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CUNA comment on corporates suggests new model
WASHINGTON (3/10/10)--Credit Union National Association (CUNA) President/CEO Dan Mica in a comment letter to the National Credit Union Administration (NCUA) said that CUNA supports corporate credit unions but not the business model that many, but not all, used. The comment letter, which addressed the NCUA's proposal to drastically revise the regulation of corporate credit unions, was developed by CUNA's Corporate Credit Union Task Force. Responding to the views of credit unions around the country that they would not recapitalize a corporate credit union, CUNA's letter called for a new business model for corporate credit unions that would require relatively smaller amounts of capital and result in small balance sheets comprised mostly of the settlement balances of natural person credit unions. This approach would allow corporate credit unions to focus on key services for natural person credit unions, such as settlement, payment and liquidity. Corporate entities could also help meet the investment needs of credit unions by providing advisory or management services or by providing access to key investment services through a corporate credit union service organization, the letter suggested. “Few issues have been as disruptive to the entire credit union system as the corporate credit union investment problems that led to the establishment of the NCUA's Corporate Stabilization program. Natural person credit unions are in the process of paying approximately $9.5 billion, as presently estimated, for losses that resulted from the current business model. This includes an estimated $6 billion for the Corporate Stabilization, about $3 billion of lost reserves and undivided earnings of corporates, and upwards of $400 million in paid-in capital at corporates,” the letter added. Shifting corporate credit union business practices toward payment and settlement services "would protect credit union influence on the financial system and provide opportunities for economies of scale," CUNA's letter emphasized. Corporates could also meet the investment needs of natural person credit unions by operating or providing access to money market mutual funds and other investment funds and providing brokerage or financial advisory services. A move toward these types of services, which could be "provided through the entity, entities or through subsidiaries or vendors," would allow the existing corporates to avoid "undue regulatory intervention," according to CUNA. Corporates would still be able to "serve natural person credit unions' interests effectively, the letter added. While the NCUA's proposal provided a reasonable regulatory framework that would accommodate a new business model for corporate credit unions, CUNA in the letter also called on NCUA to make significant changes, including taking a leadership role in facilitating the transition to a new model. While the capital and prompt corrective action provisions are generally appropriate, CUNA said that the NCUA has reserved too much authority for itself to require additional capital beyond the levels in the proposal and to downgrade a corporate credit union's net worth for seemingly arbitrary reasons. While it felt that the requirements for disclosure of compensation of officials were too cumbersome, CUNA did speak in support of allowing up to 20% of the directors of a corporate credit union to come from outside the credit union system to provide additional expertise to the corporate. CUNA in the letter also announced that it will form a new working group to address potential issues caused by the pending corporate credit union system transitions. Further, the letter urges the agency to address the issue of corporate credit unions' legacy assets so that future capital will not be at risk for future losses related to those current mortgage and asset backed securities. CUNA commended NCUA Chairman Debbie Matz for addressing this issue, but asked the agency to issue a communication to credit unions on its potential plans for the legacy assets. The NCUA should also develop a plan for dealing with those assets that is in the best interest of credit unions before the final corporate rule is adopted, CUNA added. For the full comment letter, use the resource link.


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