In March, CUNA President/CEO Dan Mica sent to the National Credit Union Administration (NCUA) one
of the most significant
comment letters CUNA has ever developed on one of the most critical issues facing the credit union system today—the
regulation of corporate credit unions.
The proposal seeks to minimize risks to natural-person credit unions, the National Credit Union Share Insurance Fund, and to corporates in the future by requiring much higher capital standards, limiting investment activities, and imposing additional asset/liability management requirements, as well as corporate governance provisions.
CUNA’s Corporate Credit Union Task Force developed the letter and brought a range of viewpoints into their deliberations, including the concerns of large and small credit unions.
CUNA’s letter was based on several key concerns. First, protecting the interests of all natural-person credit unions is primary and should be the focal point of the final rule. This includes helping to ensure natural-person credit unions will be able to continue receiving the services—settlement, payments, investment options, and liquidity resources—they need to serve their members. Also, corporate credit unions should be able to provide or facilitate credit unions’ access to those services now and into the future.
But while recognizing it’s preferable for corporate credit unions to continue providing such services if possible, the reality is that natural-person credit unions are now in the process of paying for about $9.5 billion in losses resulting from corporate investments in mortgage-backed and asset-backed securities.
To avoid such losses in the future, the letter recommends a new operating model for corporate credit unions that would still meet the need for key services, including investment management, but not on the corporates’ balance sheets.
The basic regulatory framework NCUA has proposed, while needing a number of changes, will also help contain future corporate credit union losses. Among the changes CUNA is seeking is for NCUA to help corporates make the transition from the current model to a new approach. If corporates have a reasonable regulatory regime and can modify their operations to manage risks sufficiently, then they should be allowed to operate without undue interference.
The letter also urges the agency to develop a solution for corporates’ devalued “legacy assets” that would protect future capital in corporates from having to cover future losses related to devalued assets.
CUNA formed a Working Group on Next Steps to address how these recommendations can be implemented with the goal of continuing services from within the credit union system.
Avoiding future risks, addressing legacy assets, and, above all, making sure natural-person credit unions have access to services—these are collective problems that call for cooperative solutions.
MARY MITCHELL DUNN is senior vice president/deputy general counsel for the Credit Union National Association. Contact her at 202-508-6736 or at email@example.com.