April 6, 2009

NASCUS to NCUA: Focus on Oversight and Risk Factors in Corporate System, Use Caution in Restructuring

ARLINGTON, Va. — The National Association of State Credit Union Supervisors (NASCUS) urges the federal credit union regulator to enhance supervision and to tighten regulatory standards for the corporate system and properly assess risk problems before addressing structural changes.

NASCUS filed comments on April 3 regarding the National Credit Union Administration's (NCUA) Advanced Notice of Proposed Rulemaking (ANPR) on Part 704, Corporate Credit Unions. NCUA continues to take action in response to losses in the corporate system, including the issuance of this ANPR to determine if changes to the corporate system are part of the solution.

NASCUS states that when analyzing the status of the corporate system, it is vital to determine the extent to which the structure of the corporate system, imbedded concentration and systemic risk, and supervisory or risk management deficiencies contributed to losses in the system. "NASCUS members believe that changes must be made in both how the credit union system conducts business and how the credit union system is supervised," wrote NASCUS.

In brief, the NASCUS comment letter suggests NCUA:

  • Resist a rush to judgment on restructuring the corporate credit union system.
  • Explore if lack of proper application of regulation and oversight, at both the state and federal level, contributed to the current events.
  • Avoid labeling all credit unions as unsophisticated by unilaterally declaring some activities as too complicated and risky for any credit union.
  • Preserve equal opportunity for all corporates to compete as long as they remain safe and sound and retain the support of their members.

First, NASCUS encourages NCUA to determine through clear and reasoned study what flaws exist in the corporate system and to immediately request the NCUA Office of the Inspector General perform a material loss review. Further, NCUA should conduct a candid discussion with state regulators on how both regulatory systems can improve oversight and identify systemic risk factors. NASCUS also suggests NCUA create a joint examination team of state and federal regulators to concentrate on systemic risk in the corporate system.

"To be clear: thorough review of the [Corporate] Network, the natural person system and the roles of state and federal examiners may result in a conclusion that far reaching structural changes are needed," added NASCUS. "In that event, NASCUS and state regulators are prepared to work with NCUA to move boldly to make appropriate regulatory and supervision changes to address material safety and soundness weaknesses in the system."

NASCUS also notes its concerns regarding preemption of state authority and homogenization of the corporate system. NASCUS also cautions against regulation that would unnecessarily or negatively impact safe and sound corporate credit unions that have properly managed their investments and remain fully supported by their members.

In conclusion, NASCUS states that before restructuring the system, NCUA should dialogue with state regulators on improving supervision, tightening regulatory standards for risk mitigation and risk management, and leveraging the expertise from the state and federal ranks to identify systemic risk. "In addition, improved modeling for information, reporting and shock testing may contribute more positively to the future viability of the system than proposed restructuring," wrote NASCUS. "NASCUS' approach dramatically improves oversight, while retaining for the credit union system the flexibility to innovate and remain viable."

To download and review NASCUS' full comments, follow this link to the NASCUS Web site.

Information Contact:
Kate Hartig, VP, Public Relations and Legislative Affairs, (703) 528-0669 or
The NASCUS mission is to enhance state credit union supervision and advocate a safe and sound state credit union system.