CUNA Regulatory Comment Call


March 6, 2003

NCUA's Proposed Rule On Swap Agreements

(Not a major rule)

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the rule.

BACKGROUND

Swaps agreements are financial derivative transactions. Federal credit unions are generally prohibited from engaging in financial derivative activities, but NCUA may allow them to participate in an investment pilot program for purposes of engaging in these activities. State chartered credit unions may engage in swap agreements if permitted under state statute.

In 1989, the Federal Credit Union Act was amended to address the treatment of QFCs when a federally insured credit union is placed into involuntary liquidation or conservatorship. Currently, swap agreements are not included in the definition of QFC, although they are included in the definition of QFC for banks and thrifts under the Federal Deposit Insurance Act.

DESCRIPTION OF THE PROPOSED RULE

The proposed rule will amend NCUA's involuntary liquidation rules to designate swap agreements as QFCs. The treatment of swap agreements as QFCs will limit swap counterparty exposure when a federally insured credit union is placed into involuntary liquidation or conservatorship by allowing the counterparty to terminate and net QFCs in order to protect itself from selective assumption of the QFCs by a liquidating agent, receiver or conservator. This will limit counterparty exposure, which will encourage entities to engage in swap agreements with federally insured credit unions and will be consistent with the treatment of swap agreements for banks and thrifts that are placed into involuntary liquidation or conservatorship. This certainty will also preserve market stability whenever a credit union with QFCs is placed into liquidation or conservatorship.

QUESTIONS TO CONSIDER REGARDING NCUA's PROPOSED RULE ON SWAP AGREEMENTS

  1. Do you agree that swap agreements should be designated as QFCs in order to limit swap counterparty exposure when a federally insured credit union is placed into involuntary liquidation or conservatorship?













  2. Other comments?













Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com