The Federal Home Loan Banks are calling on NCUA to amend its proposed rules on interest rate swaps to allow the 12 regional banks—already major providers of liquidity to credit unions—to participate in the fledgling business.
Representatives of several FHLBs asked NCUA to amend its swaps proposal to include the government sponsored enterprises as approved counterparties in order to extend its swaps business from its member banks.
The proposed rule, which would extend authority to buy and sell financial derivatives from a handful of pilot credit unions to all credit unions, would limit permissible counterparties to swap dealers and major swap participants as defined by the Commodity Futures Trading Commission—but not FHLBs.
In a comment letter to NCUA, Robert Dozier Jr., chief business officer for the FHLB Atlanta, noted the regional banks long have provided adequate rate hedging to its thousands of member banks through swaps and options and other interest rate instruments. “By intermediating swaps for their member institutions,” wrote Dozier, “the FHL banks, as large, highly rated institutions, are able to pass along favorable pricing and swap terms to their member institutions that might not receive such terms if they entered into such transactions directly with swap dealers.”
“We believe limiting counterparties to swap dealers add major swap participants under the proposed rule is unnecessary to accomplish NCUA’s goal of limiting credit risk,” said the FHLB executive, who also suggested NCUA expand its list of eligible collateral to include debt of government sponsored enterprises, such as the FHLBs, Fannie Mae and Freddie Mac.
“As issuers of FHLBank consolidated debt obligations, we appreciate this opportunity to highlight the fact that FHLBank consolidated obligations, such as Treasuries, are recognized in the market as safe and highly liquid investments.”
The FHLBs also are lobbying NCUA to expand its definition of permissible providers of emergency liquidity for credit unions to include obligations and advances issued by the 12 regional banks.
