Under a proposed rule change, credit unions would no longer need to seek pre-approval from the regulator before entering into interest rate swaps, speeding up transactions for some of the industry’s biggest institutions that already hold over 80% of total assets.
The credit union regulator has held back in allowing the use of derivatives but has released a proposal that would remove red tape for some larger institutions.
With multiple business sectors reeling from the pandemic, banks are facing tighter net interest margins, provisioning more for losses and seeing their balance sheets expand, the agency said in a report.
With rates so low — after steep emergency Federal Reserve cuts in response to the pandemic’s fallout — banks will struggle to generate bread-and-butter interest income and asset-sensitive lenders will face substantial net interest margin contraction this year and next, analysts say.
Some megabanks are pushing New York lawmakers to add a legal safe harbor if lenders use the new Secured Overnight Financing Rate. Smaller banks would have little choice but to take that option.
The Fed’s decision to cut its benchmark interest rate amid growing coronavirus concerns is bound to have an impact on banks, but just how broad and how deep remains to be seen.
