CUNA: Reduction in Corporates, National FOMs, Outside Directors
WASHINGTON — CUNA said an overhaul of the corporate credit union network would be most effective if it offered limited services (which would result in a reduction in the number of corporates), served a national field of membership, met stronger capital requirements, and included a prescribed number of "outside directors" who could "contribute diverse experiences" to a corporate's board.The letter to NCUA, signed by CUNA CEO Dan Mica, and Terry West, chairman of CUNA's Corporate Task Force, recommended the following changes:
- Corporates should focus on core services of settlement, payment systems and meeting short-term investment and liquidity needs of member credit unions. "Corporates' investment authority should be carefully reviewed and concentrations in long-term, on-balance sheet investments should not be permitted," CUNA said.
- The two-tier system of U.S. Central and many corporates "has outlived its utility." CUNA added that characteristics of that system that facilitated undue risk taking, reduced credit unions' capital and created inefficiencies must be eliminated. "Processing payments and handling settlements are scale businesses, so the number of corporate credit unions can be sharply reduced to a very small number," CUNA wrote. "With only a few, large corporate credit unions serving natural person credit unions, there would no longer be the need for a two-tiered system."
- With a small number of corporates operating in the future, CUNA said each should have a national field of membership, which would foster competition and thus innovation.
- CUNA is recommending Tier 1 capital requirements should be at least 4% and could be as high as 6% (over a reasonable period of time). Risk-based capital should also be required, and natural person credit unions that use corporates should be required to "maintain contributed capital in their corporate."
- Corporates should be permitted to have outside, non-member directors who can "contribute diverse experiences to a corporate credit union's board," CUNA wrote. Further, up to 20% of "non-member" board members should be permitted (if the members agree), and these members should earn a "reasonable director's fee," according to CUNA.
NAFCU: Voluntary Mergers For Scale, Protections For Natural-Person CUs
ARLINGTON, Va.— In its letter to NCUA, NAFCU recommended:
- Any solvent corporate credit union should be permitted to survive; voluntary mergers will achieve economies of scale. "NAFCU has concluded that in order to weather the current economic downturn, and recapitalize the corporate system, existing healthy corporates should continue to operate."
- Measures should be put in place to prevent future credit losses in the corporates from being absorbed by all natural person credit unions, regardless of their level of usage of the corporate system.
- Corporate credit unions should operate under a risk-based capital system.
- Maintaining membership capital should not be mandatory.
- Voluntary membership capital should be structured with a maximum cap and assessments based on usage.
- Corporates should operate under corporate governance standards created and policed within the industry.
- Boards should consist of only qualified, natural-person credit union directors and staff, with term limits.
- There should be no trade association or league staff members allowed on corporate boards.
- There should be an independent supervisory committee that can hire outside expertise as needed.
- There should be an investment oversight committee; it should be permissible for outsiders to be members of the committee to access requisite expertise.
- Corporates investment authority should be carefully regulated, with a focus on concentration risk.
ABA: More Careful Regulation of Capital, Deduction of Equity Investments
WASHINGTON — In its comment letter, the American Bankers Association called on NCUA to regulate corporate credit unions use of capital more closely to avoid a repeat of the problems currently affecting corporates.The ABA called on NCUA to move in an "expeditious fashion." Doing so, ABA said, would help ensure the agency's definition of capital for corporates is similar to that used by other regulators of federally-insured institutions.
The ABA further called for minimum standards of permanent capital for corporates for for subjecting corporate credit unions to a standard for risk-based capitalABA's other recommendations are that corporates be subject to a minimum core capital leverage ratio, the risk-based capital requirement employed be comparable to that used by banks, and that NCUA ask Congress to require CUs to deduct their equity investments in corporates.
ABA said it is opposed to any expansion in the loan participation authority of corporates, saying any increase would only add to credit risk and potential liabilities.
NASCUS: 'Resist Rush To Judgment' & Explore Enhanced Supervision, Regulatory Standards
ARLINGTON, Va. — The National Association of State CU Supervisors (NASCUS) urged its federal regulatory counterparts to enhance its supervision and regulatory standards for the corporate system before restructuring it.In its comment letter to NCUA, NASCUS outlined a number of suggestions regarding the federal regulator's Advance Notice of Proposed Rulemaking on Part 704, which is related to corporate credit unions, including:
- Resist a rush to judgment on restructuring the corporate credit union system;
- Explore if a lack of proper application of regulation and oversight contributed to the current events;
- Avoid labeling all credit unions as unsophisticated by unilaterally declaring some activities as too complicated and risky for any credit union; and
- Preserve equal opportunity for all corporates to compete so long as they remain safe and sound and retain member support.
- Find what flaws exist in the corporate system and request that the NCUA Office of the Inspector General perform a material loss review.
NASCUS also called for cooperation between state and federal regulators to determine how to improve oversight, identify systemic risk factors and create an exam team of state and federal regulators to concentrate on corporate risk issues.
