Final derivatives rule, insurance fund actions on credit union regulator board’s agenda

A final rule on investments in derivatives by credit unions, and two items that could have a significant impact on a savings insurance premium for credit unions, are all on the agenda for the board of the federal credit union regulator when it meets May 20.

The final rule on derivatives from the National Credit Union Administration (NCUA) Board follows up on a proposal from the agency issued in October that was designed to make current regulations less prescriptive and more principles-based. The proposal would also expand federal credit unions’ (FCUs) authority to purchase and use derivatives as part of their interest-rate risk (IRR) management.

Regarding the insurance fund and the future of a premium, the NCUA Board will also consider at next week’s meeting:

  • Issuing a comment request on the National Credit Union Share Insurance Fund’s (NCUSIF) “normal operating level” (NOL), which is the reserve level at which the board has determined the fund can adequately cover any losses presented to the fund. The NOL plays a key role in determining whether a premium will be charged to credit unions to bolster the fund’s reserves. The subject of a premium has been the focus recently of considerable discussion. However, NCUA Board Chairman Todd Harper has repeatedly said the question is increasingly not if, but when a premium will be charged.
  • A quarterly report on the NCUSIF, which should include details on the latest equity level of the fund, which also has an impact on a future premium. Lately, the equity level (the amount of total reserves in the fund relative to total savings insured) has been dropping as insured savings have been growing, spurred by member deposits of federal stimulus payments and other savings. Federal law requires that if the NCUSIF equity ratio drops below 1.2%, the board must adopt a “restoration plan” to bring the equity ratio back up to the fund NOL – including a premium. The insurance fund closed 2020 with an equity level of 1.26%, well below the current NOL of 1.38% (but an improvement from earlier in the year when the equity level stood at just 1.22%).

The board meeting gets underway at 10 a.m. ET; audio of the meeting will be live-streamed via the Internet.

NCUA Board meeting agenda, May 20

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