ALEXANDRIA, Va. – The NCUA finalized a new rule on Thursday thatwould grant investment authority for simple derivativestransactions to qualifying federal credit unions with more than$250 million in assets.

The regulator scrapped the two-tier authority proposed back inMay 2013, and additionally did not include an unpopular so-calledpay-to-play provision that could have charged individual creditunions for the cost of supervising the authority.

The final rule also dialed back the NCUA's authority over federally-insured, state chartered creditunions, applying the final rule only to federally chartered creditunions.

Under the final rule approved at the regulator's monthly boardmeeting, qualifying credit unions are able to engage in limitedderivative activities for the purpose of mitigating interest raterisk.

The rule was first proposed at the NCUA's board meeting on May16, 2013.

The NCUA has estimated that derivatives authority would costthe agency $750,000 in 2014 and $750,000 in 2015. The totalcontingency costs could change depending upon the amount of creditunions that apply.

Those cost estimates are lower than originally proposed, theNCUA said, because the agency reallocated six full-time employeeswho were qualified to assess derivatives and other complexasset/liability management risks. The costs were also lower thanproposed because the final rule only applies to federal creditunions.

However, the agency “may need to contract the services ofadditional specialists should the level of applications exceed ourinternal capacity,” said the board action memorandum.

“While the contingency consulting costs are forecasted to be thesame over the first two years, these estimates can be refined insubsequent budget cycles as actual experience warrants,” the memoalso said.

The final rule requires a credit union seeking derivativesauthority to submit a detailed application to the NCUA.

“NCUA estimates that this one-time recordkeeping burden willtake an average of 50 hours per respondent to prepare,” said adraft of the final rule.

The NCUA said it estimates between 30 and 60 credit unions willapply for the authority.

The final rule also includes a provision that provides an NCUAfield director with the authority to permit a credit union withassets under $250 million to apply for derivatives authority.

“The field director will only permit a credit union that doesnot meet the asset threshold to apply if he or she concludes thatthe credit union needs derivatives to manage its IRR and caneffectively manage a derivatives program,” the board memo said.

“Further, a field director may set additional stipulations orconditions related to the application of a credit union that isbelow the $250 million asset threshold. The Board believes thisprovision gives field directors flexibility to determine if acredit union that does not meet the asset threshold can benefitfrom and effectively manage derivatives,” it also said.

The final rule will take effect 30 days from the date ofpublication in the Federal Register.

The NCUA board also approved by vote to maintain the current 18%loan rate ceiling.