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WASHINGTON-NCUA has said credit unions keeping their funds at their corporates will be vital to the success of the corporate rescue plan-but will credit unions be willing to do so?

Under the new corporate rule, corporates can no longer offer some of the longer terms and roll-over investment options that credit unions have come to rely on and instead will be restricted to offering terms up to six months. And instead of offering premium rates, the corporates will have to cut rates back significantly so they match Treasuries. Those two changes take away two of the primary incentives for keeping those funds with the corporates, several sources suggested."The dilemma credit unions are faced with now is understanding the need to keep liquidity in the corporates, but does that do to your asset liability management," asked Dan Kampen of the Rochdale Group.

Also, some CUs are angry over the corporate meltdown, straining the cooperative bonds that formerly acted as another incentive to doing business with the corporates, several sources suggested. Although NCUA has said nothing about forcing CUs to keep their money where it is, that is something the agency, as conservator of the corporates, has the power to do, Hunt noted. "It's true that credit unions have been looking at alternatives, ," she said. "As the conservator, NCUA has a lot of power, they could opt to freeze capital," but thus far the agency has not indicated it would do so.

So, where will CUs turn for investments? Despite the new corporate rule, two brokerage firms said they expect only a slight uptick in CU business, most if it from CUs that have already switched to using investment firms.

Charles Felker, managing director of regulatory affairs for First Empire Securities, agrees the new rule will reduce CU interest in corporate investment products. "In a broad sense, I no longer see [corporates] as being competitive investment facilities. That is one of the designs of the new rule, to return them to their fundamental mission of being liquidity and payment systems providers." Felker believes many credit unions began viewing corporates in this manner as far back as two years ago. "Corporates have gradually been losing market share," noted Felker, who sees corporates as now holding less than 10% of natural person CU investments. "How much more can leave?"

Mark Evans, director of investment strategies for Vining Sparks, Memphis, Tenn., contended the new rule will only change how natural person CU money reaches brokerages. "It won't necessarily be a field day for us because many of the corporates had already been using our services. Now we'll get the money directly from the natural person credit unions."

Tom Manley, partner at the Dallas-based ALM First, said his firm is starting to see more CU interest. "The government guarantee has kept deposits in corporates pretty strong for a while. As we rotate out of that, I think natural-person credit unions will migrate more to the secondary market."

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