The government is expected to curb the investment powers of corporate credit unions Friday and require them to hold more capital.
Forty-one corporate credit unions with combined assets of $48 billion provide financial services such as check settlement, liquidity, and investment services to retail credit unions.
Norman E. D'Amours, chairman of the National Credit Union Administration, has been under pressure from Congress to crack down on corporates since January 1995.
That was when $1.4 billion-asset Capital Corporate Federal Credit Union, Lanham, Md., failed, after losing millions on mortgage derivatives.
The chairman of the Senate Banking Committee, Alfonse M. D'Amato, R-New York, was outraged that the NCUA had let Cap Corp invest so heavily in rate-sensitive collateralized mortgage obligations.
He demanded that the agency assert more control over investments by corporates.
The NCUA plans to limit investments in any mortgage-backed security, asset-backed security, or trust to 200% of a corporate's reserves, undivided earnings, and paid-in capital, according to industry sources. Limits would be placed on lending, too, such as the amount of loans a corporate may make to a single credit union.
Under the new NCUA rule, corporate credit unions would have to maintain at least 4% capital, but could be required to hold 6% or even more if the agency deems it necessary.
Officials with credit union trade groups said they expect no major changes from the proposal the NCUA issued last June.
Tim Pryor, director of regulation and compliance for the National Association of Federal Credit Unions, said he expected the agency to adopt substantially the June proposal.
The original proposal, issued in April 1995, was withdrawn after the industry claimed its asset-liability management and capital requirements were too harsh.
On its second attempt, the NCUA eliminated the requirement that a corporate credit union identically match its shares and deposits to corresponding assets.
Some corporate credit union executives said they can live with the new rule.
"We are expecting it to pass," said Richard M. Johnson, chief executive officer of Western Corporate Federal Credit Union, San Dimas, Calif. "We are accepting it."
Others from the credit union industry remain opposed.
"It is micromanagement," Mr. Pryor said.
"Our members see that as NCUA trying to run the credit unions."
After negotiations earlier this year, including meetings in late January between corporate credit union officers and NCUA board members, the industry and regulators reached a middle ground, said Kathy L. Garner, chairman of the Association of Corporate Credit Unions.
The NCUA agreed to adjust its formula for calculating a corporate's exposure to interest rate risk, said Ms. Garner, who is also CEO of Northwest Corporate Credit Union, Beaverton, Ore. The association and the NCUA have also agreed to work together on developing exam procedures, she said.
"I wouldn't say we are 100% happy," Ms. Garner said, but "we have struck a balance."
