WASHINGTON - Two months after its death, Capital Corporate Federal Credit Union haunted the National Association of Federal Credit Unions' government affairs conference last week.
Congressional employees and lawmakers told the nearly 400 people at the convention that the industry's largest failure could make lobbying on Capitol Hill more difficult.
Meanwhile, rumblings were heard that depositors that lost $23 million in Cap Corp's collapse might sue the government for its handling of the $1.6 billion-asset institution.
"A number of concerns have been raised over the types of investments credit unions have been allowed to make," said Rep. Marge Roukema, R-N.J. She is chairwoman of the House Banking Committee's financial institutions subcommittee.
Senate Banking Committee counsel Joe Jiampietro said Cap Corp's demise is evidence that "there are some significant problems that need to be addressed."
Mr. Jiampietro told the industry officials that Sen. Alfonse D'Amato, R- N.Y., chairman of the banking panel, would soon introduce a bill to increase the National Credit Union Administration's authority over federally insured, state-chartered institutions.
For example, the bill would give NCUA more powers to seize and liquidate such credit unions, he said. Also, the bill would ban federally insured credit unions from placing funds in noninsured corporates.
Mr. Jiampietro described the bill as "incremental legislation" designed to strengthen safety and soundness. After his speech, he said no other legislation is currently planned.
Congress also will take a hard look at the new corporate investment and capital rules the NCUA plans to issue April 13, according to Rep. Roukema and Mr. Jiampietro.
The agency was supposed to have issued its proposals March 29, but it postponed the move because board members were still wrangling over details, agency sources said.
Mr. Jiampietro had harsh words for NCUA's oversight of Cap Corp, which was seized Jan. 31 after suffering liquidity problems brought on by losses in collateralized mortgage obligations.
"NCUA missed so many red flags that it's quite shocking," he said.
Besides regulatory blunders, the Cap Corp fiasco could be blamed on poor oversight by its board, inadequate risk management, and a speculative investment strategy, Mr. Jiampietro said.
NCUA also is being slammed by the group of credit unions that held $37 million of membership capital share deposits - deposits accounted for as capital - in Cap Corp. Those 251 institutions lost $23 million.
Some of those depositors are angry over being forced to bear part of the cost of the collapse. After all, even NCUA admits it dropped the ball in its supervision of Cap Corp.
Tensions are high enough that there's talk of suing the agency. Some officials argue that, as conservator of Cap Corp, NCUA should have made a greater effort to preserve assets rather than quickly selling them and forcing a loss.
"That's the least of any option," said William Brooks, chief executive of Lafayette Federal Credit Union, Washington, D.C., but he didn't rule out a lawsuit.
Hoping somehow to recoup their losses, some of these depositors want to meet with the NCUA board, Mr. Brooks said.
That's unlikely to happen, sources said. Since seizing Cap Corp, the regulator has said the deposits, because they were treated as capital, were rightly subject to hits.
Mr. Brooks said the agency could have prevented the loss if it had accepted a plan offered Feb. 15 by some depositors to buy the remaining $431 million of Cap Corp investments. The agency rejected the plan because the depositor group asked for a week to raise the money. NCUA said waiting that long would be "playing the market."
At the conference, Mr. Brooks told Mr. Jiampietro that Congress should look into whether NCUA acted appropriately during its sale of Cap Corp assets. Mr. Jiampietro agreed.
"It's not over," Mr. Jiampietro said.