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NCUAs Matz Proposed corp. CU rules would prevent future crisis
ALEXANDRIA (4/12/10)--National Credit Union Administration (NCUA) Chairman Debbie Matz last week remarked that the proposed changes to the corporate credit union system, which “will go a long way toward preventing another corporate crisis from ever occurring,” would result in “fewer corporates, but stronger corporates.” The NCUA’s proposed rules for corporate credit unions, which were presented at the NCUA's board meeting in late 2009, would amend Part 704 of the NCUA's rules, adjusting the current corporate capital requirements by replacing the current 4% minimum total capital ratio with a 4% minimum leverage ratio, a 4% tier one risk-based capital ratio, and an 8% total risk-based capital ratio for adequately capitalized corporate credit unions. Corporate credit unions would be required to demonstrate capital ratios of 5%, 6% and 10%, respectively, to be considered well capitalized.
Click to view larger image NCUA Chairman Debbie Matz, right, with Texas Credit Union League President Dick Ensweiler. (Texas Credit Union League photo)
While the capital thresholds proposed by the NCUA “will be attainable for some corporates,” others “will need to find a new business model,” according to Matz. Additionally, a number of corporate credit unions are already discussing mergers. The NCUA corporate proposal would also prevent corporate credit unions from investing in collateralized debt obligations and net interest margin securities. The NCUA rules, if approved, would also limit so-called "golden parachutes" for troubled corporates, would require corporate credit unions to disclose their executive compensation packages, and would attempt to ensure that corporate boards are mainly comprised of natural person credit union employees. Any of these board members would need to hold the position of CEO, CFO, or COO at their member entity to be eligible for corporate credit union executive service, according to the NCUA proposal. The NCUA has also dedicated 20 “top” staff members to work on isolating the “severely impaired securities” that are also known as “legacy assets,” and Matz said that the NCUA may be “close to proposing a plan that would remove the riskiest legacy assets from ongoing corporates, while carrying forward the most valuable pieces of the corporate system.” Overall, the NCUA’s “comprehensive corporate resolution plan,” which Matz said could be presented to credit unions by the end of June, “would empower natural-person credit unions to choose which corporates they will support, would ensure that those corporates begin with clean balance sheets,” and “could even allow credit unions to recover future earnings from legacy assets that out-perform current loss projections.” Matz said that the NCUA is “confident that the new safeguards, when refined and implemented, will provide a framework for safety and soundness that protects America’s 90 million credit union members.” The Credit Union National Association (CUNA) recently called on the NCUA to develop 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. CUNA last week also announced a 14-member Corporate Credit Union Next Steps Working Group that will provide recommendations to the CUNA board on ways to ensure that natural person credit unions of all sizes continue to have access to key correspondent services including payments, settlement, liquidity and investments. (See related story: CUNA forms Corporate CU Next Steps Working Group.)
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