NASCUS Encourages NCUA to Address Corporate Concerns through Existing Corporate Regulations and Recognize State Law in Proposal

Jan. 24, 2011 — In its comments on the NCUA's latest proposed corporate credit union rule, NASCUS encourages the agency to consider enhancing application of existing corporate regulations and supervisory oversight to address its concerns and to be mindful of encroaching on state law in some areas of the proposal. While NASCUS shares the agency's concerns about the corporates' supervision and material risk, its comments reflect a difference of opinion as to how best to mitigate risk and address regulatory concerns.

NCUA sought comment on whether natural person credit unions should be limited to membership in one corporate. NASCUS communicates 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. NASCUS also points out that the proposal would encourage concentration risk by limiting investment in one corporate. "This is contrary to NCUA's and state regulators' recent emphasis on sound third party due diligence and diversification," stated NASCUS.

Regarding proposed board responsibilities and recorded votes, NASCUS writes 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. NASCUS states in its letter that this practice is beyond the statutory authority cited by NCUA.

NASCUS goes on to address the auditing and reporting proposals arguing that taken as a whole, the proposals reflect a regulatory redundancy and unnecessary reporting. A similar argument is made by NASCUS regarding the proposed addition of an enterprise risk management committee. "State regulators hold credit union management responsible for compliance with all applicable laws and regulations, as well as for the safe and sound operation of the institution," wrote NASCUS. "The Board is ultimately responsible for overseeing the management and providing direction for the institution. If state regulators detect a pervasive lack of competence or compliance, the regulators can take action such as removing directors and management."

Further, NASCUS comments 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 emphasizes that membership in a state-chartered corporate is a matter of state law and state regulation and questions NCUA's statutory authority to demand such payments.

NASCUS believes that statutory and regulatory limitations prevent the application of this proposed provision to 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," stated NASCUS.

NASCUS and state regulators continue their commitment 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.