Message from CUNA CEO Dan Mica on the CUNA Corporate CU Task Force Report

While meeting at the GAC, the CUNA board adopted the report of our Corporate Credit Union Task Force recommending a new model for the corporate system consistent with today’s economic and financial market realities. The report established basic parameters for this new model; we also drew heavily on the report’s conclusions in preparing the comment letter CUNA submitted on March 9 to NCUA on its corporate credit union proposal.

Our next step in this process is to create a working group that will seek input and encourage further discussion from all interested parties and stakeholders to develop the details and flesh out the particulars of the new model our task force has recommended. Harriet May, chair of CUNA’s Governmental Affairs Committee, will be appointing this working group later this month.

For those who have not yet read the CUNA Corporate Task Force report, I urge you to do so. You will find a link to the report below. Let me also make several key points about this report in response to those who may have concerns because its recommendations call for a model very different from today’s corporate system. Indeed, the new model is very different—and absolutely necessary. Here is why: As the task force emphasizes in its report, the system must change because too many credit unions have made it plain at this stage that they will not invest the capital necessary to sustain the corporate system under its present business model. Their views could change over time, of course, but credit unions’ expressed reluctance to provide this capital is the fundamental premise on which the task force’s recommendations rest. That is not to say corporates could not adapt to this new model; indeed, we believe they can.

Let me emphasize, too, that the determination on corporate capitalization was not made in a vacuum. It is a conclusion the task force reached after spending more than a year seeking input from a wide range of credit unions large and small, outside consultants, NCUA, and individual corporates. The group has talked with the Association of Corporate CUs and CUNA’s Small Credit Union Committee. Its representatives have attended NCUA’s town hall meetings. The discussions held and information received all factored into the task force’s deliberations. Certainly, we heard from some who said they are still willing to capitalize the corporates as presently structured, but far more expressed significant resistance, making it very clear there would be insufficient capital to sustain the current system.

Hence the need for a new model. The framework for that model is detailed in the task force report, but summarized in short as envisioning “institutions with much smaller balance sheets than existing corporates, acting more as agents than as principals (in providing liquidity and investment services), with investment risks remaining on natural person credit unions’ balance sheets rather than being concentrated in a number of thinly capitalized, wholesale institutions.”

Under the system we’ve had historically, corporate earnings from investments made possible low-cost payment and settlement services and a host of other benefits to credit unions. But these investment earnings were achieved at considerable risk, as the CU movement painfully discovered over this past year. The new model in the task force report recognizes earnings from high-risk investments are no longer viable, so payments and settlement services will have to pay for themselves, and the current system will need to become far more efficient.

The new model’s primary objective is to protect the interests of natural person credit unions. The goal is to do so by continuing to provide credit unions with the full range of correspondent services, including payments, settlement, short-term liquidity and investment services. But these services must be provided efficiently and with minimal risk exposure to credit unions. That is a reflection of today’s reality, and a key premise behind the Corporate Task Force recommendations. There are two final points I would emphasize:

  • CUNA’s preferred solution is for credit unions to own the future system that provides these correspondent services. That is consistent with our history of developing a system of our own that would not force credit unions to rely on banks or other entities whose interest in putting the CU system’s needs first could shift in the wind. Ideally, these future providers would be derived from corporate credit unions or corporates themselves. We do feel corporates could continue providing needed services to natural person credit unions if they make the needed changes to their business model.
  • Favorable resolution of the legacy assets issue is crucial to the success of any new model that includes the corporates so that credit unions can be sure any new capital they provide will not be impaired by any future losses on current assets held by the corporates. CUNA has been working intently with NCUA on this issue—with meetings as recently as last week—and we expect it will be resolved before the agency’s corporate rule is finalized.

I hope these comments will provide you with some added perspective as you read through the Corporate Task Force report. I commend the Task Force for the work it has done in producing this report, and I look forward to the results of this new working group that will continue to advance the process. In all we do in the realm of advocacy, a key principle is to provide the leadership that enables the credit union movement to shape its own future, not allow others to determine it. Over the course of more than a year of extensive outreach, discussion and analysis, that same principle applies to our work on the critically important issue of the future of the corporate system, and it will continue to guide us as we move forward.

Dan Mica

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