Compliance Center: NCUA Issues Final Rule on Derivatives to Mitigate Interest Rate Risk
February 4, 2014
Feb. 4, 2014
The National Credit Union Administration board has adopted the final rule to give federal credit unions limited authority to use derivatives to mitigate interest rate risk. The final rule addresses permissible derivatives and characteristics, limits on derivatives, operational requirements, counterpart and margin requirements, and the procedures a federal credit union must follow to apply for derivatives authority.
Specifically, the final rule includes:
- Limited authority to invest in simple interest rate derivatives for balance-sheet management and risk reduction, including interest rate swaps, interest rate caps, interest rate floors, basis swaps, and Treasury futures. Newly authorized features include amortizing notional amounts for swaps, caps and floors; and forward start dates for swaps of 90 days or less.
- A requirement that federal credit unions apply and receive approval for the use of the derivatives investment authority.
- A requirement that credit unions engaging in derivatives activities have appropriate resources, controls and systems to maintain an effective derivatives program.
- Limits on total derivatives exposure by two methods: a measure of notional amount of derivatives, and a fair value loss limit.
While the final rule does not apply to federally insured, state-chartered credit unions, it does require those credit unions permitted to use derivatives under state law to notify NCUA 30 days before engaging in derivatives activities.
Question of the Week
Q: What happens to the funds in a guardianship account for an incapacitated person once that person is deceased?
A: The guardianship ceases to exist when the incapacitated person passes away. The funds would become part of the estate to be settled by the personal representative for the deceased person’s estate.
One of the remaining duties of the guardian is to pay for the funeral arrangements of the incapacitated person. “(1) Upon the death of an incapacitated person, a guardian or limited guardian of the estate shall have authority to disburse or commit those funds under the control of the guardian or limited guardian as are prudent and within the means of the estate for the disposition of the deceased incapacitated person’s remains.”
Also, under that section, the guardian may apply for letters of testamentary to handle the estate through the probate process. If they don’t, then their duty is to preserve the remaining estate and hand it over to the personal representative.
National Credit Union Administration (NCUA)
The NCUA has updated its Share Insurance Booklet, which is now available for order and download.
The NCUA’s final rule regarding derivatives used to offset interest rate risk for federal credit unions has been posted in the Federal Register.
Consumer Financial Protection Bureau (CFPB)
The CFPB blogged about steps consumers can take to contact their student loan servicers, including a sample letter, and also posted a full summary of the information it received from servicers.
The CFPB released a report that highlights some of the mortgage servicing problems in 2013, which included servicers asking consumers to waive their consumer rights, poor payment processing, and unfair practices with servicing transfers.
Federal Reserve Board (FRB)
The FRB has released its most recent statement of the Federal Open Market Committee.
U.S. Department of Housing and Urban Development (HUD)
In a HUD Mortgage Letter, the Federal Housing Administration (FHA) has announced that it is going to allow lenders to accept electronic signatures on documents associated with mortgage loans. This will make it easier for lenders to work with FHA.
HUD has released Mortgagee Letter 2014-01, explaining that an updated version of its foreclosure brochure, “Save Your Home: Tips to Avoid Foreclosure,” is now available. This brochure should be used as outlined in the Mortgage Letter for delinquent FHA-insured loans.
Financial Crimes Enforcement Network (FinCEN)
FinCEN has published two rulings on virtual currency miners and investors. The ruling helps explain when a miner should be considered an MSB.
Office of Foreign Assets Control (OFAC)
OFAC has updated the SDN list as of Jan. 23. The last update prior to this was Jan. 16.
Questions? Contact the Compliance Hotline: 1.800.546.4465, email@example.com.