The U.S. regulator of credit unions said Wednesday a final set of proposals to substantially reform the corporate credit union structure suffering from recent big credit losses is likely to be issued in the fall.
The changes are being considered after regulators in March seized Western Corporate (WesCorp) Federal Credit Union and U.S. Central Federal Credit Union after stress tests revealed that losses on their soured mortgage-related investments had reached a critical stage.
U.S. Central, of Lenexa, Kan., and WesCorp of San Dimas, Calif., were two of the largest corporate credit unions with a combined $61 billion in assets.
Corporate credit unions provide liquidity and settlement services to more than 90 percent of the nation’s nearly 8,000 retail credit unions, which are member-owned and are considered cooperative entities, unlike banks.
In prepared congressional testimony Wednesday, National Credit Union Administration Chairman Michael Fryzel said the agency is prepared to take "any and all necessary steps" to preserve the corporate credit union system.
"NCUA anticipates making substantial changes in the existing corporate system based on input from stakeholders and future safety and soundness considerations," Fryzel said.
Reforms will focus on imposing new investment standards and creating new limitations on investment risk exposures. Corporate credit unions can also expect new liquidity requirements so they maintain enough cash on hand to buffer against payment system shocks.
NCUA will also issue proposals to make sure those institutions better monitor and control risk exposures and to limit their ability to incur secured debt unless it is for liquidity needs, Fryzel said.
Because some corporate credit unions held insufficient capital, the agency will also issue proposals aimed at requiring those institutions to adopt a minimum leverage ratio of core capital and a minimum risk-based capital ratio based on standards under the Basel international capital adequacy framework.
"Accordingly, capital reform is an important part of any changes in the corporate system," Fryzel said.
The agency will also seek changes to the corporate governance structure to include more transparency for compensation and set minimum qualifications for board members. (Reuters)
