Matt Tevis explains how the NCUA's derivatives rule could help large credit unions
- January 25, 2021
- Credit Union Journal
In an interview with the Credit Union Journal, Matt Tevis answered questions about the benefits large federal credit unions could see as a result of the NCUA's rule change. If the the NCUA approves this rule change, then federal credit unions could start using tools like interest rate swaps to manage their balance sheet risk management.
Credit Union Journal
The NCUA board clearly believes removing the burden of some measuring and reporting requirements outweighs the potential risks, Tevis said.
Credit unions of all sizes have experienced a significant increase in member deposits during the pandemic, and that has led to excess liquidity and low-yielding cash balances. Many institutions have begun increasing duration in their investment and loan portfolios to enhance margins.
So hedging tools such as interest rate swaps may help them utilize that excess liquidity while also managing their incremental rate risk, said Matthew Tevis, managing director and global head of sales for Chatham Financial. He added that the rule could also streamline the approval process to use the tools, expand the types of acceptable hedging structures and simplify the measurement and ongoing reporting requirements.
For example, the pre-approval or application process for derivatives authority would be removed for any federal credit union that is “complex,” or more than $500 million of assets, and has a Camels rating of 1 or 2.
Credit unions also would no longer need to obtain interim approval, which would reduce the overall process from up to 120 days to less than 60 days. The NCUA board clearly believes removing the burden of some measuring and reporting requirements outweighs the potential risks, Tevis said.
“But the NCUA will still review derivative exposures when conducting exams and could determine excess exposures to be a safety and soundness concern,” he added.
Balance Sheet Risk Management
Chatham’s end-to-end Balance Sheet Risk Management solution provides the tools needed to manage interest rate risk. A true partner to our clients — not a broker-dealer — our objective is helping you grow faster, compete more effectively, and optimize your balance sheet. We have a deep understanding of the economic, accounting, and regulatory implications of your interest rate risk management decisions. Working with more than 190 financial institution clients, we have unparalleled asset and liability management expertise needed to handle your complete risk management program, including strategy development, trade execution, regulatory compliance, and accounting.
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