CUSOs using a corporate credit union's services may seek liquidity outside of the industry if a provision requiring them to pay a voluntary payment to the Temporary Corporate Credit Union Stabilization Fund goes through.
In a Dec. 14 letter to the NCUA, NACUSO expressed concern with the proposed Part 704.21, the corporate credit union rule.
"While we understand that this payment is voluntary, it is highly unlikely that any corporate credit union would not enforce the voluntary assessment by expelling CUSOs that do not pay, given the regulatory pressures all corporate credit unions now face," wrote both Tom Davis, president/CEO of NACUSO, and incoming president Jack Antonini.
NACUSO said it understands and shares NCUA's interest in shortening the period required for the NCUSIF to repay the U.S. Treasury for the corporate stabilization expenses. It also recognized that the regulator has long felt that the NCUSIF could potentially be compelled to bail out non-federally insured credit unions if they fail because this could pose a risk to the industry confidence.
"However, there is no expectation that NCUA would bail out a failing CUSO or that the failure would cause an industry confidence risk. Servicing the financial needs of CUSOs is not a systemic risk to the corporate credit unions. Thus, there is little, if any, compelling reason to include CUSOs in this voluntary assessment," Davis and Antonini wrote.
NACUSO said it is also concerned with a provision in proposed Section 701.5 of the corporate credit union rule specifying that credit unions may only be members of one corporate credit union to prevent unhealthy competition in rate chasing.
"While irrational rate chasing no doubt caused significant problems in some corporate credit unions, we submit that your remedy will create more problems than it cures," NACUSO wrote. "Your proposal not only prevents unhealthy competition, it prevents
healthycompetition by which we meant to incent corporate credit unions to continue to improve their service offerings to win and retain business. The stifling of competition has rarely produced positive results for an industry."