The Guess

WASHINGTON-Corporate credit unions must change their business model, remove complexity, and take further steps to control costs as a result of the new corporate rule.

That's the consensus of two members of CUNA's Corporate Credit Union Next Steps Working Group, who both agreed that what NCUA has proposed is closely in line with the team's expectations. The agency's new rules will create a new corporate CU landscape over the next few years, and credit unions will have to adjust as other players will be stepping in-or created to step in-to fill some of the voids that are being created.

"Many of the corporates will have to rethink their business model in order to meet the net worth ratio and earnings guidelines. But they have time to do that," stated Terry West, CEO of the Jacksonville, Fla.-based VyStar CU, who chairs the working group. "Many more will have to cut costs so they can operate efficiently and keep fees as low as possible and be able to function without these big margin spreads that were helping some manage fees."

CUNA Chair Harriett May of GECU in El Paso, Texas, believes it will be "interesting how the different corporates deal with CUSOs, adding the new corporate mission is "not unlike what our forefathers laid out for them in the '70s."

While the working group was not surprised by the final rule, it didn't see the legacy asset plan until Sept. 24. "We were not sure what would finally come out of that," said West. "Do we like the cost associated with the plan? No. But some solution had to be developed. I think the bridge corporate is a solution."

The working group is still studying the 255-page rule, and West said it is too early to make a call on the regulation. "Time will tell if this proves to be the right solution. But it seems the most workable option. The fact that the Treasury has given the full faith of the U.S. government is extremely positive."

NCUA's new rules severally restrict the powers of the corporates, (see related stories here, here and here), and create a system of prompt corrective action for the corporates. The new rules, said Robert Fenner, general counsel for NCUA, "provide regulatory restraints to taking too much risk." Fenner said that the rule, if it had been in place prior to the corporate meltdown, might have prevented or mitigated many of the problems that have destroyed some of the corporates.

The new rule will also limit the activities of corporate CUSOs and give NCUA access to the books and records of CUSOs owned by federally chartered corporates for the first time.

It will also require that corporate directors be senior executives at the corporates' natural-person credit union members and that each corporate disclose the annual compensation paid to senior executives and directors.