The corporate credit union network of the future will be made up of fewer corporates, they’ll be more focused on settlement and payment services, and less focused on investment services, according to panelists discussing corporate credit unions’ future at the Tuesday General Session.
The panelists were Larry Fazio, NCUA’s deputy executive director; Scott Hunt, NCUA’s director of the office of corporate credit unions; and Terry West, CUNA’s Corporate Credit Union Task Force chairman. The panel was moderated by Bill Hampel, CUNA’s chief economist and senior vice president of research and policy analysis.
“The future corporate credit union model will look quite different from what we’ve known in the past,” said West. “The new model will move investments off the balance sheet and employ more of a risk-based model.”
“In the past, corporates have used some of their investment income to offset the costs of providing payment and settlement services,” said Hampel. “How will corporates be able to offer competitive pricing on their payment services without that investment income?”
“There will have to be considerable consolidation among corporates to increase efficiency,” said West.
As credit unions have discussions about whether or not to recapitalize their corporates, West recommended credit unions do their homework and always have “a back-up option in case your corporate goes in a direction you didn’t anticipate.”
NCUA’s Fazio said credit unions can expect corporate stabilization assessments of 20 to 25 basis points in 2011. “Assessment levels will be somewhat elevated in 2011 and 2012,” he said. Fazio estimated total credit losses from the entire corporate resolution process of between $14 billion and $16 billion.
Corporates have until Oct. 20, 2011, to have 4% regulatory capital and a 2% net economic value ratio, according to NCUA’s Hunt. Corporates that aren’t already at those levels must submit a business plan to NCUA by March 31 explaining how they’ll get there.
“Corporates can achieve those levels by generating earnings, removing assets, or raising additional capital from their member credit unions,” Hunt said.
Even though significant consolidation among corporates is expected, NCUA has no merger applications pending at this time. “NCUA has no directive for consolidation among corporates, nor will the agency use its power of conservatorship to promote consolidation,” said Hunt.