No User Fees in Final Derivatives Rule
ALEXANDRIA, Va. – The NCUA finalized a new rule on Thursday that would grant investment authority for simple derivatives transactions to qualifying federal credit unions with more than $250 million in assets.
The regulator scrapped the two-tier authority proposed back in May 2013, and additionally did not include an unpopular so-called pay-to-play provision that could have charged individual credit unions for the cost of supervising the authority.
The final rule also dialed back the NCUA’s authority over federally-insured, state chartered credit unions, applying the final rule only to federally chartered credit unions.
Under the final rule approved at the regulator’s monthly board meeting, qualifying credit unions are able to engage in limited derivative activities for the purpose of mitigating interest rate risk.
The rule was first proposed at the NCUA’s board meeting on May 16, 2013.
The NCUA has estimated that derivatives authority would cost the agency $750,000 in 2014 and $750,000 in 2015. The total contingency costs could change depending upon the amount of credit unions that apply.
Those cost estimates are lower than originally proposed, the NCUA said, because the agency reallocated six full-time employees who were qualified to assess derivatives and other complex asset/liability management risks. The costs were also lower than proposed because the final rule only applies to federal credit unions.
However, the agency “may need to contract the services of additional specialists should the level of applications exceed our internal capacity,” said the board action memorandum.
“While the contingency consulting costs are forecasted to be the same over the first two years, these estimates can be refined in subsequent budget cycles as actual experience warrants,” the memo also said.
The final rule requires a credit union seeking derivatives authority to submit a detailed application to the NCUA.
“NCUA estimates that this one-time recordkeeping burden will take an average of 50 hours per respondent to prepare,” said a draft of the final rule.
The NCUA said it estimates between 30 and 60 credit unions will apply for the authority.
The final rule also includes a provision that provides an NCUA field director with the authority to permit a credit union with assets under $250 million to apply for derivatives authority.
“The field director will only permit a credit union that does not meet the asset threshold to apply if he or she concludes that the credit union needs derivatives to manage its IRR and can effectively manage a derivatives program,” the board memo said.
“Further, a field director may set additional stipulations or conditions related to the application of a credit union that is below the $250 million asset threshold. The Board believes this provision gives field directors flexibility to determine if a credit union that does not meet the asset threshold can benefit from and effectively manage derivatives,” it also said.
The final rule will take effect 30 days from the date of publication in the Federal Register.
The NCUA board also approved by vote to maintain the current 18% loan rate ceiling.