Below, graphically displayed, is an overview of the NCUA's new proposed rule on derivatives.
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| "Up The Down Staircase...." |
With the new rule the Agency, once again, calls out to you to:
"Reduce your risk, follow us !"
(... perhaps, or is it just another misstep, yet another regulatory "trip and fall"?)
4 comments:
Medical alert buttons for all credit unions......
Noticed that you needed a Code 1 or 2 in management. Jim! I guess this means you need not apply!
Best way to defeat this is to demand that the expenses be assigned to the credit union wishing to participate. The ongoing expenses would be about $26,000 a year. Plus, about a $75,000 application fee. You add that to the expense of the option and you probably price yourself out of any interest rate benefit.
Best way to defend against rapid rise in interest rates is proper liquidity and interest rate flexibility on the asset side of the balance sheet. Additional reserves also help mitigate the damage.
Ask NCUA about their studies of what causes credit union failures. It is not interest rate mismanagement. It is bad management and fraud.
Derivative-Based Hedging
"In February 2000, the NCUA board granted authority to WesCorp under a provision of NCUA RUles and Regulations, Part 703, to provide financial derivative transactions to federally chartered credit unions to help them manage the interest-rate risk inherent in their balance sheets. WesCorp is the only institution sanctioned to provide derivative-based hedging solutions to credit unions. The alternative is for a credit union to undergo its own rigorous review and approval process with NCUA."
2002 Financial Analysis (page 7)
WesCorp
Expect more from us. We do.
See how well Derivatives worked for WesCorp. Where are they now?
The NCUA is getting high on a new crack pipe - Derivatives.
Hedging instruments had nothing to do with the cataclysmic failure of the ccus..it was CUs not holding cronies accountable trusting their golf buddies to find yield within the incestuous movement and NCYA part of the problem in supervision and allowing over concentration in toxic garbage.
You need to read the proposed rule and understand the product before you conclude that the product proposed is dangerous, it isn't, ex that it is relied on to over extend beyond the balance sheet's capability and the hedge ability..ie overconfidence.
What I'd love to hear is why hedging risk with vehicles that either pay out or expire worthless are more dangerous than 1100 credit unions who aren't growing nor profitable were given LICU designation and thus a larger MBL cap and authority to issue capital to members.
You need to PRAY every night that does not blow our "movement" up. It won't be just the billions, it'll be the public calamity.
NIGHTMARE on Duke Street.
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