A proposed rule that will be published in Wednesday’s Federal Register would allow credit unions to make derivatives swaps that hedge against fluctuating interest rates. Credit unions would still be barred from trading complex financial instruments, including mortgage-backed securities.
“We have concerns about establishing a process where you have to pay to play,” said Mary Dunn, CUNA’s senior vice president and deputy general counsel.
The rules try to guard against credit unions taking on too much risk by limiting the number of swaps an entity can take on. Larger credit unions would be able to engage in more swaps, but would also have to pay heftier fees to regulators.
Level I credit unions with at least $250 million in assets would pay a $25,000 application fee, while larger, Level II credit unions would have to pay anywhere from $75,000 to $125,000 and employ managers with more years' experience in swaps trading than Level I institutions.
Dunn said CUNA is worried the Obama administration might be setting up a precedent for charging additional fees for what it deems “risky” trading activities. She noted that credit unions already pay the National Credit Union Administration several administrative and operating fees, and said the cost of supervisory staff for the new derivatives trading has been estimated at between $6 million and $11 million.
“Why should it cost so much to regulate [the program] if these are such basic derivatives?” Dunn said.
The rules on swaps were crafted over the course of two years and included a limited pilot program that allowed some credit unions to test the waters.
Comments on the proposal are due 60 days after it is published in the Federal Register.