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CU NCUA reps repeat CUs control corporate makeup
WASHINGTON (3/2/11)--As the corporate credit union system continues to be restructured, natural person credit unions should remember that, as members, they own the corporates, and should tell the corporates what services they will want from them in the future, Terry West, president/CEO of VyStar CU and chairman of the Credit Union National Association’s (CUNA) Corporate Credit Union Next Steps Working Group, said on Tuesday. West appeared as part of a panel discussion at CUNA’s 2011 Governmental Affairs Conference. CUNA Chief Economist Bill Hampel moderated the panel discussion on the future of the corporate system, which also featured National Credit Union Administration (NCUA) Deputy Executive Director Larry Fazio and NCUA Office of Corporate Credit Unions Director Scott Hunt.
Click to view larger image Natural person credit unions will play a large part in determining the future of the corporate credit union system, and the structure of those corporate credit unions will be determined in the coming months, panelists at a Tuesday GAC discussion said. From left: CUNA Chief Economist Bill Hampel, VyStar CU President/CEO and CUNA Corporate Credit Union Next Steps Working Group Chairman Terry West, NCUA Deputy Executive Director Larry Fazio, and NCUA Office of Corporate Credit Unions Director Scott Hunt.(CUNA photo)
West advised natural person credit union managements to clearly understand their potential corporate’s business model, perform the necessary research, and have a secondary option if it appears that their first choice will not work out as planned. He also reminded credit unions of the risks of looking outside of the credit union industry for many of the services traditionally provided by the corporates. The NCUA last year finalized several revisions to Part 704, NCUA's rule governing corporate credit unions. The NCUA proposal established a new capital structure for corporate credit unions, including risk-based capital requirements, to provide corporates with a stronger capital base. Under the NCUA’s changes, corporate credit unions will focus more on aiding credit unions in their operations and less on making investments. Hunt said that final versions of a pair of NCUA corporate rulemaking proposals could be released at the agency’s April or May board meeting. One proposal would allow privately insured credit unions and non-credit unions, such as credit union leagues, that are members of a corporate to pay "voluntary" Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessments. A second proposal would limit credit union membership in corporates to one corporate at a time. Hunt said that while there have been reports of potential corporate credit union mergers in the works, there are currently no merger applications in his office. He also noted that the NCUA is not recommending that any of the corporates pursue consolidation, but said that some may ultimately recognize that consolidation may be a better option for them. Consolidation is ultimately a member decision, Hunt said. The NCUA will not allow the bridge corporates to be involved in any consolidation discussions while they are under agency control. However, once independent, those corporates may pursue consolidation and bring it before the agency for consideration, Hunt added. Fazio reported that the agency is engaging an outside firm to update the valuation of the legacy asset portfolios, and said that information will be available later in the year. Therefore, for now, the total loss estimate of $14 billion to $16 billion still holds. He also said that actual losses recorded thus far amount to about $2.2 billion. He also suggested that this year’s corporate stabilization assessment could be as high as 20 to 25 basis points (bp) of insured shares, rather than the average assessment of around 9 bp that would be necessary to pay down the corporate stabilization over the remaining 11 years of the plan. However, he pointed out that this was due to cash flow needs, and not to any increase in loss estimates. Future assessments, as a result, would be lower, unless future loss estimates increase. He also said that the NCUA plans to provide regular updates on the portfolios in the future.


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