Whether today’s corporate credit union network can evolve to be the best provider of financial services to credit unions hinges on its ability to make “deep and far-reaching changes,” according to the final report issued by CUNA’s Corporate Credit Union Next Steps Working Group.
And, if it doesn’t, credit unions will have a variety of options other than corporates to meet their needs.
Other factors that will affect the corporates’ ability to remake themselves include coming revisions to corporate credit union regulations from the National Credit Union Administration (NCUA), and the specifics of NCUA’s upcoming plan for dealing with corporates’ legacy assets.
The NCUA Board is expected to act on both issues Sept. 24.
“If the necessary changes do not occur,” the Working Group concluded, “credit unions will have a variety of options other than corporates to meet their needs, although many credit unions will find these alternatives more costly and less service-driven than they have experienced with corporates in the past.”
The Next Steps Working Group was formed to further explore the recommendations issued in February 2010 by CUNA’s Corporate Credit Union Task Force. Both groups were chaired by Terry West, CEO of VyStar Credit Union, Jacksonville, Fla.
The task force report called for a sharply revised corporate business model, with smaller balance sheets and greater focus on payments-related services rather than investments.
The Next Steps Working Group had the mission of ensuring credit unions continue to have access to the services they have been relying on corporates to provide.
“Without question, today’s corporate model will need to change,” West says. “Our Working Group’s report outlines the factors driving that change and the options available—through the corporates or otherwise—to ensure credit unions continue to have access to the critical investment, credit, payments, and settlement services they need.”
The Next Steps Working Group reviewed multiple sources of information and talked with numerous representatives from corporates and other financial services providers.
Its final report was presented to CUNA’s Governmental Affairs Committee in late August and received by the CUNA board at its Sept. 15 meeting in Madison, Wis.
The group determined that corporates’ current business model will need to evolve due to the difficulty of attracting new capital from credit unions, coupled with significant new capital requirements based on asset size.
In this environment, corporates with small balance sheets, and therefore small capital requirements, are most likely to succeed. Specifically:
- Smaller corporates will need to arrange for the services previously offered in conjunction with U.S. Central Federal Credit Union (now in conservatorship) by contracting with third parties, combining with other smaller corporates to provide these services, or merging into larger corporates with the necessary infrastructure.
- The issue for larger corporates will be to determine which has the best infrastructure to efficiently provide services.
“The responsibility for bringing about the necessary changes lies with three groups: the members of corporates, the boards of corporates, and the management of corporates,” the Working Group stated.
The Working Group concluded the current corporate system has the core elements to meet the needs of most credit unions, and that a system owned and controlled by credit unions is most likely best for the movement in the long run.
“However, it is not certain that those resources will be trimmed down and rearranged adequately or quickly enough to meet the needs of credit unions,” the report added. “In the resolution of these issues, it is the interests of credit unions that are paramount, rather than the interests of the current corporate credit union structure.”
Other elements from the Working Group’s report:
- Describe the services credit unions have sought from corporates in the past;
- List some of the alternate providers of these services credit unions can turn to in the future;
- Discuss the selection and due diligence process credit unions will need to use in selecting financial services providers;
- Outline the current condition of corporate credit unions; and
- Comment on the types of changes corporates will need to make.