NASCUS Recommends Diversity, Enhanced Oversight and Larger Role for State Regulators in Regulation of the Corporates

March 5, 2010 — NASCUS submitted its comment letter on March 5 to the National Credit Union Administration (NCUA) regarding the proposed rule, Part 704, Corporate Credit Unions. NASCUS' comments focus on the need to balance reconsideration of regulatory oversight of the corporate system with the ability of the corporate system to recapitalize going forward. In addition, NASCUS seeks enhanced joint federal and state oversight as well as state law preservation over certain areas of corporate regulation and governance.

Throughout the rulemaking process, NASCUS state regulators have worked with NCUA on a regulator-to-regulator basis to provide the perspective of the state regulatory system. NASCUS commends NCUA for moving toward a final rule and made the following recommendations to the agency in its comment letter:

  • Restore diversity to the corporate system by allowing state regulations to vary from NCUA's §704.
  • Provide state regulators access to federal corporate credit union books and records.
  • Amend the proposed Prompt Corrective Action provisions to mirror the natural person credit union Prompt Corrective Action provisions with respect to consultation and cooperation with state regulators.
  • Limit governance provisions to federal corporate credit unions.
  • Promulgate the stress testing and asset liability management provisions as thresholds rather than inflexible limits.

NASCUS pointed out that before a final rule can be promulgated, a resolution to the legacy assets issue must be determined and the findings of a NCUA-contracted consultant regarding the modeling used in the proposed rule should be made public.

In its comment letter, NASCUS stressed that the homogenization of the corporate credit union system remains a concern. NCUA's Part 704 should allow state laws to establish governance standards, additional investment authorities, CUSO activities, obligor limits and other powers. "Returning diversity to the corporate system would promote a rejuvenation of the business model and help foster a balance between oversight and needed business flexibility," wrote NASCUS.

NASCUS also focused its comments on the benefits of enhanced state regulator involvement in the oversight and supervision of the corporates. NASCUS recommends joint examinations and state regulator access to books and records of federally chartered corporates where state-chartered credit unions have a vested interest.

"Not only would providing this access allow for all regulators to conduct their due diligence with respect to their natural person credit unions' risk exposure, the conducting of joint examinations would materially improve oversight of the corporate system. Conducting joint examinations would be an important step to safeguarding against regulatory complacency," stated NASCUS. Further, NASCUS recommends cooperation and consultation with state regulators on Prompt Corrective Action (PCA) issues of the corporates and increased capital standards for the corporate system.

State law purview of board governance of state-chartered corporates is also a main discussion topic of NASCUS' comment letter. The proposed Part 704 would mandate, among other things, term limits and qualifications for board members. The composition of the board and the qualifications of individual board members are properly the province of state law and regulation.

As NASCUS has stated in the past, well established law supports state law in issues pertaining to governance; therefore NASCUS suggests to the agency that Part 704's board governance provisions be limited to federally chartered corporates. In addition to preemption issues, NASCUS also questions the utility of mandates requiring a corporate director be a CEO, CFO or COO, as other qualified potential candidates likely exist outside of those positions.
NASCUS remains committed to working with NCUA to develop prudent regulation to address any weaknesses in the credit union system. The final rule should preserve the flexibility for corporate credit unions that are safe, sound and retain the confidence of their membership to continue as ongoing concerns. To view the full NASCUS comment letter, follow this link.