ALEXANDRIA, Va.-Corporate credit unions, especially the smaller corporates that have been largely unaffected by the huge losses on mortgage-backed securities sweeping through the system, are calling on NCUA to temper its proposed reforms, which they fear could make it more difficult for them to compete.
Robert Fouch, president of Corporate Central CU in Wisconsin, acknowledged the need to reform the corporate system in the face of huge losses being reported, but told NCUA in a comment letter on the proposal to go too far could have unintended effects. "Just as excessive risk taking will bring down an industry, so too will excessive regulation," said Fouch.
The $2 billion corporate reported net income of $9.9 million for 2009.
"Specifically," Fouch said, "the proposed regulation as written will reduce corporate credit union liquidity, stifle the ability to build retained earnings, curtail offering value-added products and services to members, hinder our ability to raise capital, diminish our capacity to manage risk; and limit the power of our board and members to determine the structure, direction and fate of the institution they own.
"Over-limiting corporates does not protect credit unions or the share insurance fund. Instead, it shifts more risk to them," wrote Jay Murray, president of Mid-Atlantic Corporate FCU. "Restricting corporates to the point that we are uncompetitive in the market will drive credit unions to non-movement providers."
"As credit unions move outside the movement to find investments or service providers, the burden on NCUA will be to ensure that the providers credit unions choose do not represent an exposure to the very risks the NCUA is trying to eliminate within the corporate network," wrote Murray.
"As a conservatively run corporate, Mid-Atlantic Corporate did not engage in many of the practices that this new regulation is trying to curtail," he said, "However, some of the tighter restrictions will have a profound impact on us, and therefore our members."
Thomas Bond, president of Corporate America CU in Alabama, criticized a proposal that would limit the concentration of deposits from any one source to 10% of assets. That proposal, write Bond, would "force funds out of the credit union system, penalize corporates that acted responsible with their members' money," and deprive natural-person credit unions the ability to invest in institution "they deem appropriate."
Bond, whose $2 billion corporate reported net income of $9.6 million for 2009, suggested if that requirement were in place before it would have required natural person credit unions to spread their deposits among more corporates, thereby increasing their risks as the crisis in the corporate credit unions spread. "This would have increased the risk of loss to those natural person credit unions since they would have been required to evaluate the balance sheets of multiple corporates instead of a single corporate," he commented.
Bond said some of the corporates that remain healthy receive a large portion of their shares from large natural-person credit unions and would be forced to refund some of those shares, thereby hurting their liquidity.
Larry DeRouen, volunteer chairman of the board of Louisiana Corporate CU, took issue with NCUA's proposal to eliminate volunteers from corporate boards and require that all directors be paid executives of a credit union. "I am personally appalled and offended by this portion of the regulation, since it implies that such volunteers are not qualified to serve on such boards," wrote DeRouen. "After all, an examination of the current financial crisis being suffered by all of us in the credit union industry indicates no clear causative link to volunteer members on the boards of corporate credit unions, but can be very clearly linked to boards composed primarily of the CEOs, COOs, or CFOs of large institutions at US Central, WesCorp and others."
"Please note that my own corporate, LaCorp, on whose board I have served as chairman since 1995, has included many volunteers during my tenure and continues to be one of the more financially sound corporates in the network, in spite of the inordinate assessment levied on us to cover the failures of US Central and WesCorp," he added.
