WASHINGTON-The services of corporate credit unions should be limited to a defined set, including payments and settlements, liquidity and short-term investments, according to final recommendations released last week by a task force created in the wake of several failures among corporates earlier this year.
The joint CUNA/NAFCU task force recommendations clearly seek to limit risk by trimming both the breadth of corporate investment offerings and their maturities. Moreover, the task force envisions "a reduced number of corporates in the future" and offers suggestions on how consolidation will be brought about. As part of that reduction the task force envisions a one-tier corporate system, rather than the current two-tier system.
In a footnote, the report observes, "The Task Force recognizes that almost all of (corporates) have not 'failed.' But, although only two corporate credit unions have been placed in conservatorship, the huge losses imposed on (natural-person CUs) as a result of the operation of corporates, one of which served all the other corporates, means that the system itself has failed."
Other recommendations, many of which are a departure from the current corporate system, call for reducing longer-term, on-balance sheet investments in order to reduce risk, noting that "purely for settlement purposes, a maximum maturity of three months would be sufficient"; a recommendation that contributed capital should be required for membership and service use by CUs, and that NCUA must improve its oversight, specifically the capabilities of examination staff, of corporate credit unions.
The task force's findings are included in a seven-page report to NCUA in response to the agency's Advanced Notice of Proposed Rulemaking, which it issued in January. The joint task force report offers recommendations on corporate systems, services, capital, structure, corporate governance, NCUA oversight and insurance of shares and deposits.
The task force said its goals include helping develop a "corporate credit union system structured so that the recent losses to natural-person credit unions, both individually and systemically, will not reoccur"; and "creating a corporate system that credit unions will willingly capitalize and use."
