Credit Unions Challenge NCUA's Version of Cap Corp Oversight

The effects of liquidating Capital Corporate Federal Credit Union linger on for the National Credit Union Administration.

Renewed interest in the 1995 failure couldn't come at a worse time for NCUA Chairman Norman E. D'Amours, whose overall management of the agency is under fire.

In a letter this month to Rep. Marge Roukema, R-N.J., more than 100 credit unions disputed the NCUA's explanation of Cap Corp's supervision and operations.

Pentagon Federal Credit Union chief executive Ronald L. Snellings said the NCUA's version of events was "just plain wrong."

"We wanted to keep the record straight," Mr. Snellings said in an interview. "The losses we felt are attributable to the NCUA, and we want Congress to recognize that."

Several congressional hearings were held last year, including one by Rep. Roukema, to evaluate NCUA's handling of the Lanham, Md., corporate credit union. Those hearings prodded the agency to clamp down on the 41 surviving corporate credit unions, which serve as liquidity centers for regular credit unions. Proposed rules were issued for public comment last week.

Trying to put the issue to rest, NCUA in April released a document designed to answer commonly asked questions raised by the liquidation.

On May 3, Mr. Snellings wrote Rep. Roukema, chairman of the House banking financial institutions subcommittee. Among other things, he questioned the NCUA's claim that it warned Cap Corp in 1992 to carefully monitor a number of volatile securities in its portfolio.

The NCUA expressed no concerns about Cap Corp until late 1994, Mr. Snellings contended. Indeed, examiners gave Cap Corp a Camel 1 rating from the end of 1992 through 1993, he said.

"A reasonable person must assume that NCUA either was comfortable with the way Cap Corp was being governed and managed or the NCUA was negligent," Mr. Snellings wrote. The Pentagon Federal chief said he represents 171 of the 251 credit unions that lost $23 million when Cap Corp collapsed.

The head of the nation's third-largest credit union also refuted the NCUA's assertion that Cap Corp faced a serious liquidity problem in September 1994. The NCUA had told Rep. Roukema that in the first week of December 1994 a run drained 20% of Cap Corp's deposits. Consequently, NCUA said Cap Corp needed to increase its borrowing beyond legal limits to meet withdrawal demands.

But Mr. Snellings charged the agency miscalculated Cap Corp's borrowing limit. As of Dec. 31, 1994, the liquidity center was $78 million below its borrowing limit, according to Mr. Snellings.

Rep. Roukema, according to an aide, will decide whether to hold another Cap Corp hearing after Rep. Spencer Bachus, R-Ala., completes his investigation into allegations that Mr. D'Amours has mismanaged the agency. Former NCUA Director Robert Swan has accused Mr. D'Amours of running the agency like a dictator, cutting the other board members out of policy- making decisions.

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