CUNA raises corporate CU issues as it supports NCUA's proposal

January 6, 2015

WASHINGTON (1/7/15)--While the Credit Union National Association says it generally supports the National Credit Union Administration's corporate credit unions proposed rule, CUNA has urged the NCUA board to consider additional corporate credit union issues this year.

The NCUA's proposal would revise several definitions used in the agency's corporate credit union regulations, with the goal to "streamline and clarify certain provisions and to enhance readability."

Most notably, the proposal replaces the current definition of "adjusted" or "core" capital with "Tier 1" capital. This would reduce the amount of a corporate credit union's perpetual contributed capital (PCC) counted as Tier 1 capital beginning in 2016, with increased deductions in 2020.

"CUNA urges NCUA to reconsider PCC as part of Tier 1 capital since the deductions that will begin next year will adversely impact working capital available to corporates," the letter reads. "The deduction of PCC from Tier 1 calculations could create uncertainty regarding the financial stability of a corporate credit union simply due to the deduction of PCC creating the appearance of lower capital. We are also concerned that the deduction would cause confusion for credit union auditors when they evaluate any potential impairment of PCC."

CUNA believes the NCUA should eliminate the deductions of PCC from Tier 1 capital, allowing PCC to be counted for all regulatory capital requirements as allowed by current regulations.

"NCUA has not provided sufficient rationale as why the change starring in 2016 is necessary, and it could harm natural-person credit unions if their corporate credit union finds it necessary to reduce services," the letter reads.

According to the letter, CUNA also:

  • Believes the NCUA should further increase the secured borrowing limit beyond the proposed 120 days (current regulations allow for 30 days). According to CUNA, additional time would allow corporate credit unions to provide additional liquidity to natural-person credit unions when needed, allowing the corporates to provide greater maturity through matched terms loans while reducing interest-rate risk;

  • Objects to the proposed requirement to add credit union service organization (CUSO) reporting rules that are similar to those in place for natural-person credit unions. CUNA believes this oversteps the NCUA's legal authority and the requirements "are not necessary for the safe and sound supervision of CUSOs;" and

  • Believes that the requirement for a corporate credit unions to implement an enterprise risk management committee that includes an independent risk management expert should, at most, "be only guidance provided to corporate credit unions."