ALEXANDRIA, Va. – Credit union executives and volunteers overwhelmingly are urging NCUA that before undertaking a reform of the corporate system it move to insulate credit unions from the growing losses in the corporates, what one NCUA Board member referred to as the "800-pound gorilla."
"What credit union will reinvest in the corporate system unless the toxic assets are segregated so that new capital is not put at risk?" is how Susan Blain, president of Spokane FCU, put it in one comment letter submitted on the corporate proposal.
Even while voting to issue the 253-page corporate proposal for comment last November, NCUA Board member Gigi Hyland acknowledged a rescue of the corporate system will not be possible without also addressing the estimated $40 billion of underwater securities owned by the corporates, what she called the 800-pound gorilla.
While commenters expressed disagreement on numerous details of NCUA’s proposal, a broad consensus insisted that NCUA deal with the so-called legacy assets before approving a final rule. Many even called on NCUA to withdraw the rule until a plan on the legacy assets is issued.
"It is important that the NCUA provide a solution in conjunction with this regulatory proposal that protects future investments in corporates from the impact of the legacy assets," wrote Elizabeth Monroy, president of Shell FCU in Deer Park, Texas. "Without a solution for the treatment of these assets, this proposal is futile."
"With continued deterioration in the portfolios of the corporates across the country, we believe the Agency should immediately address the steps it intends to take to deal with the toxic assets on the books of the corporates before it implements the final rules," wrote Karen Niederkohr, compliance officer for San Mateo CU, in Redwood City, Calif.
"I feel that NCUA has to announce the disposition of the legacy assets and let the ramifications of the disposition settle in," commented David Wright, president of Services Center FCU in Yaknton, S.D. "One can only imagine different scenarios on the disposition of those legacy assets today. But until something concrete is decided I feel that the majority of the proposals are really just conjecture."
"With the disposition of the legacy assets decided I believe that the ‘fog’ will be lifted and allow all concerned to think, decide and dream in a much clearer manner," wrote Wright. "I am not saying that deciding on a course of action for the legacy assets will instantly make things better, like a mother kissing a child with hurt feelings, but I believe that deciding on a course of action will change the possibilities of what can and should be done in the future. These assets and their ultimate disposition could affect credit unions for a decade or more to come.”
Some commenters are urging NCUA to go further and to begin to consolidate the corporates soon.
"NCUA board members have stated that the future of the corporates are to be determined by natural person credit unions," wrote Ken Burns, president of Patelco CU, the San Francisco credit union giant. "Still, the regulator is encouraged to move quickly to place into conservatorship those corporates unable to achieve adequate risk-based capital ratios. Doing so, along with easing corporate merger requirements, will speed the process of consolidation thereby reducing inefficient redundancies and building the economies of scale necessary to operate under a drastically different revenue model."
