One Fallout From New Corporate Structure: More Risk To NPCUs

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LAS VEGAS – The future business model for corporate credit unions continues to be subject of debate, but most agree it will be substantially different. And at least one person is cautioning that natural-person credit unions had better start preparing for carrying a great deal more risk on their balance sheets.

The topic drew a standing room only crowd of credit unions during the 1 Credit Union Conference hosted by CUNA and WOCCU here. Bill Hampel, CUNA’s chief economist, told the meeting that “corporates can thrive in the future,” but their emphasis will be on correspondent services, payments, clearing and settlements, and they will carry much smaller balance sheets.”

Mike Mercer, president of Georgia Credit Union Affiliates, said it’s clear NCUA has said “enough” with losses related to the corporate credit unions. “We can’t tolerate another crisis to learn from. I think there’s going to be a justified amount of over-reaction on the part of the agency. They are going to confine interest rate risk significantly in the new regulation, very little liquidity risk (the investment in cash flows), and they are going to be emphatic that leverage cannot exceed 25:1, or 4% of assets. So they are going to want real capital.”

What’s ahead, predicted Mercer, is a corporate with a highly-shrunk balance sheet built around crucial settlement balances. Nearly everything else will be off-balance-sheet, meaning it’s going to be on the balance sheet of natural-person credit unions. “So the risk is being transferred,” noted Mercer. “I think that is going to impose a higher duty of care to understand how investments are being made.”

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