Losses among some corporates have resulted in the planned corporate stabilization program and the NCUA ANPR, which have transcended the corporate network itself and clearly become an issue of vital concern to every individual credit union. The issues addressed in the ANPR not only have the potential to radically reshape the corporate structure, but they also could dramatically and irreversibly impact the future of every natural-person credit union.
Despite the severe challenges we now face as a nation and as a credit union movement, the U.S. economy remains the strongest and most resilient in the world. Even in times of turbulence, it remains the preeminent safe haven for the world's investments. In the fertile soil of an economy based on free-market economic principles, the U.S. credit union movement has grown into a major force in the country's financial system. The fundamental concept that drove the development of American financial strength is the ability for consumers and businesses to "vote" with their dollars in a free-market economy. It is the most efficient way to allocate resources.
As acknowledged in the NCUA ANPR, regulatory changes enacted after the failure of Cap Corp sought to impact the structure of the corporate network. Highly expanded investment authorities, combined with national fields of membership, created increased rate competition and, for many, investment in higher-risk securities.
While this created some consolidation among corporates focused on maximizing rates through the use of expanded authorities, there remains no persuasive evidence that economies of scale benefiting credit unions were achieved through consolidations. Certainly, the losses now being reported outweigh any economy-of-scale benefits purported to have been realized. Over the past few years, corporates utilizing higher-level expanded investment authorities have failed to outperform the earnings ratios of base and base-plus level corporates on any consistent basis.
We suggest that the solution to the current crisis is not to "throw the baby out with the bathwater" by creating a system in which corporates that remain solvent, profitable and continue to enjoy the support of their membership cannot operate. Elimination of healthy corporates and the current three-tier structure through structural consolidation would not add a penny to the network's total equity.
Rather, it would potentially eliminate the majority of corporates that have proven their ability to serve their members and operate soundly. The solutions lie not in further regulatory fine tuning of the structure, but in ensuring the ability of credit unions to allocate their resources in an informed manner with the benefit of full, fair and prompt financial disclosure.
It is up to us in the corporate network to use all our efforts to earn (and in some cases, re-earn) the trust of our member credit unions through sound financial risk management and disclosure. Just like the loss of equity, the loss of trust cannot be restored by regulatorily mandated structural changes. It must be restored by management accountability, and fair and prompt disclosure.
We support proposals to utilize the $4 billion in capital in the corporate network before requiring natural-person credit unions to dig into their earnings to restore the NCUSIF. We further believe that base and base-plus level corporates, like Louisiana Corporate, have an invaluable and irreplaceable contribution to make to the restoration of the corporate network. By all accounts, our members feel the same way.
We are confident of our ability to continue to operate soundly and compete effectively in a market driven by credit union choice and we urge all credit unions to fully express their views at this critical juncture in the evolution of our industry.
David A. Savoie, CEO
Louisiana Corporate Credit Union,
LETTERS TO THE EDITOR
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