MIDDLETOWN, Penn.-NCUA's plan to deal with legacy assets will likely play an even more critical role in determining the fate of corporates than changes to Regulation 704, several suggested.
Though details have not been released, the regulator has pledged a comprehensive plan to put the corporates "on even footing," noted Jay Murray, President/CEO of $3 billion Mid-Atlantic Corporate FCU.
With no indications as to what NCUA plans to do about the billions of dollars in mortgage-backed securities dragging on corporate balance sheets, speculation has moved to watching what the FDIC is doing at banks of similar size. The agency has said it will announce its plans by June 30. Murray said that solving the legacy assets issue is critical to restoring confidence in the corporate system at natural person credit unions. "Credit unions are not willing to capitalize a corporate that is holding legacy assets when it is not known how much loss they are facing," he said.
Going forward, Murray stressed the importance of regional and local corporates that understand specific marketplaces. Pennsylvania, for instance, has a large number of smaller credit unions and Mid-Atlantic is built around serving the unique needs of those institutions, he explained. Corporates are likely to work in a more cooperative fashion down the line and may even coordinate payments platforms, check clearing and fund movement to get greater group buying power.
But he was skeptical of any unnecessary consolidation, and especially critical of a single, national corporate. "If we had had that model and it was only U.S. Central, for example, look at what would have happened. All the risk would be in one location," he said, the balance sheet risk would be worsened by the physical location risk as well as a single natural disaster would cripple the system.
