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NCUA approves final derivatives investment rule

A proposal that will allow well-run federal credit unions to use simple derivatives to hedge against interest rate risks has just been approved at today's NCUA board meeting.

The NCUA plan would allow only well-managed credit unions with $250 million or more in assets to invest in derivatives.

The final rule includes key changes sought by CUNA, such as removing the fees for supervision of the use of these products. CUNA in general has supported derivatives investments for credit unions.

There will not be an application fee for credit unions wishing to be approved for derivatives authority, and the rule will not apply to federally insured state credit unions.

The final rule addresses permissible derivatives and characteristics, limits on derivatives, operational requirements, counterpart and margining requirements, and the procedures a federal credit union must follow to apply for derivatives authority.

The supervisory costs will be covered by the National Credit Union Share Insurance Fund, the agency said. The NCUA has also budgeted $750,000 for 2014 and 2015 to cover related consulting costs.

Nearly 400 credit unions would be eligible to apply for derivatives investment authority, and the agency estimated that 30 to 60 credit unions would likely apply for the authority within the first two years of the program.

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