Letter CU 4-21

November 23, 2021



In 2014, the Office of Credit Unions (OCU) issued General Letter CU 2-14, Derivatives Authority, which sets forth a process for Wisconsin credit unions to obtain authority to use derivatives to reduce interest rate risk. The process was aligned with the National Credit Union Administration (NCUA) Letter to Credit Unions No. 14-CU-04, Derivatives Applications Openand related Supervisory Letter No. 14-02, Derivatives Examination Guidance.

Earlier this year, NCUA issued an updated rule on derivatives for federal credit unions that streamlines the application process and exempts certain credit unions. See generally 12 C.F.R. part 703, subpart B. In addition, the rule mandates that derivatives can only be used for the purpose of managing interest rate risk.

The OCU will require that state-chartered credit unions follow the standards in the new federal rule. If a Wisconsin credit union seeks derivatives authority, it should review the federal rule and standards and seek approval from the OCU. A credit union seeking derivatives authority must demonstrate that it has completed appropriate due diligence, that it employs staff and consultants that understand derivatives, and that it has put in place proper policies, operational support requirements and reporting requirements. It is also expected that the credit union’s board of directors has a basic understanding of derivatives and how the use of them will assist its credit union to manage interest rate risk.

This letter repeals and replaces OCU General Letter CU 2-14.

If you have any questions, please contact the OCU at dfi-ocu@dfi.wisconsin.gov or (608) 261-9543.


Kim Santos

Kim Santos, Director