Corporate credit unions shouldn't be able to concentrate their money in long-term investments and should focus their activities on payments, settlement, short-term investments and liquidity, CUNA wrote NCUA yesterday.
Those changes will result in fewer credit unions and cause operational efficiencies that benefit natural credit unions, CUNA President/CEO Dan Mica and CUNA Corporate Credit Union Task Force Chairman Terry West.
CUNA argues that allowing the corporates to focus on long-term investments has "been the source of most of the serious problems of the corporate system." Credit unions can meet their long-term investment needs outside corporates' balance sheets and to make long-term investments safer for corporates the NCUA would need to place more restrictions on them.
Mica and West also suggest that corporates' regulatory capital should include two tiers: reserves and undivided earnings; member capital and subordinated term debt. They say that if the NCUA were to place the restrictions on investment that they recommend, there would be no need for risk-based capital requirements.
The number of corporates would likely be smaller but the number shouldn't be determined by NCUA and the number should be small enough to increase efficiency yet there should be enough to promote innovation and avoid the potential for a "single point of failure," they wrote.
CUNA also suggested that corporate credit unions be allowed to have national field of membership and have boards consisting of as many as 20% of their members coming from outside member credit unions. These persons could receive compensation.
CUNA was responding to the NCUA's request for comments on the structure of the structure of the corporate credit union system. The NCUA requested the comments, which were due yesterday, when it issued its program to stabilize the corporates in January.
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