WASHINGTON (8/20/12)--The Credit Union National Association (CUNA) in a Friday comment letter backed a Commodity Futures Trading Commission (CFTC) proposal that would provide credit unions and other cooperative businesses with a clearing exemption for certain swaps.
The CFTC proposal would permit credit unions and other co-ops with $10 billion or more in assets to avoid swap clearing requirements when loans that are originated for members are sold on to other entities. This exemption also would be extended to swap transactions that are used to hedge against risks associated with member loans.
The exemption would apply to cooperatives whose members are non-financial entities, financial entities to which the small financial institution exemption applies, and cooperatives. Credit unions and other financial institutions with under $10 billion in assets are already exempt under a separate CFTC proposal.
"As not-for-profit cooperatives, all well-managed credit unions, consistent with safety and soundness, should be able to elect not to clear swaps that are for the purpose of hedging interest rate risks," CUNA Deputy General Counsel Mary Dunn wrote in the comment letter. The proposed exemption would help minimize the additional costs and fees associated with mandatory clearing and provide flexibility for credit unions to use non-cleared swaps, she added.
CUNA in the letter also urged the CFTC to minimize any compliance burdens on credit unions and other cooperatives that elect the clearing exemption, under this proposal and the final rule on the end-user exception, including the notification requirements to the CFTC regarding how an exempt counterparty plans to meet its financial obligations associated with non-cleared swaps.
The CFTC earlier this year finalized definitions of swaps, security-based swaps and security-based swap agreements. The new swap definitions are currently in effect.
National Credit Union Administration regulations currently permit a limited number of federal credit unions to use certain derivatives, such as interest rate swaps and caps, to hedge or reduce their interest rate risks. Some state-chartered credit unions also have similar derivatives authority for risk management purposes. Relatively few credit unions use derivatives to hedge interest rate risk.
For the full CUNA comment letter, use the resource link.