METAIRE, La.-Consolidation won't cure the ills corporate credit unions or restore confidence at natural-person institutions according to one corporate CEO.
David Savoie, president/CEO Louisiana Corporate CU told Credit Union Journal that the existing corporate regulations encouraged consolidation under the theory that institutions without expanded investment authorities would merge with larger and more risk-adverse corporates. But that scenario never played out and instead the bigger institutions engaged in an arms race for yield that also resulted in increased risk.
"No corporate investments became worthless because there were too many corporates," Savoie pointed out. "The epic losses at the largest corporates were not due to a lack of consolidation; they were due to poor credit-risk management."
The Lacorp chief also took a swipe at NCUA's proposed corporate regulation, public comments from members of the NCUA board that greater efficiencies in the system will require additional mergers, as well as a plan floated by Members United Corporate FCU to consolidate the entire system into one institution.
"Now, we are being told that the prescription for the current illness is a bigger dose of the same consolidation 'cure' that caused the problems in the first place. I believe that will only accelerate the patients' demise," Savoie told the Journal. "Credit unions need to be wary of plans for radical consolidation, as it would likely sweep problems under the rug without taking a hard look at their root causes-especially when these plans, whoever their authors are, are being promoted by some of the parties most responsible for the massive failures that caused the current problems."
An independent inquiry into the corporate failures could help restore confidence to retail institutions, Savoie added, noting that natural-person CUs are well served to stay corporates not just for the sake of the system, but for their own good.
"Small-and-medium-sized credit unions need to be aware that some of the buzzwords floating around-such as 'dealing directly with the Fed' and 'selling Fed Funds for liquidity'-are code for a rapid consolidation of natural-person credit unions."