MADISON, Wis.–The World Council of Credit Unions (WOCCU) is calling on the Financial Stability Board, the Basel Committee on Banking Supervision and number of other international standard
setting agencies to reduce Basel III’s capital requirements for issuers, clearers and users of interest-rate swaps and caps to help better ensure continued access to interest rate derivatives for credit unions.
In a comment letter, WOCCU expressed concern that credit unions that use interest rate swaps and caps may in the future no longer be able to access interest rate derivatives at fair rates (or at all) unless revisions are made to Basel III’s regulatory capital rules fur derivatives. WOCCU’s comments are based in part on a New York Fed meeting in which it participated where some large banks indicated that certain changes might lead them to drop clients that have portfolios of less than several billion dollars’ worth of derivatives due to the high cost of capital beginning in 2018 unless the Basel III derivatives capital requirements are reduced.
In its letter, WOCCU argues that interest rate swaps and caps promote safety and soundness by helping community-based depository institutions hedge interest rate risks related to fixed-rate mortgage loans held in portfolio and similar fixed-rate investments.
The association is further urging the Committee to design regulatory incentives or mandates that would ensure that credit unions continue to have fair and affordable access to interest rate derivatives.
A copy of the WOCCU comment letter can be found here.