New Corporate Structure Proposal Shifts Business Model

July 16, 2010
/ PRINT / ShareShare / Text Size +

The National Credit Union Administration’s (NCUA) proposal to change the corporate system structure will affect corporates’ business model and its expectations of credit unions, according to a panel at The 1 Credit Union Conference, which ended Wednesday in Las Vegas.

Corporates can thrive in the future under a different model. The system will need acceptable business models, and the issue of how legacy assets will be treated needs to be resolved before credit unions will contribute more capital, said Bill Hampel, chief economist at the Credit Union National Association (CUNA).

“Corporates will require both net interest income and fees to cover expenses,” he said, adding the move to a small balance sheet will require more efficient processing and higher fees.

Mike Mercer, president/CEO of the Georgia Credit Union Affiliates, gave a history of the corporate system, saying this past year’s crisis is the third encountered by the corporate system.

“NCUA will require corporates to have a smaller default rate and confine interest-rate risk. It will tolerate very little liquidity risk,” he said.

Everything will be off the balance sheet, but risk will transfer from the corporates to credit union balance sheets. “Examiners will be more focused on how you invest and balance your risk,” Mercer said.

Brad Miller, CEO of Southeast Corporate Federal Credit Union and former CEO of the Association for Corporate Credit Unions, said the challenge for corporate credit unions will be quantifying their value to credit unions. Corporates will need to focus on effectiveness and efficiency.

Miller would favor a collaborative business model but said the system is “so dynamic it would be hard to collaborate.”

However, centralizing some back office functions would improve efficiency. If U.S. Central survives, it wouldn’t be as a wholesale credit union but as a retail institution.

“The big issue with the business model is that we moved a lot of risk to U.S. Central but we didn’t move enough capital,” Miller said. An even bigger issue is legacy or “toxic” assets. “We’re still seeing losses.”

Frank Mitchell, president of Allied Credit Union, Stockton, Calif., said he would like to see a credit union-owned solution to the problem.

“For most, having the Fed settle is not an alternative,” he said. “You can’t separate settlement from short-term investments and short-term liquidity.”

The proposal, Mitchell added, “takes out U.S. Central. Credit unions that depend on U.S. Central would have the capital but no infrastructure to provide settlement and processing.”

The ramifications, said the panel, are:

  • The expectation of increased internal investment expertise;
  • Concentration of risk will flow to natural person credit unions, especially to those with high concentrations of investments through corporates; and
  • Corporates will be treated as a third party, requiring vendor due diligence.

CUNA Associate General Counsel Mary Dunn moderated the panel.

Post a comment to this story


What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory ( will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive