ALEXANDRIA, Va. — Capital levels and institutional transparency will be two of the biggest pillars in the new regulations from NCUA governing the corporate credit union system.
At a recent virtual townhall meeting NCUA General Counsel Robert Fenner said the new rule would "strengthen corporate capital by establishing leverage capital and risk-weighted capital requirements that are comparable to what is in place internationally for the banking system under Basel I."
As the regulator is focusing on investment diversification in the new rule, it is doing the same on the deposit side. The new regulations would prohibit corporate credit unions from becoming overly reliant on a on a single funding source for capital.
"What we are contemplating is a prohibition in the proposed regulation against a corporate credit union receiving any more than 10% of its funding from any one source," Fenner explained. "And we recognize that there are a limited number of corporates that are not in compliance with that requirement."
Such a requirement would have a delayed effective date or a provision for action plans to allow non-conforming corporates to get into compliance over a "reasonable period of time."
While NCUA has taken a position that it will remain more or less hands-off on the structure of the system (see related story), Fenner told corporates to be ready for a more powerful regulator that has additional tools to ensure corporate credit unions that show the first signs of trouble are immediately put back in line.
"The new regulation, in addition to establishing a new capital regime, will also establish a set of corrective action requirements for corporates," he explained. "So at declining capital levels NCUA will have stronger and clearer supervisory tools built into the regulation to deal with declining capital rations and to more forcefully affect correction."
While the regulator's original restructuring recommendation included a requirement that corporate capital have at least 1% in retained earnings, Chairman Deborah Matz said the board had not come to a decision on that provision.
Worry the Focus Will Be Too Narrow
The controversy over U.S. Central's Credit Union's financial health and prospects has prompted many calls for additional transparency of both corporate credit unions and their executive staff. Fenner said the new regulation would tackle that problem and "include annual disclosure to all members of the full compensation of the senior members of the corporates."
Allen Carver, former NCUA regional director and president of Allen Carver & Associates, told Credit Union Journal he is worried that the regulator's focus is too narrow. He argued that the biggest risk to the corporate system is a failure of confidence by natural-person credit unions and the big hit many CUs took from the premium charge.
"NCUA has to come up with a system if the corporates are to survive, where natural-person CUs that don't deal with the corporates who fail won't suffer any losses. Those CUs (who work with corporates) have no complaint because they go into business with their eyes and ears open," he said. "By the time you get disclosure it's probably too late, so I really question the value of allowing CUs to put all of their eggs in so few baskets, even with greater transparency."
