CUNA Comment Letter

Advance Notice of Proposed Rulemaking

November 29, 1999

Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314

VIA FACSIMILE 703/518-6319

RE: 12 C.F.R. Part 704, Advance Notice of Proposed Rulemaking

Dear Ms. Baker:

The Credit Union National Association appreciates this opportunity to comment on the National Credit Union Administration Board's Advance Notice of Proposed Rulemaking regarding Part 704, Corporate Credit Unions. The notice was published in the Federal Register July 28, 1999.

CUNA supports the comments filed by the Association of Corporate Credit Unions. We would also like to express our views separately on two specific areas of significance to corporate credit unions, capital and loan participations. By way of background, CUNA represents over 90% of the nation's more than 11,000 state and federal credit unions.

Capital

Over the last several years, the capital at corporate credit unions has steadily increased, further enhancing the strength of the corporate credit unions network. Given the current health of the network, capital requirements in Part 704 are sufficient to further safety and soundness goals, and we see no justification for increasing corporate capital requirements.

We support the current mechanisms in Part 704 that allow corporate credit unions to build capital and urge they be continued. Such mechanisms for increasing capital include membership capital accounts (MCAs), paid-in capital (PIC) or continued increases in RUDE. However, we believe NCUA should consider whether the limits in Part 703.100 should be increased to allow a natural person credit union to invest up to 2% of its assets in a corporate.

We do not believe that corporate credit unions should be required by regulation to convert MCAs to PIC, as such action is not necessary for safety and soundness reasons. Each corporate should be allowed to decide for itself how it wants to build capital and what approach it should take, including the extent to which it utilizes MCAs, PIC and/or RUDE, consistent with legal and appropriate regulatory standards.

Lending

NCUA is seeking comments on the expansion of loan participation authority for corporates. We strongly support expanded authority for corporates to participate in consumer and business loans with member credit unions. We think the liquidity impact of such activity is certainly manageable in the context of the corporate's liquidity management program. We do not think it is necessary for a corporate to assume ownership in a CUSO in order to lend to such an organization and request NCUA consider amending its regulations to provide that clarification.

In closing CUNA strongly supports a strong corporate network, which we believe is in the best interests of the credit union system as well as the regulators. We urge NCUA to maintain a regulatory approach toward corporate credit unions that will allow them to grow and continue offering the kinds of products and services upon which so many credit unions rely. If you have any questions about our comments, please feel free to give me a call at 202-218-7769.

Sincerely,

Mary Mitchell Dunn
Associate General Counsel

CC: ACCU