1995 was a banner year for credit unions, as capital levels hit historic highs and delinquency continued a decade-long decline.

Too bad nobody noticed. Instead, the industry busily set about making a spectacle of itself for most of the year, beginning with the collapse of $1.6 billion-asset Capital Corporate Federal Credit Union - Cap Corp - in January.

And both the industry and its regulator added to that debacle with flubs throughout the year.

Before 1995 was over the industry and the National Credit Union Administration came under fire during congressional hearings. The Credit Union National Association and the industry's top regulator were at each others' throats. The chief executive of the industry's primary liquidity facility resigned under a cloud and warned of looming problems.

And to cap the year off, CUNA president Ralph Swoboda was deposed by the trade group's board and state leagues.

But in interviews with several industry leaders, the Cap Corp situation emerged repeatedly as the single most important event of the year.

It's not hard to see why.

The largest failure in industry history triggered a series of congressional hearings in which lawmakers - particularly in the Senate - browbeat the industry for speculating in collateralized mortgage obligations and ripped the NCUA for allowing it.

"The most important thing was the closing of Cap Corp because it brought credit unions into the light," said Charles O. Zuver, director of governmental affairs for the Credit Union National Association. "It generated legislation in the Senate and dissension in the credit union movement."

Chastened, the NCUA in April issued a regulation limiting corporate investments that was so unpopular that the agency withdrew it even before the comment period expired. The regulator has since been crafting a new plan with the corporates that has the industry's liquidity centers significantly more comfortable.

"We're very encouraged" about the agency's willingness to cooperate, said Richard M. Johnson, chief executive of Western Corporate Federal Credit Union, San Dimas, Calif. "We think the regulator is going to be more comfortable with us because he's taken a hard look at us."

A rule affecting corporate investments alone would have a powerful impact on the industry, but now the agency also is looking to tighten the investment regulations of regular credit unions. Part of the inspiration was the agency's finding that many institutions failed to understand the risks of collateralized mortgage obligations - the same instruments that, indirectly, led to the fall of Cap Corp - in their portfolios.

Some industry experts have already slammed the proposal as requiring too much paperwork.

Mr. Swoboda, the former CUNA president, predicted that the struggle to set new investment limits for the industry will be the pivotal event of this year.

"There'll be a stir over the investment regulations for natural person credit unions and corporates," he said.

The NCUA's decision to seize Cap Corp intensified the already hostile relations between the NCUA and the industry - sparking a dissent on the NCUA board from board member Robert Swan. Many in the industry - particularly Cap Corp depositors that lost money - believed the regulator could have saved the corporate if it had so desired.

Acrimony was already present between segments of the industry and the NCUA because of a rule approved in 1994 that would end trade group management of corporates. The CUNA and the National Association of State Credit Union Supervisors sued the agency in February in an effort to kill the rule.

But in September the U.S. District Court for the Eastern District of Virginia ruled in the agency's favor. CUNA decided to drop its suit, but state supervisors are pursuing their case against what most observers consider to be heavy odds.

At the same time, the agency and some industry figures have said they think the federal court's decision might provide an opening for better relations.

"That's behind us now," said NCUA Chairman Norman E. D'Amours. "Relations have been improving dramatically toward the latter part of the year."

That, however, remains to be seen: Pentagon Federal Credit Union, which lost $1.1 million in Cap Corp, in October sued the NCUA to try to obtain documents detailing the agency's reasons for imposing conservatorship on Cap Corp.

When credit unions weren't taking shots at the regulator, it seemed they were fighting among themselves.

Competition among credit unions became a big issue, with many institutions protesting the proposed merger of the aggressive Patelco Credit Union, San Francisco, and First Technology Federal Credit Union, Beaverton, Ore. The complainants appeared to have the sympathy of Mr. D'Amours, who has stressed the need for cooperation among credit unions, and the merger was called off once it became clear NCUA wasn't going to let it happen.

And, the industry's largest trade group went through a meltdown during the year, leading off with a management shakeout at the industry's main liquidity center, U.S. Central Credit Union, which CUNA controlled.

Early on, former U.S. Central president James R. Bell and blamed CUNA- appointed board members for problems suffered by the company. A few months later the Overland Park, Kan., institution was slapped with a low performance rating by the NCUA.

The industry's largest trade group was bruised on other fronts. Facing a revolt from its affiliated state leagues, the association flip-flopped - first supporting, then opposing - a Senate bill to strengthen NCUA's oversight of state-chartered credit unions, a move that irked the bill's sponsor, Sen. Alfonse D'Amato, R-N.Y.

After this setback, Mr. Swoboda announced a sweeping review of the association's structure, and the state leagues began gunning for him, trade group sources said.

To make matters worse at the trade group, losses blossomed at the Card Services division of CUNA Service Group, a CUNA subsidiary.

The board and other CUNA interests apparently believed that new blood was the only cure for its problems. In October, it fired Mr. Swoboda, who, before his departure, sacked some of his lieutenants.

Even if credit unions continue to thrive this year, some of the ugly events of 1995 are expected to work themselves to resolution - some probably tortuously.

"Credit unions have done very well; the confusion has all been in the superstructure," said Ken Robinson, president of the National Association of Federal Credit Unions.

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