WASHINGTON — Credit union leaders agreed there should be a consolidation of corporate credit unions but consensus was elusive on most other aspects of a reform of the corporate system during a symposium held last week by NCUA celebrating the 75th anniversary of the Federal CU Act.
The event was one of several planned this year to celebrate not only the 75th anniversary of federal credit unions, but also the 100th birthday of the credit union movement. NCUA will be publishing a commemorative volume later this year highlighting the history of federal credit unions.
Leaders representing the main credit union groups; NCUA, CUNA, NAFCU, NASCUS and credit union consultants Callahan & Associates, as well as about two dozen credit unions failed to reach consensus on what the functions of the new corporates should be; how they should be insured; the delineation of the markets they should serve; and the governance of the new corporate structure, during one of several discussions at the symposium.
"We did not do a good job of electing our board of directors and they did not do a good job of running the corporate," said Rudy Hanley, president of SchoolsFirst FCU, of the failure of WesCorp FCU. "We had lots of red flags, and I, for one, plead guilty. All of us had a role in this, and I think we learned a lesson. We are all owners."
Representatives of large credit unions, who made up the majority in attendance, agreed they no longer need the corporates because they can go directly into the markets and can access sources like the Federal Reserve and the Federal Home Loan Banks for any liquidity needs.
Dennis Godfrey, a senior executive with Navy FCU, said the credit union giant no longer uses or needs the services offered by the corporates, but he acknowledged many smaller credit unions that do. "The number of corporate credit unions are going to be determined by the number of credit unions who want to invest their funds," said Godfrey.
NCUA Board Member Gigi Hyland, who organized the symposium, explained the reasons for the failure of U.S. Central FCU and WesCorp FCU, which have threatened the entire corporate system and will cost all federally insured credit unions at least $6 billion to resolve.
She attributed the failure of U.S. Central to a lack of liquidity, as the declining bond markets prevented the corporate or corporates from trading its bonds as a normal course of business, and forced it to hold onto them. And she said the failure of WesCorp was due to the inability to provide accurate and verifiable data on losses on its vast book of investments.
There was agreement on some points:
- There should be fewer than the 27 current corporates, but no consensus on how many.
- There should be a separate insurance fund for the corporates so as not to put the National CU Share Insurance Fund at risk. "Get rid of federal deposit insurance (for corporates)," said Bucky Sebastian, president of GTE FCU. "We need the function (of the corporates). We just don't need them insured. Get them off the NCUA table."
- The corporates' investment powers should be more restricted than they are now.
- Competition should be limited so that corporates are not competing against each other. Jay Murray, president of MidAtlantic Corporate FCU, noted how his Harrisburg, Penn., corporate has invested an estimated $15 million in a variety of products and services over the past decade, many of which are being provided by other corporates serving the same CUs.
A sampling of other remarks:
- "We don't need the corporate system because it's a duplication of existing systems (like the Federal Reserve banks and the Federal Home Loan Banks)."
- "Every credit union cannot join the Federal Reserve."
- "Fewer corporates will mean better economies of scale."
- "Let's have two separate insurance fund, one for the corporates and one for natural person credit unions."
- "Let the market decide how many corporates we should have."
Hyland said NCUA will be reviewing all of these issues as it moves towards a broad corporate reform plan, expected to be issued to the public in the fall.The corporate discussion was facilitated by Bob Hoel, the former head of the Filene Research Institute, who said the session would be his last public appearance on behalf of credit unions.
Other issues discussed during the symposium were: capital reform for credit unions; the future of the credit union charter and the sustainability of the cooperative structure.
