Federal credit unions will chafe at the paperwork requirements of their regulator's new proposal governing investments, industry analysts said.
The draft regulation, issued for comment by the National Credit Union Administration on Nov. 16, requires more documentation of holdings and policies.
Agency officials said they want to ensure that credit union executives and boards understand the investments they are using, particularly after finding last year that some institutions were clueless about their volatile collateralized mortgage obligation holdings.
"If you can't explain what you're doing, you shouldn't be doing it," suggested Wade Charles Barnett, managing director of Bear, Stearns & Co.'s credit union financial services division.
But trade group officials and brokers who deal with credit unions think that, even though the level of reporting varies according to the complexity of investments, the agency may be going too far.
"There's going to be a lot more regulatory paperwork and policy work," said Timothy Pryor, director of regulation and compliance for the National Association of Federal Credit Unions. "In that sense it's not going to be popular. We're already getting a lot of calls. Credit union managers are concerned and very interested."
"I really don't think credit unions are going to be thrilled with it," said John J. Pierce, senior vice president and investment officer for Wheat First Butcher Singer. "It imposes new regulatory requirements on credit unions that many are doing now, but just having it codified in such a restrictive way makes it a burden."
The proposal would require credit unions to draft investment policies that address - among other things - authorized investments, interest rate risk management, concentration limits, approved prepayment models for CMOs and real estate mortgage investment conduits, and approved broker-dealers.
The proposal would require credit unions to prepare written reports that cover the characteristics of each investment in their portfolios; the net increase or decrease in each investment since the date of purchase; and the fair value sums of certain fixed-rate and variable-rate securities.
The draft also would bar the use by credit unions of certain mortgage and small-business-related securities.
Sarah Cummer, federal compliance counsel for the Credit Union National Association, applauded the regulator's goal of making sure institutions keep tabs on their investment portfolios. But she said some credit union officials who met with the agency before the proposal was issued were alarmed by the frequency and scope of the reporting.
