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Corp. CU rate shopping to be limited by NCUA amendment
ALEXANDRIA, Va. (11/19/10)--The National Credit Union Administration (NCUA) has proposed limiting credit union membership in corporates to one corporate at a time and changing some internal control and reporting requirements via technical amendments to its corporate credit union rules. The corporate amendments, which, if approved, would also require corporate credit unions to establish enterprise-wide risk management committees and to record all votes by directors in official board minutes, were unanimously approved by the board on Thursday. The NCUA also proposed implementing "voluntary" Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessments to privately-insured credit unions and non-credit unions, such as credit union leagues, which are members of a corporate.
Click to view larger image NCUA board member Gigi Hyland (front right) discusses the potentially negative impact that limiting credit unions to a single corporate credit union could have on the credit union system during the NCUA's Thursday open board meeting. (CUNA Photo)
Credit Union National Association (CUNA) President/CEO Bill Cheney said that the proposed corporate CU membership requirements and proposed voluntary TCCUSF assessments for non-federally insured entities are areas that “are in need of careful review by credit unions and the agency.” The corporate credit union membership limit is an attempt to protect against “rate shopping” and “unnecessary competition between corporates.” In a draft of the proposed rule, the NCUA said that rate shopping “resulted in increased competition and, in some cases, led to unsafe investment activities as corporates sought higher investment yields to subsidize share dividends and service costs.” Credit unions may belong to two corporates for the short period of time that they are transitioning between corporates. Credit unions will be prohibited from “making any investment, including a share or deposit account, a loan, or a capital investment” in a corporate of which it is not a member. Credit unions that are currently members of two or more credit unions will not be required to give up their membership in those credit unions, however. Though NCUA board member Gigi Hyland approved the proposed rule, she added that she was concerned by the rule’s potential to limit credit union choice. Hyland also said that she is interested in receiving comments on the issue of only being able to belong to one corporate and welcomed suggestions of any alternative approaches that may also be able to address the agency's concerns. The NCUA would promote the “equitable sharing” of TCCUSF expenses among all members of corporate credit unions by requesting that existing non-federally insured credit unions (FICU) “make voluntary payments to the TCCUSF” by paying “an amount calculated as a percentage of the non-FICU member’s previous year-end assets.” Corporates would hold member votes on whether or not to expel non-FICUs that decline to make requested payments or that make payments “in an amount less than requested.” The NCUA has also added some slight technical changes to portions of the original corporate rule that addressed executive compensation disclosures, corporate credit union auditing and reporting requirements, and management’s reports on various corporate credit union activities. Specifically, the NCUA is seeking greater detail regarding affiliate transactions, legal lending limits, loans made to insiders, restrictions on capital and share dividends, and regulatory reporting. All of the NCUA’s proposed changes will have a 30-day comment period, and board members said that they were looking forward to receiving credit union input on the proposed changes. The proposal, if approved, would possibly become effective as soon as end of January. For the full NCUA proposal, use the resource link.
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