NCUA is proposing to allow qualified credit unions to buy two types of what it describes as “plain vanilla” derivatives to hedge against interest rate risk (IRR). One authorized derivative would be an Interest Rate Cap contract pursuant to which a credit union would effectively pay a premium to a counterparty in return for the counterparty agreeing to compensate the credit union if interest rates reach a designated level. A second type of authorized derivative would be an Interest Rate Swap, under which a credit union and a counterparty would agree to swap the interest generated from designated assets in their respective portfolios. For your reference, the proposal can be viewed at http://www.ncua.gov/about/Documents/Agenda%20Items/AG20130516Item3b.pdf.
Note: Only federally chartered credit unions and state-chartered credit unions authorized by New York State that (1) have $250 million or more in assets; (2) have a CAMEL rating of 1, 2 or 3; and (3) have a management component of 1 or 2 would be eligible to apply for this authority.