In its attempt to limit investment risk, the NCUA's proposed Part 704 regulations may actually increase risk, according to some corporates.
Iowa Corporate Credit Union President/CEO Sara Flynn voiced her objection to the recommended two-year weighted average life limit on securities, saying several appropriate investment products exceed that duration.
"If corporates are unable to extend assets they will be forced to take on more credit risk to achieve the return necessary to build the required capital," Flynn said. As written, the proposed regs increase both credit and liquidity risk, she said.
"Existing and proposed modeling requirements and limits are sufficient and will encompass the interest rate risk and cash flow mismatch risk for assets," she said.
Southwest Corporate Federal Credit Union addressed another unpopular proposal that prohibits members from redeeming share certificates at a premium. Rather than stabilize liquidity, Southwest said in its comments the proposed rule would have "exactly the opposite effect."
Eliminating a corporate's ability to pay early-withdrawal premiums would place the
corporate's share certificates at a significant competitive disadvantage, and would make it difficult to attract stable term funding like member share certificates, wrote the $8 billion corporate's chairman, Brent Taylor, and President/CEO John Cassidy.