Credit Union Times - May 22, 2013

NUCA
CONT. FROM PAGE 1

a higher application fee and more
supervision.
The NCUA estimated between 75
and 150 credit unions would apply
for the authority, with 75% seeking
Level I, and the remaining 25% seek-
ing Level II.
The rule would only permit de-
rivative swaps and caps, which Matz
called plain vanilla.
Director of the Division of Capi-
tal and Credit Markets J. Owen Cole
explained that derivative swaps in-
volve a credit union entering into an
agreement where it would pay out
a fixed rate while receiving a float-
ing rate. In today’s low rate environ-
ment, the fixed rate would likely be
interest rate risk.

NAFCU Regulatory Counsel Tessema Tefferi said
he’s also concerned the fees could create a barrier
to entry for credit unions interested in seeking
derivative authority and could also set a dangerous
precedent for future rules.

higher at first, Cole said. However,
should rates increase, the floating
rate would likely pay more, hedging
should rates not risk, Cole said,
the risk would be that if rates don’t
rise, the credit union would pay
out a one-time premium expense
without receiving any financial
benefit.

Because of the cost to
the NCUA, the final rule
could also include an
application fee or an
on-going supervision
fee to be paid only by
those credit unions
applying for and
utilizing the authority.

Fryzel said new authority miti-
gates risk to the share insurance
fund, so it could be argued that the
entire industry should shoulder the
cost. However, he added that credit
unions that don’t seek the authority
could also rightly argue only those
who have it should pay.
Additionally, Fryzel said he
would like to hear suggestions re-
garding whether the NCUA should
seek to cover all costs for the pro-
gram or just part, and if application
fees, annual fees or other fee struc-
tures would be appropriate.
“The fee is a big deal,” said Paul
Gentile, CUNA executive vice
president of strategic communica-
tions and engagement. “The NCUA
knows these credit unions already,
so what is the fee paying for?”
NAFCU Regulatory Counsel
Tessema Tefferi said he’s also con-
cerned the fees could create a bar-
rier to entry for credit unions inter-
ested in seeking derivative authority
and could also set a dangerous prec-
edent for future rules.
Comments on the proposed rule
will be due 60 days after it is pub-
lished in the Federal Register.
The derivate authority would be
available only to credit unions that
have more than $250 million in as-
sets, have an overall CAMEL rating
of 3 or better with a management
rating of 2 or better and can demon-
strate to the NCUA how derivatives
are part of the credit union’s overall
interest rate risk strategy.
The authority would have two
levels. Level II would have higher
transaction limits but would also re-
quire more stringent requirements,

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