Happenings on Capitol Hill kept credit union groups hopping last week, not the least of which was the glimpse that NCUA Chairman Michael Fryzel gave into the agency's plan for the corporates.
The chairman noted in his official testimony that the NCUA had already received nearly 500 official comments on the future of the corporate credit union system and that it would be sending out a proposal for additional comment. Meanwhile, the public received the first glint of what the NCUA has in store for the corporate credit union system.
Among the provisions, Fryzel noted that effective regulation must include concentration limits, restrictions on highly leveraged investments, limitations on subordinated debts, reduced reliance on ratings and prohibitions on certain investments.
This all seems very reasonable, and concentration limits should have already been in the regulation. However, the rest of it seems to be a reaction to the problems of the day. In order to be meaningful, the regulation will have to also forecast tomorrow's crisis. The other matter is that the corporates who needed this most are already out of the game. For now, the NCUA is running WesCorp and, by the looks of the chairman's testimony, U.S. Central, if it continues at all, will be just like the other corporate credit unions.
The NCUA is also considering risk-based capital with a minimum leverage ratio based on Basel with a minimum 5% core capital leverage ratio. This could have, and should have, happened a long time ago; the risk-based capital system hit a road block six years ago when the agency and the corporates could not come together on a leverage ratio. Now it seems the agency has the upper hand since everything hit the fan.
Still, credit unions and their corporates need to stare down the fear of retaliation and speak up regarding the future of corporates. If corporates cannot continue to operate in the framework that the NCUA establishes, your cries will be moot after the fact. If your credit union has a better idea for a regulatory proposal, tell the agency. If you think the agency's position misses the mark, tell the NCUA that. If you think the NCUA hit the nail on the head, tell the powers that be that as well. This is your corporate system and your agency to a degree-don't be afraid to respectfully tell them what's on your mind. It's required by law that the government officials at least listen.
Also among the agency's suggestions are minimum requirements for board members, transparency of compensation arrangements, severance and retirement contract restrictions and restrictions on the number of board members who are employees or officers at other corporates. As with any regulation, the devil will be in the details. The testimony mentions restricting corporate board members to CEOs or CFOs, but I think this distinction does not necessarily qualify one for a corporate board, and it certainly does not mean one is not qualified just because they do not hold these positions. And, while transparency is typically a good thing-think PIMCO-releasing corporate executive compensation could be detrimental. Running an organization like a corporate must be unbelievably complex and, in order to get qualified executives, all areas of compensation should be competitive. This is not always the case in the credit union community, and some may balk at figures that might be quite reasonable given the institution's situation or geography. And, of course, it will highlight the question of natural person credit union executive pay disclosure.
The agency is also looking at permitting any corporate to serve another corporate, which, if the "regulatory distinctions" between wholesale and retail corporates are eliminated, will be very necessary. Then again, the elimination of U.S. Central could lead more credit unions to seek services from the banks, which is a philosophical and operational question every credit union will have to consider. Imagine if the natural person credit unions had been using the even more-troubled banks instead of U.S. Central.
–Comments? E-mail scooke@cutimes.com

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Time to Stare Down the Fear and Speak Up on Corporates

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