Proposed corporate credit union reg has a lot of what corporates were looking for

ALEXANDRIA, Va. – Corporate credit unions can’t be compared to other financials, that’s the message corporate CUs wanted NCUA to get loud and clear when amending the corporate CU reg, Part 704 – it looks like NCUA listened. “It appears that the concept of Reg-Flex has permeated this proposed rule,” said Gigi Hyland, executive director for the Association of Corporate CUs. Acting NCUA Chairman Dennis Dollar said the Board’s intention was to “not only … tweak this regulation, but make it a better regulation.” NCUA was considering changing the current definition of member capital and paid-in capital to be more in line with Generally Accepted Accounting Principles, and thus more comparable with other financial institutions. This is something the ACCU vigorously opposed in its comments to NCUA. Hyland stressed that you just can’t compare corporates with other financials. “They just don’t look the same. Corporates don’t take on as much risk; don’t take on capital the same way. You can’t do an apples-to-apples comparison,” said Hyland. Based on the proposed rule, NCUA agreed at least in terms of capital. It stated the following: “The Board is not proposing to change the current definitions of MC and PIC to require those accounts to follow GAAP in order to qualify as capital. The Board recognizes the high credit quality and liquidity of most corporate assets provide reasonable assurance that MC and PIC will be available to absorb losses.” The Board proposed another interesting change regarding capital that many corporates felt is overdue by making the definition of capital more consistent. “The Board has eliminated the separate limitations based on `the sum of reserves and undivided earnings and paid-in capital’ existing in the current regulation….In the proposed regulation, all references to capital include membership capital, paid-in capital and RUDE (reserves and undivided earnings),” stated the board. The definition of capital and the decision not to utilize GAAP were just two of many positives in the proposed rule for corporates, said Hyland. Other positives include the removal of the existing requirement of PIC not to exceed RUDE; the addition of loan participation authority; and allowing for lower grade investments, though Hyland said she had not gone through the investment aspects thoroughly enough to comment on the proposed investment changes. “What I have seen so far looks good. NCUA has taken into consideration very seriously recommendations we made in our comment letters,” said Hyland. The rule also includes a change that will help corporates take on business from nonmember credit unions, which is becoming more common these days as corporates, once confined to their regions, market nationally. The Board is proposing that the requirement that all nonmember PIC be approved by NCUA be lifted. The proposed rule was not all good in Hyland’s eyes. “One of the things we opposed was minimum RUDE ratio of 2%. We argue that’s a regulatory burden that’s not necessary.” The Board disagrees. “The Board remains convinced that a minimum RUDE ratio of 2% is useful in the overall determination of capital adequacy …. A minimum RUDE ratio requirement will provide a core capital level comparable to other financial institutions and ensure a level of protection to the holders of MC and PIC,” stated NCUA. There also appears to be some disagreement on credit concentration risk limits, though Hyland said she will call on her corporate member experts to pinpoint problem areas. “Our investment folks will be looking at them very closely to see if they’re too restrictive,” said Hyland. The work to amend the corporate reg has just begun said Hyland. The ACCU will have more meetings on the issue amongst its member corporates as well as with NCUA before issuing a comment letter. [email protected]