NCUA Strips Corporates of Investment Powers
ALEXANDRIA, Va. — The NCUA Board's new corporate credit union rules, to be voted later this afternoon, will bar corporates from investing in a variety of risky investments, many of which are tied to the failure of U.S. Central FCU and WesCorp FCU, making the corporates little more than pass-thru entities for investments.
The new rule will prohibit corporates from investing in private label residential mortgage-backed securities, in collateralized debt obligations, known as CDOs, in net interest margin securities and in securities subordinated securities.
The rule also requires that corporates examine every available rating agency's rating for a particular investment and only employ the lowest of those ratings. Tougher requirements for so-called expanded investment authority will restrict investments for those corporates to those rated no lower than A-.
It also restricts the weighted average life on a corporate's cash flowing assets to two years.
The new rules will also boost capital requirements for corporates to so-called Basel 1 standards and establish a system of prompt corrective action for undercapitalized corporates.
Corporate CUSOs will also be severally restricted under the new rule and only be allowed to offer brokerage services, investment advisory or other preapproved activities set out by NCUA.
The new rules will also require that all corporate boards include at least one CEO, CFO or COO of one of its member natural person credit unions, and will limit service to no more than six years by any director. A majority of all directors for any one corporate must be representatives of the corporate's natural person credit union members, under the new rules.
The rules will also require that corporates disclose annually to their members the compensation of all senior executives and directors.