GREENSBORO, N.C.-Though most of the discussion on the future of the corporate credit union system has revolved around troubled large institutions and "pass throughs," medium-sized corporates could provide a strong business model going forward.

"Some very efficient, mid-sized corporates do have needed resources to capably provide the same products as large corporates, and they should be included in the discussion," said David Brehmer, CEO of $1.7 billion First Carolina Corporate CU. "The mid-sized corporates may, to varying degrees, need to be recapitalized, but they have the resources to continue to be value-added providers to their member credit unions. It should be noted that innovations have come from many different-sized corporates, not just those that are the largest."

A move to consolidate to a single entity or just a small handful of institutions makes little sense, according to Brehmer. He pointed out that U.S. Central's strength came from asset/liability management, not operations, and large corporates tended to drive income from managing investments, not payments processing. "[U.S. Central's] economic inefficiencies were covered by A/L income," Brehmer said. "Under the proposed revised regulation, activities will be more limited, so benefits offered by the old system won't exist. The national model seems to increase systemic risks, and costs associated with trying to minimize such risks may offset any economic gains."

Most mid-sized institutions are also largely immune from NCUA's plan to deal with legacy assets, Brehmer pointed out. These corporates also have experience with business plans that will work under the new regulation as they did not rapidly expand by allowing institutions to use their services without depositing capital, a practice that would be clamped down under the proposed rule. "Member credit unions will ultimately decide on the future of corporates," Brehmer said. "We need a regulation that allows for some prudent risk-taking so retained earnings can be built. Then it will be up to us, as corporates, to work with our members to validate the value proposition we offer and see if our members will provide required capital to allow us to operate with the new capital and regulatory guidelines.

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