ALEXANDRIA, Va. — NCUA is saying it will not dictate the size of the corporate system when it releases its new rule, and will instead focus on capital requirements, investment risk and transparency.
Office of Corporate Credit Unions Director Scott Hunt believes that there will be "some measure of consolidation" during the transition period from the current regulatory structure to the one that will be announced on Nov. 19, but stated that the regulator would not be picking winners and losers.
"NCUA is not dictating that any given corporate find a merger partner," he said at a recent virtual town hall meeting.
The corporate system is expected to shrink though - a number of merger applications have been sitting on Hunt's desk. His office essentially suspended all of those applications as the financial crisis unfolded last year and began taking a toll on corporate CUs.
"We thought it best that such consolidation occur once we had stability in the system and a new rule," the director said. "It's reasonable to expect that some measure of discussions are going on and to say can we affect better service or mitigate risk if they are combined with another entity. I think [consolidation] is something that is probable."
Equal Treatment
The fate of two corporates currently in conservatorship, Lenexa, Kan.-based U.S. Central and San Dimas, Calif.-based WesCorp, will be left in the hands of corporate and natural-person credit unions as well. Hunt said all corporates are going to be treated equally; NCUA will not dictate U.S. Central's role or FOM going forward.
"We would contemplate two changes that would directly affect U.S. Central," NCUA General Counsel Robert Fenner explained. "One is that there would be no preferred treatment for a wholesale corporate; every corporate would have to meet the new capital standards over time. The other is that the majority of the members of the board would have to be representatives of natural-person CUs. But that does not mean U.S. Central, or some other corporate, could not exist for the purpose of primarily providing services to other corporates."
Though NCUA is committed to the "long haul" to provide services to the corporates and natural-person CUs through the conservatorship of U.S. Central and WesCorp, the regulator fully intends to get those institutions back in the hands of members as quickly as it can while maintaining stability.
"I think NCUA sees value in USC and WesCorp, but ultimately it will be determined by the future members or continuation of the members of those two institutions if USC and WesCorp remain their own entities," said Hunt. "It cannot be NCUA's position to somehow prop up those institutions for good. It has to be supported at the membership level."
The regulator is also taking a hands-off approach to corporates' servicing operations. Corporates will be allowed to set, or not set, capital purchasing conditions on membership and set up servicing rules for natural-person CUs that do not own member capital shares.
A Matter of Self-Determination
"It is a matter of self-determination," Hunt said. "If a particular corporate wants to require MCS as a condition of membership or limit services to those member that do not purchase contributing capital, the regulation would not prohibit that. That would be something for the members to work out with the corporate."
