Corporate credit unions are healthy today, but could be hurt by bank competition and regulatory overhauls, a new report from Moody's Investors Service concludes.

Competitive pressures could force these credit unions to satisfy the needs of customers by offering products with riskier yields and this could lead to deteriorating credit quality, the New York ratings agency said

One corporate credit union has already received approval from the National Credit Union Administration to invest in futures, options, and interest rate swaps, Moody's pointed out.

However, at least for the foreseeable future, corporate credit unions' credit quality is stable. Moody's said, as a result of their conservative investment and operating philosophies.

Moody's said in order to preserve creditworthiness, corporate credit unions could merge into superregional institutions, helping them achieve cost efficiencies, Moody's said.

Corporate credit unions act as a hybrid between bankers and money managers.

The smallest corporate controls roughly $600 million of assets, and the largest controls roughly $13 billion, according to Jack Dorer, a senior Moody's analyst.

Moody's awards a Prime-1 rating to nine corporate credit unions that provide banking and investment services to retail credit unions. It has not rated the remaining 33 corporates.

U.S. Central Corp., which provides investment services to corporate credit unions, controls roughly $19 billion of assets and has earned a Aa1 rating from Moody's.

Regulatory deliberations in Washington are critical to the corporate credit unions, Moody's said.

One proposal is to strip credit unions of their tax-exempt status, which could undermine their ability to compete against banking rivals.

Moody's also made note of banks' efforts to capture retail deposit share from credit unions.

The cohesiveness of credit unions' membership is an important issue. Moody's said.

The ability of credit unions to adapt over time as the structure of the credit union system changes is critical to their survival, Moody's added.

Ultimately, Moody's continued, corporate credit unions will have to balance the need to offer higher-yielding products to their customers with the need to limit excessive risk.

"By continually reassessing the financial needs of member retail credit unions, and by making the structural and strategic changes necessary to satisfy these needs, corporate credit unions will maintain their viability within the credit union system," the report concluded.

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