Thursday, October 28, 2010

Suppose Credit Unions Had the First Say in Resolving Corporate Credit Union Failures

During a recent dinner conversation with a couple of fellow cooperators in Washington, D.C., the topic turned to corporate credit unions. There’s no denying it, corporate credit unions have to be one of the hottest topics within the credit union community.

Ever since March of 2009 when the National Credit Union Administration (NCUA) took U.S. Central and WesCorp into conservatorship, corporate credit unions have dominated the headlines like never before. NCUA’s actions prompted the entire credit union industry to take a much closer look at all the corporates, eventually leading to a deeper scrutiny of the management and composition of their investment portfolios. The exercise continued further to include review of their value in comparison to other providers, their structure, organization, and their role within the credit union system. Today, a number of leagues are hosting executive committees to evaluate the role of corporates and how they might be structured going forward, that is, if there can even be a future for them within the framework of the revised corporate rule.

However, in retrospect, suppose there was a different process in place for stepping in to rectify the failing organizations? Suppose the insurance fund resided in the hands of credit unions and credit unions themselves were authorized to remedy the situation before it was passed over to the regulator as a final backstop?

OK, I realize that to operate as a legitimate financial organization in the United States, there are federal and state rules governing how the organization is structured and allowed to operate. But just suppose with me that the equation was different.

Suppose NCUA only existed as the last resort and it was left to the credit union system to have the first crack at resolving the crisis. How would a course of action by the credit union community differ from that exercised by the NCUA? Would it differ or would we all be out of jobs at this point in history?

When one considers the cooperative business model and what it requires of those who are engaged in it as owners, one has to wonder how credit unions might handle such failures if the responsibility resided first in their hands.Is such a reality even possible?

1 comment:

  1. Here's an innovative solution being pursued by the credit union community in Iowa. They are finding ways to stay within the cooperative system.


    Iowa Corporate to work with NCB to design business model

    DES MOINES, Iowa (10/29/10)--A tri-party declaration of intent to work cooperatively towards the design of a business model to meet the needs of Iowa credit unions for correspondent banking services has been signed by the National Cooperative Bank (NCB) FSB, a subsidiary of National Consumer Cooperative Bank, Iowa Corporate Central CU (ICCCU) and Affiliates Management Company, a wholly-owned subsidiary of the Iowa Credit Union League.

    "Although Iowa Corporate has the highest capital ratio of any corporate, due to our small size we felt it necessary to explore alternative ways of continuing to meet the needs of our members," said Sara Flynn, CEO, ICCCU. "We are excited to work with NCB, an organization that holds many current relationships with the credit union industry and shares our mission and values of providing cooperative solutions."

    The three parties to the agreement are currently working through operational details, according to a release from the Iowa Credit Union League. If they are successful in reaching a definitive agreement, they plan to review the proposal for service offerings with credit unions at a series of town hall meetings throughout Iowa when the work is finalized.

    "We feel strongly that our members will be offered a competitive alternative in terms of security, member service and cost," Flynn said. "Our No. 1 priority is the continuity of service for our credit unions."