NCUA Expands Power Over CUSOs

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ALEXANDRIA, Va. — The NCUA Board last Thursday proposed requiring that all CU Service Organizations, the credit union subsidiaries that provide everything from card processing to real estate brokerage services, file annual financial reports giving the federal regulator greater monitoring power over some 650 CUSOs.

NCUA said the proposal would give it additional means to monitor the risks the CUSOs pose to both individual credit unions and the credit union system, with some CUSOs serving hundreds or even more than 1,000 credit unions. "With this controversial proposal we are in some ways breaking new ground," said NCUA Chairman Debbie Matz. "(But) this rule is fundamental to monitoring the safety and soundness of the system."

The proposal, issued for a 60-day comment period, will require that every CUSO owned by a federal credit union or a federally insured credit union-that amounts to almost every single CUSO-file annual reports with NCUA and the appropriate state regulator that details finances, general information like ownership and governance, services offered and customers (including credit unions and non-credit unions) served).

The proposal would also give greater oversight to NCUA on thinly capitalized credit unions additional investments in CUSOs, requiring regulatory approval for the additional investments.

"The changes in the rule are necessary as we look to (limit) the exposure of the share insurance fund," said John Kutchey, deputy director of NCUA's Office of Examination and Insurance, who said NCUA examinations show some CUSO operations are exposing credit unions to potential losses. NCUA, which now requires agreements to allow them access to a CUSO's books on a case-by-case basis, is only receiving "sketchy data, at best, now," he said.

"This is a pretty important rule for us," said Matz," as the only federal financial institution regulatory agency that does not have authority over third-party vendors, which leaves us vulnerable, in some cases."

Separately, the NCUA Board approved an additional $4 billion in borrowing from the U.S. Treasury by the Corporate CU Stabilization Fund to pay off the Asset Management Estate promissory notes of the four corporate bridges-WesCorp FCU, U.S. Central FCU, Members United Corporate FCU and Southwest Corporate FCU-and to address cash needs for the bailout fund. NCUA expects to have to borrow another $2 billion for the fund before year-end.

The notes combined with $28.3 billion raised from the sale of NCUA Guaranteed Notes helped finance $36 billion for the bailout fund which was used to fund deposits in the five corporate failures (including Constitution Corporate FCU).

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