Does everyone feel they had their say regarding the NCUA'sproposed rules for corporate credit unions? If you didn't join yourseveral hundred colleagues in writing in, then you are no longerallowed to complain. The NCUA allowed for open discussion in itstown halls and the comment process was open to anyone. This iswhere the agency has been transparent.

The thrust of the corporate proposal is the capital ratios itwould require for corporate credit unions to be adequatelycapitalized a 4% leverage ratio, a Tier 1 risk-based capital ratioof 4% and total risk-based capital ratio of 8%. This part of theproposal mirrors Basel and that is good and logical. Hopefully, asimilar risk-based capital system can be applied to natural personcredit unions one day in the near term.

However, achieving these in a one-year time frame would beHerculean, if not impossible by most accounts. While the NCUA hassaid it could be flexible with the one-year time frame if acorporate was heading in the right direction, the nearimpossibility of these requirements-as consistently pointed out inthe comment letters and at the town halls-calls into question theNCUA's credibility. The proposal leads to one of two conclusions:Either the NCUA is out of touch with how the institutions theyregulate run, or the NCUA is looking to shut down nearly all, ifnot all, the corporates.

Additionally, regulatory items such as penalties for earlywithdrawals on corporate certificates would force credit unions tolook outside the system for services.

For the agency to take that route would be a mistake. Severalsmall credit unions have said the current proposal will cost themmore for necessary services such as ACH, wires, Check 21,liquidity, and others. Even the $450 million Community Choice CU inMichigan said that CenCorp saved the credit union $105,000 overother providers for the services it uses every year.

While some of the policies that drove the corporate credit unioncrisis where it is today, such as the lack of risk-concentrationthresholds, the agency must be cautious not to go too far the otherdirection. Clearly, when the NCUA wrote the corporate credit unionsin April 2007 that, “as of Dec. 31, 2006, system-wide corporatecredit union exposure to securities collateralized by real estatetotaled 75.34% of all marketable securities,” it began to see thatproblem.

The other thing that everyone needs to keep in mind is that U.S.Central, WesCorp and others made poor business decisions. Thefinancial decline of many of the other corporates and naturalperson credit unions was a symptom of the interdependency of thesystem. If the credit union movement is to remain cooperative, thatis the risk you take in being part of it, but do not mistake thecooperative model for the cause. The cause was bad decisions madeat a handful of key institutions.

Asset concentration risk is a must for the regulation. NCUAChairman Debbie Matz was overruled by her follow board members,trade associations and some of the very corporates that got intotrouble at the last go 'round about including concentration risk inthe regulation. We all know where that ended up. As regulators knowand can become unpopular for, they have to regulate all to weed outthe bad. And still, corporates considered well-capitalized would bepermitted to borrow for nonliquidity purposes, so there is evidenceof the agency making exceptions for the better runinstitutions.

In part to mitigate the risk of another meltdown, the NCUA hasproposed only C-suite executives be permitted to serve on corporatecredit union boards. As Glendale Area Schools FCU CEO StuartPerlitsh, who is suing WesCorp, has pointed out, that didn't go sowell at WesCorp. Instead, Perlitsh has suggested that corporateboards come from well-run institutions, such as those with CAMEL 1or 2 ratings. San Mateo Credit Union has suggested that it rely oncore competencies and training. Either of these is better thanlimiting by title; that would be roughly equivalent to relying tooheavily on ratings agency rankings. A label doesn't make onequalified.

The NCUA is also looking for transparency of executive and boardmember compensation at the corporates. I have no problem with this;as nonprofits, top-tier executives' pay should be disclosed. At thesame time, the agency could use a little sunlight as well. When theNCUA was initially looking at the corporate situation, it seemed totake no public action. The rumors and guesswork at the time onlymade the situation worse. Credit unions should have been informedearly and often as to what the agency was doing to stem theoncoming crisis. Better yet, several economists and investors atvarious credit unions saw the housing crisis coming and ran theother way; the NCUA should have had someone on staff qualified tomake that call.

Next, the agency must decide what it will do with the toxicassets it's left holding before anything moves forward with thecorporates. Whatever is decided should not only take into accountthe least-cost scenario for the NCUSIF, but also for the federallyinsured credit unions that will be paying the tab one way oranother. Deposit insurance isn't serving its purpose if it's onlythere to shore up itself. The NCUA must work to save as many viablecredit unions as it can. This is not cheerleading; it's goodoversight. The same applies to the corporates.

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