriate use of permissible derivative options instead of retiring barriers to their use, such as fees to apply or for supervision," Dunn said.

In a separate comment letter sent earlier this month, CUNA wrote that the NCUA's proposed a la carte fee structure "sets a precedent that, if applied to other products and services, could stifle innovation for credit unions by imposing additional burdens and costs that are simply not justified. CUNA called on the agency to develop the expertise necessary to enable it to properly regulate the evolving business model of a credit union without imposing extra charges. (See July 25 News Now story: CUNA Seeks Key Changes In NCUA Derivatives Proposal.)

For the full CUNA letter, use the resource link.
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CUNA Comment Letter
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