PASADENA, Calif. - The president of Western Corporate Federal Credit Union warned last week that imminent federal regulations limiting investments might hobble the industry's liquidity centers.

If the new rules force "matched book" investment portfolios, corporates won't be able to offer credit unions competitive yields, Wescorp president Richard Johnson told nearly 200 industry officials attending the institution's annual meeting here.

"We shouldn't be so bulletproof that we can't do good business," he said. "If the National Credit Union Administration regulation forces us to match (investments) dollar for dollar, day for day, you don't need us."

In his speech, Mr. Johnson also went after the NCUA for its handling of Capital Corporate Federal Credit Union - the failed corporate Wescorp tried to acquire in January. The agency, Mr. Johnson added, does a lousy job of communicating with the industry.

The NCUA has a stake in assuring corporates remain competitive, Mr. Johnson argued. While the agency can oversee investments of corporates, he explained it has no power over the outside brokers that credit unions would turn to for better returns.

Mr. Johnson urged his audience to protest the rules when the NCUA issues them for comment April 13.

"We absolutely, positively need your support," said the president of $12 billion-asset Wescorp, the largest corporate.

The NCUA's new rules were spurred by Cap Corp's collapse, which was brought on by a speculative investment policy.

NCUA Chairman Norman E. D'Amours has argued that corporates were created to serve as liquidity centers and have drifted from that role in recent years as they beefed up investment portfolios. Expected regulations requiring matched book portfolios and more capital will bring corporates back to their original mission, the NCUA chief contends.

Mr. D'Amours' interpretation amounts to revisionist history, according to Mr. Johnson, who said serving as a liquidity center has never been corporates' sole function.

"There's no money in being a liquidity facility," Mr. Johnson said. "It's not our only business. Our liquidity business is subsidized by other services."

Credit unions put their surplus funds in corporates, which invest the money and lend to institutions that are short of cash.

Mr. Johnson criticized the NCUA for not seeking sufficient industry input as it writes the proposed rule.

"I'm disappointed with the lack of dialogue with NCUA," he said.

Mr. Johnson also bashed the agency for its handling of the Cap Corp fiasco. Cap Corp had sought a merger with Wescorp prior to the Lanham, Md., institution's seizure by the NCUA on Jan. 31.

Mr. Johnson said the agency never gave the merger proposal a fair shake, failed to give WesCorp any guidance when it was crafting its proposal, and waited until the last minute to discuss an alternate plan.

"We said continually 'We need help,'" Mr. Johnson said. "They said continually 'Give it your best shot.'"

Two days before the decision to seize Cap Corp was made, Mr. Johnson said he met with Mr. D'Amours, who said the merger proposal wouldn't work and offered an alternative written "on a yellow scratch pad."

"The chairman said we know you've been working very hard, too bad it didn't work," he said.

Mr. Johnson implied the meeting led to some fireworks.

"I wasn't as respectful as I should have been to that high office," Mr. Johnson said. "It isn't my nature to do that to someone in high office."

The NCUA has said WesCorp was asking for a wish list of forbearances and added powers in taking on Cap Corp's devalued collateralized mortgage obligation portfolio. The agency has claimed that the CMOs could have damaged Wescorp, a charge Mr. Johnson denies.

Mr. Johnson said, if approved, the merger would have prevented the industry's largest failure and staved off subsequent congressional hearings.

I thought "nobody in his right mind would want Cap Corp to fail," Mr. Johnson said. "I was wrong."

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