The Credit Union National Association and its state league affiliates are fighting a losing battle to retain control of corporate credit union boards, industry officials and observers said this week.

In April, the National Credit Union Administration issued a proposal that would bar corporates and trade groups from sharing top executives. About half of the 44 corporates currently have management interlocks.

The comment period on the agency's proposal ended June 20, with about 60% of the roughly 240 comment letters favoring the new limits.

James Barth, a professor at Auburn University who has researched the credit union industry, predicted the majority would prevail.

Researchers Saw a Problem

"I think the NCUA is serious about the matter, and rightfully so," he said. "It's important to keep ties between the corporates and associations to a minimum and not to let associations make corporate decisions."

Shared management was noted as a problem in a study of the industry that Mr. Barth and economist R. Dan Brumbaugh Jr. prepared in 1991.

David John, a lobbyist for the Arlington, Va.-based National Association of Federal Credit Unions, agreed.

"I anticipate the NCUA will democratize the corporate boards," he said.

The group has recommended that the NCUA require at least a majority of corporate directors be credit union officials.

High-Profile Investment

The agency began studying the issue in January, as part of a wide-ranging probe of corporates after disclosures that U.S. Central Credit Union invested $255 million in a troubled Spanish Bank. U.S. Central did not lose any money after the Spanish government arranged a bailout for Banesto.

Bob Loftus, NCUA director of public and congressional affairs, said a final rule will be issued soon after the agency's board hears from a five-member panel set up in March to study the issue. That briefing is scheduled for mid-July.

Congress, which launched its own wide-ranging probe of the industry in January, will watch the agency's next step closely.

"It'll be a good barometer of how serious NCUA is," said a House Banking Committee staff member. "It's one thing to put something out for comment. It's another thing to actually pass regulation."

Congressional Scrutiny

The staff member said the Banking Committee probably will hold hearings on the industry this summer.

Mr. Barth and Mr. John said congressional scrutiny would further encourage NCUA to act.

The proposal has split the industry.

On one side arc institutions that want CUNA's influence in the industry diminished. In comment letters, these credit unions said that corporates are strong enough to stand on their own and that interlocks create a perception problem and potential conflicts of interest.

Letter Campaign

On the other side, CUNA and some credit unions say that further regulation is unnecessary because interlocks pose no safety and soundness problem. They also say close ties between corporates and state leagues allow both parties to lower operating costs and cooperate in joint ventures.

Early in the comment period the overwhelming majority of letters favored the changes. The gap closed later on, at least partly because CUNA and the state leagues urged credit unions to write letters to the agency opposing the proposal.

CUNA and its affiliates were instrumental in creating corporates as credit union liquidity centers in the 1960s when credit unions didn't have access to the Federal Reserve. U.S. Central was created in 1974 as a liquidity center for corporates.

In an interview, CUNA president Ralph Swoboda said if the agency follows through on its proposal, the industry would be polarized.

"There would be a tendency for organizations to go their own way rather than cooperate" as they do now, he warned.

Mr. Swoboda said it was unlikely that Congress would tighten corporate regulation if the NCUA didn't. "Corporate interlocks aren't a concern of Congress," he said.

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