ALEXANDRIA, Va. – Early commenters on NCUA’s proposed corporate credit union rule are questioning the viability of the corporate network itself, which has reported billions of dollars of loses over the past two years.
Raymond Dowling, president of Stamford (Conn.) FCU, wondered if natural person credit unions will agree to recapitalize the corporate network, which under NCUA’s regulations is vastly undercapitalized. "The basis for the continued viability of corporate credit unions is that credit unions will be willing to provide the additional ‘at risk’ capital necessary to adequately capitalize corporate credit unions. My sense is that will not be the case," wrote Dowling, in a comment letter submitted to NCUA on the corporate proposal.
"After having lost millions of dollars to depleted membership shares and PIC, how many credit union CEOs are going to be willing to approach their boards of directors to place such additional ‘at risk’ investments with corporate credit unions? I doubt that there will be many," Dowling concluded.
"Before you spend a lot more time and resources on this effort, consider conducting a simple survey to ascertain the willingness of credit unions to provide the capital. Without which, there is no basis to proceed further," he suggested.
Ed Waite, president of Kaiperm NW FCU, Portland, Ore., is another skeptic. "Our preference," wrote Waite, "is for the NCUA to break up all the corporates, that is, sell investments and services to independent third parties. The marketplace will provide opportunities for credit unions to conduct business."
Other commenters are worried that NCUA’s proposal to tighten capital requirements and reduce risk will make it impossible for corporates to earn enough of a spread to be an attractive investment option for natural person credit unions.
"I believe there are some major limitations in the proposed rule that cause me a number of concerns, mostly, over liquidity and, investment returns," wrote Mark Moore, president of Members 1st CU in Redding, Calif. "If not amended, these parts of the proposed rule will force my credit union into the undesirable position of seeking alternative, possibly far more costly, and certainly more unreliable, providers instead of a corporate credit union I and others would own."
The 90-day public comment on the corporate proposal expires on March 9.
