In a Feb. 8 letter NCUA left no uncertainty about its intent to attempt to show the way through the turbulent times now enveloping corporate credit unions.
In the letter, titled "Corporate Credit Union Guidance Letter" and signed by Office of Corporate Credit Unions Director Scott A. Hunt, NCUA warns about the risks of too much consolidation, which might, Hunt wrote, "create an unacceptable 'too big too fail' scenario." NCUA explicitly applies this warning both to a potentially very large corporate and also to a possible CUSO, supported by multiple credit unions, that had grown large in pursuit of economies of scale.
NCUA said that if such very large institutions were to fail, the consequences would include interruption of service.
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NCUA made clear that it did not want to continue stepping in to help failing corporates provide continuity of service. Hunt elaborated: "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."
Towards that end, NCUA put corporate credit unions on notice that they will be expected to generate more profits, but safely so. "Going forward, an entity that will primarily be a service provider must be able to demonstrate adequate income not only to maintain existing services and the operational systems and staffing to deliver them, but must also adequately fund for identifying risks and for ensuring operational security and stability in the future," Hunt wrote.
NCUA added that, in contemplating consolidation, corporates have to identify the potential risks associated with their unique business model. "Every business plan will have its own unique risks that must be appropriately addressed," Hunt wrote.
The CEO of a corporate who requested anonymity indicated that, to his eyes, 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 too 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, NCUA had not responded by press time.
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