ALEXANDRIA, Va.–The Corporate Credit Union Alliance is calling on NCUA, as part of its review of one-third of its regulations this year, to make some changes to Regulation Part 704.
In addition, Louisiana Corporate (LaCorp) has sent a letter of its own outlining specific changes it believes would benefit corporate credit unions and natural-person CUs alike.
In its letter to NCUA, the Corporate Credit Union Alliance, which represents 11 corporate credit unions, has requested NCUA “give serious consideration to proposed enhancements to Regulation Part 704.”
“While we recognize that the decision to open the regulation rests solely with the NCUA, we believe the time is right to revisit and modernize this rule,” the CCUA said in its letter.
According to the coalition of corporate CUs, since the last substantial revisions to Part 704 in 2011, the corporate credit union system has “undergone significant transformation. Most notably, capital levels at corporate credit unions have grown substantially, reflecting both the strength and resilience of the system. Despite this progress, the regulatory framework has not kept pace with the operational realities and strategic needs of today’s environment.”
The corporate CUs said the revisions proposed by the CCUA are “modest in scope but meaningful in impact.”
The Highest Priorities
The corporate CUs said their highest priorities include:
- An update to the existing regulatory limit for mortgage-backed securities and the distinction between limits for private and agency commercial mortgage-backed securities (704.6)
- An ability to extend the weighted average life of our balance sheet as additional capital is built (704.8)
- An ability to extend term borrowings for a period that would allow for better management of funding needs through the seasonal liquidity cycle
- A change to a more stable methodology for calculating non-liquidity borrowing limits (704.9).
Next Tier of Priorities
The corporate CUs said their next tier of priorities involves an expansion of credit risk management limits in the following ways within 704.6:
- Increase to the automobile ABS sector limit to allow for more expansion into a strongly performing asset class in which its member credit unions are increasingly participating as issuers.
- Expand the 50% capital obligor limit for master trusts to include dealer floorplan master trusts in addition to credit card master trusts based onntheir similar performance profiles.
Additional Priorities
The CCUA said additional priorities include:
- Clarifying language in the sections of lending (704.7) and CUSOs (704.11) to allow shares, certificates, and other deposits at corporate credit unions (excludingnNCA & PCC) to be included, along with U.S. Treasury and Agency securities, to fully secure loans to CUSOs and other non-credit union members to allow themn exemption from requirements of Part 723.
- A change to the 704.8(k) business limit. The current limit is restrictive during
LaCorp Sends Letter on ‘Outdated Holdover’
Louisiana-based LaCorp said a supplemental letter of its own to NCUA to specifically highlight concerns related to Part 704.8(k), which it called an “outdated holdover from the corporate credit union crisis.”
“‘Overall limit on business generated from individual credit unions’ is the poster child for outdated, unnecessary and unduly burdensome rules and is exactly the kind of regulation the regulatory review was designed to address,” said LaCorp CEO David Sovoie. “It substantially disadvantages a significant number of small credit unions in our membership while serving no demonstrable purpose. It’s a vestige left over from the U.S. Central days that was waived by NCUA during the COVID pandemic, and no one noticed.”
‘Outdated & Counterproductive’
LaCorp called on NCUA to eliminate Section 704.8(k), which it said imposes an outdated and counterproductive limit on deposits from individual credit unions.
“This provision has a direct and adverse effect on approximately 20 natural person credit unions served by Louisiana Corporate,” the LaCorp letter states. “Each day, several of these credit unions are forced to transfer deposits out of the credit union system and into lower-yielding Federal Reserve Excess Balance Accounts solely because of this regulation-reducing available liquidity within our system and penalizing institutions acting prudently.
“Rule 704.B(k) is a vestige of the post-U.S. Central era, intended to prevent undue influence by large depositors,” the letter continues. “However, today’s environment is radically different. The centralized structure no longer exists, and the member-owned governance model ensures fair representation through one-member-one-vote principles. Respectfully, we would suggest that insider dealing is more appropriately addressed through supervisory action in specific cases rather than by an asset-liability management rule. Since the rule’s enactment, we are unaware of any incidents where a credit union has exerted such influence on a corporate through deposit levels.”
The ’Real World Result’
According to LaCorp, the real-world result of the provision is a “regressive liquidity cap that becomes more restrictive during periods of liquidity tightening-precisely when member credit unions rely most on corporates for funding solutions.
“Ironically, the regulation undermines the statutory purpose of corporate credit unions by limiting their capacity to serve as reliable liquidity sources in times of need,” the letter states.
The letter adds that the rule “disproportionately burdens” Louisiana Corporate and its members.
“With MDANA at current levels, our maximum permitted deposit from any member is around $29 million-less than what many credit unions routinely manage in their settlement accounts,” the LaCorp letter states. “In contrast, the next smallest corporate credit unions enjoy higher MDANAs which would allow for individual depositor limits of well over $50 million at a minimum, creating a distortion that limits