WASHINGTON - The two ranking members of the Senate Banking Committee introduced legislation last week to buttress the National Credit Union Administration's power over state-chartered institutions.

The "Credit Union Reform and Enhancement Act of 1995" was introduced by Sen. Alfonse M. D'Amato, R-N.Y., and Sen. Paul Sarbanes, D-Md., in response to the failure in January of a corporate credit union that loaded up on mortgage derivatives.

"We must do all we can to strengthen credit unions, and not allow them to drift into areas of investment that could be ruinous," Senate Banking Chairman D'Amato said in a release. "Unfortunately, the actions of a few large credit unions threaten the whole industry."

A committee aide said the bill has a good chance of passing because it has both Republicans and Democrats behind it. Sen. D'Amato said the committee will take up the bill soon.

There may be a battle brewing.

Although the National Credit Union Administration, the National Association of Federal Credit Unions, and the General Accounting Office are supporting the bill, the industry's leading trade group wants changes made.

The Credit Union National Association is concerned that the legislation tramples on states' rights. The National Association of State Credit Union Supervisors objects on the same grounds.

The bill "contains provisions which may erode the opportunity for state- chartered credit unions to be distinctly different from federal credit unions," according to Douglas F. Duerr, president of the supervisors' group.

But any compromises probably would be limited, the committee aide said.

"There's very little room for maneuver in this," he noted. "We worked very hard to get the industry's concerns addressed."

Although Cap Corp was a federally chartered institution, many of the bill's provisions address state-chartered institutions.

For instance, the bill would forbid federally insured state-chartered credit unions from participating in lending or investment practices banned by the NCUA. Exceptions are made for institutions that receive the agency's NCUA approval or were involved in such activities before May 1.

The senators are concerned that state credit unions are conducting risky activities without NCUA's knowledge.

"The NCUA has had a difficult time getting a handle on what is out there," the aide said. For instance, in California credit unions can invest in bonds issued by foreign governments.

The bill also allows the NCUA to close federally insured state-chartered credit unions that it deems are insolvent after contacting the state regulator.

"The concern isn't that state regulators aren't doing their jobs," the aide said. "But the NCUA has a higher interest in protecting the insurance fund."

This provision is one that CUNA would like to see modified.

"We don't want a situation where an examiner calls the state regulator and says, my guys just went in," said Charles O. Zuver, director of governmental affairs for the trade group.

The bill also eliminates a 30-day waiting period for the NCUA to put an institution into conservatorship.

In addressing corporates, the bill directs the agency to set minimum capital standards and limits on loans to single borrowers, which the agency is pursuing. It also bans federally insured credit unions from investing in the five noninsured corporate credit unions.

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