The corporate credit union network is consolidating. In recent weeks, 3 mergers have been announced and more are likely to be announced as the new corporate regulations become effective, especially the new capital directives.
But this consolidation may result in a concentration of services or the aggregation of service volumes in one entity large enough to introduce systemic risk. NCUA views such a "too big to fail" scenario as unacceptable.
NCUA cautions about the potential operational risk that could arise from service interruption arising from a single large entity or the failure of such entity. NCUA advises that contingency plans need to address such concerns.
Moreover, the agency advises that contingency plans should not count on the agency providing systemic support in the future, as it has done with the conservatorship of four corporate credit unions during the finacial crisis.
The agency wrote:
"Going forward, an entity that will primarily be a service provider must be able to demonstrate the ability to safely generate adequate income not only to maintain existing services and the operational systems and staffing to deliver them, but must also adequately fund for identifying risks and for ensuring operational security and stability in the future. The capability for testing to identify and address any system weaknesses is critical to mitigate the risk of service interruptions."
Read the letter.
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