On Friday, the National Credit Union Administration (NCUA) Board held a meeting at which it took a number of actions, including appointing conservators for three corporate credit unions: Members United Corporate Federal Credit Union of Warrenville, Illinois; Southwest Corporate Federal Credit Union of Plano, Texas; and Constitution Corporate Federal Credit Union of Wallingford, Connecticut. In 2009, U.S. Central Corporate Federal Credit Union and Western Corporate Federal Credit Union were also placed into conservatorship.

“The steps NCUA has taken today represent a comprehensive solution to the problems afflicting the corporate credit union system,” said NCUA Chairman Debbie Matz. “Just as important, this plan puts consumers first and ensures that there will be no loss to taxpayers.”

At the Board meeting, the NCUA adopted a new corporate credit union resolution plan focused on the following three key components:

  • Isolate and fund legacy assets – Legacy assets will be segregated, securitized and managed in an asset management estate, which is intended to result in a lower overall cost of resolution than immediate outright sale of the legacy assets and allow the costs of resolution to be funded over ten years rather than immediately.
  • Conservatorship of five critically undercapitalized corporate credit unions, as noted above.
  • Bridge Corproate Credit Unions – Establish bridge corporate credit unions to conduct essential activities of the conserved corporate credit unions with no interruption in member services, particularly facilitating payment and settlement services.

The NCUA Board also adopted a number of reform measures for corporate credit unions, including:

  • Capital Standards – bolster corporate capital, require minimum retained earnings levels, and establish new prompt corrective action requirements;
  • Investments – prohibit investments in private label residential mortgage backed securities and subordinated securities, and establish various concentration limits to ensure diverse investment pools and risk mitigation;
  • Asset/Liability Management – prevent cash flow mismatches and preserve liquidity;
  • Corporate CUSOs – limit to activities approved by NCUA, and provide NCUA with greater access; and
  • Governance – establish board qualifications and increase transparency.

The new reform measures generally become effective 90 days after publication in the Federal Register, but some provisions have delayed effective dates beyond 90 days.

In addition to the various “letters to members” (new corporate credit rule and new corporate credit union system resolution) describing the reforms, NCUA has released various explanatory presentations and announced a series of “town hall” meetings regarding the rule changes and the new legacy assets resolution regime.