WASHINGTON - The Association of Corporate Credit Unions isn't looking for NCUA to tinker with corporates' capital mechanisms.
Capital always seems to be an issue in the corporate network, but the latest concerns about capital are probably a bit different than recent years.
"We worked for several years to get to where we are today. We feel that we have addressed the issue. Capital was an issue a few years ago, with corporates today it's not," said Joe Herbst, CEO of Empire Corporate FCU and a member of ACCU's executive committee.
Gigi Hyland, executive director for the ACCU said the corporate network has slowly but surely built capital and is well-capitalized to meet member CU needs.
As of December `99 corporates had regulatory capital of 7.93%, without counting U.S. Central, which had regulatory capital of 6.28%, a historically strong capital level for the network.
Corporates can primarily raise capital through membership capital accounts (MCA) as well as paid-in capital (PIC).
"We do feel that the capital needs to be commensurate with the risks that we're taking and by having two different types of capital that allows us some flexibility in how we structure our capital offering," said Herbst.
Although NCUA hasn't officially made any statements about making changes to corporates' capital mechanisms in part 704, there are rumblings that the regulator may look for changes with paid-in capital-something corporate leaders say isn't needed.
"What we're asking for is to remain as is," said Francis Lee, ACCU chairman and president of Southwest Corporate FCU.
In a letter to NCUA last year concerning Part 704 Advanced Notice of Proposed Rule making, the ACCU addressed the prospect of NCUA requiring corporates to issue PIC or convert MCAs to PIC.
"A corporate's decision to issue PIC should be based on its members' needs, not on a regulatory mandate. Weighing the costs and member willingness to purchase PIC against PIC's `added value' should be left to the discretion and expertise of a corporate's management and board according to a corporate's unique circumstances," stated ACCU in the letter to NCUA.
Lee did say that expanding credit unions' paid-in capital from 1 to 2% is one minor change ACCU is looking for from NCUA.
Hyland said even if you apply other risk-based analyses of capital that other regulators, such as FDIC, use, corporate credit unions' capital is very strong.
Hyland said NCUA can look at the Federal Home Loan Banks' capitalization as a comparison for evaluating the corporate network. The FHLB is entirely owned by members as the corporate network is. While corporates' total capital is about 7.9%, FHLB is hovering around 5%.
The ACCU is also looking for NCUA to allow corporates to engage in loan participation with its member CUs.
"We can't participate loans with credit unions. We think that is a natural for corporate credit unions to be involved in, as evidence by the number of requests by credit unions to participate with us," said Lee.
Lee said there is a demand from CUs to participate in loans with their corporates and that the authority would be a natural for corporates given that the main goal of a corporate is to be a liquidity source for credit unions.
In its letter to NCUA, the ACCU said that corporates could engage in loan participation with members without jeopardizing their banker's bank status. The Federal Reserve issued an opinion letter to Nebraska Corporate Central FCU in October 1997 that also concluded that a corporates bankers' bank status would remain intact.
The ACCU may look to get more visibility with legislators, said Kathy Garner, a member of ACCU's executive committee and president of Northwest Corporate CU. "One of our goals...is to get more active in legislative affairs. Not that we have any specific issues, but just to get corporates more involved in talking to their legislators. Just explaining what corporates are so if we do have an issue, we've done the education and we've got the contacts."
Garner said look for corporate leaders to participate in some of CUNA's Hike the Hill trips.
Another issue targeted by the ACCU is the National Automated Clearing House Association's point-of-purchase pilot (POP). Among ACCU's concerns with POP is that under the pilot program, the merchant or originating depository financial institution (ODFI) would retain the check. Although the merchants would be required to stamp a check "void", ACCU said there is still a chance that the merchant or the ODFI could process both the check and the automated clearinghouse item.
The ACCU also questions the program's mandate that either the merchant or ODFI retain a copy of the check for up to seven years. "ACCU questions the safety of the storage that may be provided by some merchants...."
The ACCU urged NACHA to reconsider some aspects of the pilot and delay implementation until they are addressed. -
pgentile@cutimes.com
