NASCUS Continues to Provide Feedback to NCUA on Corporate Credit Union Supervision, Rulemakings

A special message from Mary Martha Fortney, President and CEO,
January 28, 2011

Recently, NASCUS commented on the National Credit Union Administration’s (NCUA) third corporate credit union rulemaking. As you know, the agency finalized its changes to Part 704 in September 2010, and then followed with an interim final rule of technical corrections and most recently, it sought comment on a number of additional proposals.  

This latest proposed rule addressed seven different areas ranging from board governance issues, membership in corporates and paying for stabilization fund costs. While NASCUS continues to share NCUA’s concerns about the supervision and oversight of the corporates, we encouraged the agency to consider enhancing application of existing corporate regulations and supervisory oversight to address its concerns. We also asked the agency to be mindful of encroaching on state law in some areas of the proposal.

NCUA sought comment on whether natural person credit unions should be limited to membership in one corporate. NASCUS communicated to the NCUA that state law dictates specific investment authorities for state-chartered credit unions, and that NCUA’s authority in this area would not apply to state-chartered corporates. Most concerning, this proposal would encourage concentration risk by limiting investment in one corporate. This goes against NCUA and state regulators’ recent emphasis on sound third party due diligence and diversification.

Regarding proposed board responsibilities and recorded votes, NASCUS wrote that specific governance provisions such as conduct of a board vote for state-chartered corporates are a matter of state law. Although NASCUS acknowledges NCUA’s authority to require submission of board minutes and other general information, the proposal goes beyond requesting financial information and intrudes into board operations by dictating how board votes are recorded.

We also addressed the auditing and reporting proposals. We argued that taken as a whole, the proposals reflect a regulatory redundancy and unnecessary reporting. A similar argument is made by us regarding the proposed addition of an enterprise risk management committee. NASCUS emphasized that if NCUA or state regulators detect a pervasive lack of competence or compliance, the regulators can take action such as removing directors and management.

Further, NASCUS commented on NCUA’s proposal to bill corporate members who are “non federally insured credit union” entities and require a membership vote if the entity decides not to make a payment. Specifically, NASCUS emphasized that membership in a state-chartered corporate is a matter of state law and state regulation and questioned NCUA’s statutory authority to demand such payments.

NASCUS believes that statutory and regulatory limitations prevent the application of these “voluntary payments” for state-chartered corporate credit unions.  NASCUS also questions this proposal from a capital perspective. Given that corporate credit unions must retain more capital as a reserve, it seems counterproductive to be forcing out of the corporate system potential sources of capital or income that build retained earnings.

While NASCUS took issue with key provisions of this proposal, we remain committed to working with NCUA on examination and supervision issues regarding the corporate credit union system. NASCUS appreciates the opportunity to comment on NCUA’s proposed regulations. To view NASCUS’ comment letter, follow this link.