Corporates See NCUA RUDE Proposal As Inappropriate

- ALEXANDRIA, Va. (03/25/02) - Corporate creditunions are calling on NCUA to scrap its proposal to require aminimum of so-called RUDE capital (reserves and undivided earnings)of 2% of assets. The 2% minimum would be difficult to maintain intimes of expanded liquidity, like now, forcing some corporates toturn away new shares during those periods, corporates said incomment letters to NCUA on the agency's proposed amendments to itscorporate rule 704. "TriCorp believes that it would be a profounderror in judgment to impose a minimum RUDE ratio that couldultimately force corporates to move deposits off its balance sheetor force credit unions to invest in riskier market instruments.Where would credit unions go if their corporate is unable to taketheir investments?" wrote Stephen Roy, president of the Westbrook,Me., corporate. Instead, the corporates overwhelmingly issued theirsupport for the creation by NCUA of a credit-risk weighted capitalrequirement for corporates. The corporates also supported NCUA'sproposals to double the amount a natural person credit union mayinvest in any one corporate to 2% of assets; and opposed a proposalto require corporates to take a perfected first security interestin repurchased securities. "By adopting this proposal, the legalfoundation of a repurchase transaction would be compromised, as thetransaction will change from a purchase and sale agreement to asecured loan," wrote Joseph Herbst, president of Empire CorporateFCU.