NCUA Letter: 'Too-Big-to-Fail' Corporate Not an Option
In a Corporate Credit Union Guidance Letter dated Feb. 8 signed by Scott A. Hunt, director of the Office of Corporate Credit Unions, the NCUA left no uncertainty about its intent to show the way forward for corporate CUs.
In the letter, the NCUA warns about the risks of too much consolidation. That might, wrote Hunt, "create an unacceptable 'too big to fail' scenario." The NCUA explicitly applies this warning both to a potentially very large corporate and also to a possible CUSO, supported by multiple credit unions.
The NCUA elaborated that were such very large institutions to fail, there would be consequences as a result of the failure per se but also because of interruption of service.
The NCUA made clear that it did not want to continue stepping in to help failing corporates provide continuity of service. "NCUA's focus as conservator is to maintain the status quo and avoid any service interruptions. The focus by NCUA on short-term viability does not foster innovation, which is key to long-term viability," Hunt said.
The NCUA put corporate credit unions on notice that they will be expected to generate more profits but do so safely. "Going forward, an entity that will primarily be a service provider must be able to demonstrate adequate income...but must also adequately fund for identifying risks and for ensuring operational security and stability," wrote Hunt.
The NCUA added that, in contemplating consolidation, corporates have to identify the potential risks associated with their unique business model.
The CEO of a corporate who requested anonymity indicated that he believes the NCUA is warning small and mid-sized corporates to back off plans to join together to form a large CUSO because that entity might be too big to fail. He also said: "Reading between the lines, it sounds like the only thing that is acceptable to NCUA is all corporates merging into one of the government-owned corporates."
Asked to comment, the NCUA had not responded by press time.