ALEXANDRIA, Va. — There was growing consensus last week that whatever the future might hold for corporate credit unions, there will be fewer of them.
In comment letters to NCUA as part of its Advanced Notice of Proposed Rulemaking credit union trade associations and CU leaders offered up a vision that sees the elimination of the two-tiered corporate system with the liquidation of U.S. Central FCU, and potential consolidation of the 26 current corporate credit unions.
Both CUNA and NAFCU advocated a number of measures be taken, and both see some consolidation, although the two groups see it occurring differently (
Meanwhile, a sampling of other comment letters shows diverse opinions.
- "There needs to be substantial change in the corporate credit union system," wrote Bohdan Watral, president of Selfreliance Ukrainian American FCU, Chicago. "Today there is no longer a need for a wholesaler like U.S. Central; there is no need for a two-tiered system. A consolidation to three, but no more than six, corporate credit unions will be more than adequate to serve the needs of natural person credit unions."
"The two-tiered system of U.S. Central should be phased out," wrote Frank Berrish, president of Visions FCU in New York, who suggested that NCUA liquidate U.S. Central over a five-year period and allocate any proceeds from the liquidation to creditors, including the National CU Share Insurance Fund, as well as corporate shareholders.Berrish also suggested that the bad assets of all of the corporates be transferred with some sort of exchange to U.S. Central, which would be given five years to be phased out.
This is an opportunity to restructure the corporate system," wrote Visions' Berrish. "If we were to design the perfect system in 2009, it should be one that is most efficient to develop the most capital. With 26 corporates, 26 buildings, and 26 executive staffs, needless dollars are wasted in overhead. If we were to design the system today, it would be one corporate; however, it may be appropriate to have five corporates, one for each NCUA region or three corporates splitting the country into west, central and east."
- The wholesale functions of U.S. Central, wrote Kelly McDonough, president of First Alliance CU, Rochester, Minn., "are easily replaced by third parties and the Federal Reserve Bank. In summary, the corporate system should be collapsed into a single tier. The present system is inefficient."
Rudy Hanley, president of SchoolsFirst FCU in Santa Ana, Calif., suggested separating the payment systems functions performed by the corporates from the other functions in order to protect the payment system from investment and liquidity risk, through the creation of a CUSO. The CUSO would be capitalized by participating credit unions."We do not believe there is a need for a two-tiered corporate system," wrote Hanley. "We recommend eliminating the wholesale credit union (U.S. Central) and establishing a one-tier system. In order to maximize cost structures and optimize service delivery, we would propose that a similar structure used by the Federal Reserve Bank be implemented, whereby there is central control with regional offices providing support services."
- Howard Benson, president of Malheur FCU, Ontario, Ore., suggested U.S. Central be converted into a new structure as a corporate-owned CUSO that would provide off-balance sheet services like broker dealer and bill payment. "I do not believe it is necessary to maintain U.S. Central as a separate entity," commented Benson. "However, any change at that level needs to be made over an extended period of time giving them time to develop alternatives to services that ultimately affect natural-person credit unions."
- Bruce Beaudette, president of Sunmark FCU, Latham, N.Y., recommended the corporates be consolidated to either one major corporate or four to six regional institutions to maximize efficiency.
- Joseph Prokop, president, and Walter Behrman, chairman, respectively, of TEG FCU, Poughkeepsie, N.Y., wrote that the corporate system should be consolidated along regional lines. "There should only be one tier of corporates, leaving the second wholesale tier out, and having the remaining corporate go directly to the Fed," they wrote. "As today's issues show, corporate credit unions were knowingly and purposely transferring risk over to U.S. Central. They were in essence hiding the problems rather than being upfront about them."
