New Rules To Rein In Corporate System
ALEXANDRIA, Va. – The NCUA Board approved reforms to its corporate credit union rules on Friday that will severely restrict the powers of the corporates, making them little more than pass-throughs for investment services.
The new rules will bar corporates from a variety of investments that have been cited as major causes for the corporate meltdown, including private-label residential mortgage-backed securities, collateralized debt obligations, limit investments in subordinated securities, require tougher ratings for permissible holdings, and make it harder for corporates to qualify in so-called expanded investment authority.
The new rules will create a system of prompt corrective action for the corporates, under which NCUA will be able to limit a corporate’s activity or even take over it when capital declines below certain benchmark, much as NCUA does for natural person credit unions.
Robert Fenner, general counsel for NCUA, said the new rules, “provide regulatory restraints to taking too much risk.” Fenner said the rule, if it had been in place prior to the corporate meltdown, may have prevented or mitigated many of the problems that have destroyed some of the corporates.
Likewise limited by the new rules are the activities of corporate CUSOs. NCUA will, for the first time, have access to the books and records of CUSOs owned by federally chartered corporates.
Corporate directors will be required to be senior executives at the corporates’ natural-person credit union members. Each corporate must disclose the annual compensation paid to senior executives and directors.
“The primary purpose of this rule is to ensure that the recent corporate crisis does not happen again,” said NCUA Chairman Debbie Matz.