WASHINGTON (8/11/11)--Should the National Credit Union Administration (NCUA) allow federal credit unions to use derivatives--such as interest-rate swaps--on a case-by-case basis, or invest in derivatives independently or via a third party? The Credit Union National Association (CUNA) is seeking credit union comment on these and other derivatives-related issues. CUNA has asked for recommendations regarding NCUA‘s Advanced Notice of Proposed Rulemaking on derivatives regulations, including the accounting and financial reporting of derivatives. CUNA is also asking credit unions if current investment pilot programs that allow credit unions to engage in derivatives purchases for interest rate risk (IRR) management should be continued. The NCUA currently allows federal credit unions that meet certain net worth ratio and earnings requirements to invest in derivatives through an investment pilot program. These transactions typically involve interest rate swaps and caps to hedge IRR on fixed-rate investments such as mortgages. Using interest rate swaps and caps in this manner can effectively convert a fixed-rate loan into a variable-rate loan for the duration of the swap or cap contract, and reduce IRR. According to the NCUA, nine credit unions had outstanding derivatives contracts at the end of 2010. Two additional credit unions are approved to independently engage in derivatives for IRR. State-chartered credit unions may have derivatives authority based on state laws and regulations, although the number of state-chartered credit unions that invest in derivatives is unknown. CUNA is accepting comments until Aug. 16. For the full comment call, use the resource link.