Oh, What a Tangled Web CUs and Regulators Weave
Credit union executives are in this hurry up and wait mode when it comes to corporate services. Credit unions are being encouraged not to bail out of their corporates, even the NCUA-created bridges over troubled waters, yet they have to be ready to leave when the time is right. Jump too soon and the legacy asset plan crumbles into the murky waters; not prepared when the time comes and your CU could be up a creek without a paddle.
What I'm surprised about is the timidity of many of those vendors that could replace corporate services. Significant changes to the corporate credit union system have been a fait accompli for at least 18 months. Credit unions and others have been wondering and waiting what they're going to do next. Some moved away from corporates early, while others simply made just-in-case plans. When we wrote about potential corporate credit union alternatives, some were very touchy about it. Symitar was compelled to write a letter to the editor clarifying what we already written they weren't going after corporate clients. We quoted the company's spokesman saying that.
Perhaps I shouldn't be so na?ve, but I was literally shocked when talking to a consultant last week who said the majority of credit unions didn't realize the entanglement of the credit unions, corporate credit unions and the NCUSIF until the corporate meltdown occurred. Corporates' capital comes from credit union funds. That capital serves as a buffer to financial ruin and, naturally, the NCUSIF.
Wait a second, credit unions fund the NCUSIF through their 1% deposit and assessments. And that 1% is also counted as capital on the credit union's books. Folks, it's all the same small pool of funds! It's been the bankers' point all along that the credit union industry is, well, incestuous. Previously the double counting of the 1% partly held up capital reform.