WASHINGTON - The Senate Banking Committee chastised the National Credit Union Administration on Tuesday for lax oversight of Capital Corporate Credit Union, the liquidity center seized by the government Jan. 31.

The hearing was not completed Monday, and will be continued March 8.

Committee Chairman Alfonse M. D'Amato said the regulatory agency should have stopped Cap Corp from sinking so much money into interest-rate- sensitive collateralized mortgage obligations.

"(We) cannot have this kind of risky, speculative investment practice in the system," the New York Republican said, warning other credit unions: "If you want to go shoot craps someplace, then do it outside the system."

Lawmakers criticized the agency for missing signs that Cap Corp was on the brink of collapse last fall. The NCUA realized late last year that the Lanham, Md., institution held $100 million of paper losses on a $1 billion CMO portfolio. The government has sold off all but $92,000 of Cap Corp's assets at a $60 million loss.

Testifying on Tuesday, Charles A. Bowsher, comptroller general of the General Accounting Office, said 23 corporate credit unions held more than $8 billion - about 24% of total assets and 333% of total capital - in collateralized mortgage obligations at yearend.

Sen. D'Amato urged the NCUA to clamp down on investments by corporates. He warned the industry not to try to block "reasonable" restrictions.

In testimony, NCUA Chairman Norman E. D'Amours said the agency would propose regulations next month to severely tighten corporate investments and beef up capital. He is expected to elaborate on the agency's prescriptions at the March 8 hearing.

Sen. D'Amato told Mr. D'Amours that committee staff would work with the agency on crafting tighter rules, and that, if necessary, the committee would push for legislation to toughen standards.

"I don't mean to be second-guessing you," Sen. D'Amato said. "(But) if a credit union violates the new rules and standards that will be coming forth, they ought to lose federal deposit insurance and be shut down."

Sen. Paul Sarbanes, D-Md., also supported stricter oversight.

"We must make sure there is no repetition of the Cap Corp experience," he said.

Mr. D'Amours placed the blame for the industry's largest failure on the corporate's management and shoddy supervision by the agency before he arrived in late 1993. He said the agency acted "expeditiously" once the NCUA became aware of the problem last fall.

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