NCUA Town Hall: Credit Union Suggestions Have Helped Shape Corporate System Rule (Misc News: October 15, 2010)
Second of three parts
Input from credit unions had a major impact on the final rule adopted by the NCUA to clean up the crisis caused by five corporates that the NCUA has now taken into conservatorship.
NCUA General Counsel Bob Fenner told those at a town hall meeting this week on the new Corporate System Rule that the agency appreciated the input from local credit unions in responding to the financial crisis.
Examples of changes implemented as a result of public comment include abandoning the cash flow mismatch test, which he said was hard to understand and would have been difficult to monitor, and the addition of a prohibition of private-label residential mortgage-backed securities and subordinated securities. In addition, NCUA plans to issue another proposal to fine tune the corporate rule at its meeting in November, Fenner said.
Additions to the corporate rule that NCUA is considering include:
• Establishing a risk management committee;
• Periodic reporting on internal controls;
• Limiting natural person credit unions to membership in just one corporate, a rule that NCUA expects to be controversial.
Fenner called the rules that NCUA has put in place “never again regulations,” with the goal to reduce the possibility of the type of collapse in the corporate system as seen in the last two years. The agency’s goals for the new rule were to prevent unacceptable risk and facilitate a successful business model for the corporates.
He said four main elements of NCUA’s plan for corporates are new capital requirements, investment restrictions, CUSO service limitations and revised governance standards.
NCUA Board Member Michael Fryzel said everyone in the credit union industry has helped respond to the crisis.
“The credit unions have worked with us to get the job done,” Fryzel said.
To fix the problem, the NCUA has set up bridge corporates to take on the corporates’ good assets, said Larry Fazio, deputy executive director for the NCUA. The bad assets will remain in the conserved corporates.
Fazio said the agency is asking local credit unions to continue business as usual with the corporates while they decide where they will obtain services in the future.
The bridge corporates will remain in place for two years to facilitate an orderly transition.
“NCUA is managing the bridge to make sure there is no interruption in service,” Fazio said.
Credit unions will have options to charter new corporates or use existing ones, but the five conserved corporates will eventually be shut down.
Part 1: Regulator Says Private-Label Mortgage-backed Securities Led to Crisis
Part three - Town Hall: NCUA Wants Credit Unions to Stay on Message