NCUA Urged To Tighten CorporateOversight

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WASHINGTON - (10/14/04) -- NCUA should strengthen itssupervision of the corporate credit union network in light ofincreasing competition which has forced corporates to expandservices and helped constrained earnings, according to a new reportissued Wednesday by the Government Accountability Office. AverageROA for the corporate has trended down from around 38 basis pointsin 2001 to around 20 bps in 2003, putting constraints on whatcorporates can pay out to their members, as well as on capitallevels, the GAO said. But the GAO emphasized that despite thegrowing pressures on the network the surviving 31 corporates,including U.S. Central CU, appear to be healthy financially,relying on less-permanent forms of capital to maintain theirrequired capital. But market conditions, including lower interestrates which have made it difficult to provide desirable spreads fornatural person credit union members, have prompted many corporatesto increase risk by shopping for more sophisticated and riskierinvestments. The GAO recommended NCUA make some miner changes toits oversight program, including tracking and analyzing examinationdeficiencies to address complex and emerging issues; increaseoversight of corporate risk management; provide better guidance forcorporate mergers; require internal control reporting forcorporates.

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