Credit union officials slammed a proposal requiring stricter oversight of their securities portfolios, calling it an overreaction to a past scandal.

The proposal by the National Credit Union Administration calls for an institution's board of directors to more actively oversee investments in risky items such as collateralized mortgage obligations. It came out last November, 10 months after huge losses on mortgage-backed securities caused the failure of Capital Corporate Federal Credit Union, based in Lanham, Md. Comments were due Wednesday.

Credit union executives said the proposal is a misguided attempt to avoid similar problems in the future.

"We are concerned that the NCUA may be overreacting to the liquidation of Cap Corp," wrote Randy M. Smith, president of Randolph-Brooks Federal Credit Union in Universal City, Tex. "Very few credit unions own complex investments, and therefore we believe that any new rules should not unnecessarily place more burden on those credit unions with simple investment portfolios."

The proposal tightens the leash on credit unions by requiring each institution's board to devise an in-depth analysis of the risks involved in their credit union's investments.

This document must include what the credit union hopes to gain from the investment, such as greater liquidity or a high rate of return. It also must describe the security that was purchased, including the name of the company that issued it and its maturity date.

The board must also set "prudent limits" on how many investments can come from a single issuer and on how much of a given type of security the credit union can hold.

For example, credit unions that invest more than 100% of their capital in collateralized mortgage obligations would have to create a divestiture plan. They also would have to calculate how a 300 basis point shift in interest rates would affect their earnings.

The agency received more than 400 pages of comment letters before the deadline. Some of those respondents said they feared the point of the new restrictions was to steer credit unions away from making all but the simplest risk-free investments.

"It appears to me that NCUA is attempting to regulate credit unions out of the investment market," wrote Ed Daley, chairman of the San Diego Firefighters Federal Credit Union. "This statement sends a clear message to any board that it is easier to go with the least common denominator."

The proposal also calls for credit unions to review their portfolios monthly, rather than quarterly as currently is required. But Martin Fraering, comptroller at Hidalgo Federal Credit Union in McAllen, Tex., said the securities market isn't volatile enough to warrant full reviews every month.

Mr. Fraering said most credit unions keep a constant eye on their investments' performance anyway, so additional "monthly shock tests" mandated by the NCUA would be more burdensome than helpful.

Mr. Smith said the agency also underestimated the time needed to do these reviews. He said it would take about 15 hours each month to gather the required information, more than seven times the agency's estimate.

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