CUNA Comment Letter
Proposed Changes Regarding the Regulation of Corporate Credit Unions
Filed via firstname.lastname@example.org
August 29, 2002
Ms. Becky Baker
Secretary to the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
Dear Ms. Baker:
The Credit Union National Association appreciates the opportunity to comment on the National Credit Union Administrations proposed revisions to Section 703.100(c) and Part 704 regarding corporate credit unions. CUNA presents over 95%% of the nations more than 10,300 state and federal credit unions.
CUNA strongly supports the comment letter filed by the Association of Corporate Credit Unions (ACCU). In particular, we would like to address and reinforce ACCUs position on several key issues, which are:
- Future-dated ACH transactions;
- The definition of paid-in capital;
- Earnings retention requirements; and
- The definition of "trade association."
FUTURE-DATED ACH TRANSACTIONS
CUNA concurs with ACCU that the rule should exclude future-dated ACH items and uncollected cash letters from the definition of "daily average net assets" (DANA). Otherwise, corporates will have to account for ACH transactions based on the advice date when the corporate receives a communication that the funds will be posted on a specific date rather than on their settlement date, which is when the funds are actually available.
The proposed definition relies in part on Corporate Credit Union Guidance Letter 2000-03. That letter describes a future-dated ACH transaction as one in which a corporate receives a "notice of ACH transactions to be posted " However, it is our understanding that until NCUA issued that letter, most corporate credit unions accounted for future-dated ACH transactions based on the posting date.
They did so because relying on the settlement date, rather than the advice date is more consistent with GAAP accounting and with the rules of the National Automated Clearing House. In fact, under NACHA rules, the receiving depository financial institution has no responsibility to make funds available before the settlement date.
Thus, we support ACCUs view that NCUA should not include future-dated ACH transactions in the definition of DANA and should allow corporate credit unions to account for such activity based on the posting date, not on the advice date. Not only would this approach be more consistent with accounting principles, but also it would result in more accurate reporting of a corporate credit unions financial data.
DEFINITION OF PAID-IN CAPITAL (PIC)
Like ACCU, CUNA supports the new definition of paid-in capital (PIC), which will allow such capital in the form of perpetual, non-cumulative dividend accounts, and the "grandfathering" provision in Section 704.3(c)(7) that permits corporates that have already issued PIC, in either perpetual or 20-year maturity form, to include it as core capital.
We are concerned however, that the grandfathering provision may create two classes of corporates, those who already issued PIC with a 20-year maturity and those who waited until 704 was finalized and thus, may now only include perpetual PIC in their core capital. We join with ACCU in requesting the NCUA Board to allow corporates who have not yet issued PIC and wish to do so using a 20 year maturity, may issue such PIC within eighteen months after 704 takes affect.
SECTION 704.3(i), EARNINGS RETENTION REQUIREMENT
The proposal would establish an earnings retention requirement of 10 to 15 basis points annually based on a corporates retained earnings and core capital ratio. We question the necessity of this requirement. It seems to be drawn from prompt corrective action, which for sound, public policy reasons, does not apply to corporate credit unions. Rather than imposing general earnings retention requirements for all corporates, we think it would be more in keeping with the agencys new focus on risk for NCUA to ensure each corporates capital levels are consistent with the level of risk associated with its activities.
The proposal would also preclude a corporate credit union from paying dividends if its retained earnings ratio declines below 2% or if the amount of its retained earnings declines from the prior month end. The OCCU Director and, if applicable, a state regulator may give prior written approval for the payment dividends. We strongly agree with ACCU that this should language be removed from the final rule. Again, it attempts to impose a PCA-like provision on the corporates. In our view, this approach does not have a sound statutory basis and is simply unnecessary given the breadth of Part 704 and the financial condition of corporate credit unions.
DEFINITION OF "CREDIT UNION TRADE ASSOCIATION"
The proposal provides a new definition of "credit union trade association," which includes state credit union leagues and league service corporations, national credit union trade associations and their affiliates, and other special interest credit union associations and organizations. The proposal also excludes from a corporate boards chairmanship, any individual who is also serving as an office, director, or employee of a credit union trade association. We are concerned that this broad language will limit the capacity of a corporate credit union to include natural person CEOs or other highly qualified individual on its board, to the detriment of the corporate and the credit unions it serves. That is because the proposal would substantially limit the universe from which a corporate chairperson could be drawn.
We do not believe NCUA has put forth a sufficient rational to support this change, particularly since Section 704.14(d) already contains strict recusal provisions. Thus, we urge NCUA to delete the provisions from the proposal that would preclude highly competent individuals from serving as the chairperson of a corporate credit unions board.
Again, thank you for the opportunity to express our view on these very important changes for corporate credit unions. Please feel free to contact me at email@example.com if questions or concerns about our comments arise.
Mary Mitchell Dunn
Senior Vice President and Associate General Counsel