Remembering Lesson Something To Bank On

Register now

ONTARIO, Calif.-The new president of the California and Nevada CU Leagues sees payment processing and not becoming dependent upon banks again as the key issues as the corporate CU market takes shape.

Diana Dykstra believes the most pressing need is payments, "There are non-CU players "coming out of the woodworks telling credit unions they have to move away from corporates," she said.

Some of these players are banks, with Dyksta recalling the late-1980s, when banks did check clearing and item processing for credit unions. When First Interstate Bank took over Security Pacific Bank in California, for instance, Dykstra recalled CUs being told they had just 60 days to take their payments business elsewhere. WesCorp stepped into fill the void. "That shows the need for a system solution because we don't want credit unions to be dependent on banks again. Once we leave the cooperative environment, we become victims of markets we don't control."

The leagues' Corporate Realignment Task Force is attempting to find a system solution for payments, she added.

Meanwhile, the bridge corporates, including WesCorp, must be wound down within four months of the final sale of remaining legacy assets, and Dykstra noted, "I suspect once that happens the deposit guarantee will go back to $250,000 maximum. A lot of people are keeping money in the corporates because the money is guaranteed 100%, and if the guarantee goes back down then credit unions will be looking for other investment vehicles and corporate balance sheets will shrink." Driving asset decline, too, she said, are limits on the terms cororates can offer.

Predicting The Future Model
Another key issue: "We don't know how the corporates are going to meet the new rules to generate revenue to meet capital requirements-it is going to be difficult."

As for the model that may emerge, Dykstra offered that CUs "need a place to get investment services, and there are the settlement and short-term liquidity loans. We will have a corporate system that will have multiple, separate parts: payments, investments and ALM, and settlement and liquidity"

One bit of good news in the scenario Dykstra foresees: CUs will pay less for settlements. "In the next 30 days we will start seeing more clearly where our path is, which people are going to partner,. We are confident there is a system solution."

For reprint and licensing requests for this article, click here.
Corporate credit unions
MORE FROM AMERICAN BANKER