Credit unions must hang together or hang separately.

The town hall held by the NCUA last week was much livelier than the previous one. It could be the proximity of the participants to Washington that brings the cacophony of opinions. While the tenor wasn't always pleasant, the democracy in action was.

The full room pulsed with intense debate of the issues from the corporate credit union fiasco to alternative capital. Some attendees let their opinions be heard that the NCUA, the corporate boards and others dropped the ball.

This is all true, and no one has properly explained any of it because they're all going around covering their own tails. The NCUA has shared its basic framework for the new corporate regulation expected to come out at the board's November meeting, which will address board member requirements and concentration risk among other things we have reported before. The NCUA has not come out and said: This is where we messed up, and this is how we're rectifying it. This need to happen to put the past behind, as NCUA Chairman Debbie Matz has articulated.

Credit union executives can't live in the past, which I fear is precisely what some are doing after listening to the comments made at the town hall.

One participant asked the NCUA officials about how a wall could be built between the corporate credit unions and the natural person credit unions to avoid the costs in the future. It can't. To paraphrase Lincoln, corporates were created of, by and for the natural person credit unions.

From some of the comments made, it seems credit unions' all for one and one for all is degenerating into "What's in it for me?" Credit unions were developed as mutual institutions, and credit unions helped each other along the way with expertise and yes, sometimes financially. Some are losing their way.

But the corporates were developed cooperatively, so credit unions could achieve grander scale. In the end, credit unions should be the ones to decide what becomes of the corporates. However, this corporate debate has become a divisive issue between the large and small credit unions. It is widening that fissure that already exists due to mistrust by the smaller ones of the larger ones and the growth strategies of some of the larger credit unions.

Creating a wall between the corporates and NPCUs only further drives that wedge since primarily it is the smaller credit unions that require the pricing of the services that corporates provide. And while Henry Wirz is right (see page 13), small CUs should not be saved merely because they are small, but they also should not be driven out of the market either. Without the affordability of the corporates' services, many small credit unions will be forced to merge or make up the funds in some other way, like cutting off services.

NCUA's Larry Fazio explained that if U.S. Central and WesCorp were allowed to fail it would have sucked $33 billion (best case) out of credit unions. Likely 3,000 credit unions would have failed over night, and most of those left would have been "mortally wounded," Fazio said. They would die too from shrapnel called reputation risk.

The mutuality of credit unions has always been their great strength and weakness.

To diversify CU capital, the NCUA is considering taking alternative capital draft legislation to Capitol Hill if CUNA and NAFCU can agree on something. Overtures have been made, but as of right now, NAFCU is not budging on any alternative capital offering going beyond the membership. I had previously been opposed to alternative capital, but to me this sounds like a very reasonable approach that would maintain mutuality.

Matz said at the town hall that educating members would be key in making this type of offering, which is true, but extra disclosures would resolve that and it shouldn't be a stumbling block to this type of alternative capital. However, it may not raise that much money to make a difference for some desperate credit unions.

CUNA has agreed to this but also suggested allowing credit unions to make alternative capital deposits into other credit unions. This already occurs with low-income credit unions, and I don't see a problem with expansion.

Additionally, CUNA suggested allowing CU sponsors and SEGs to make alternative capital deposits. This makes sense too since they already offer up free office space, and in some cases even pay the CU staff salaries.

However, I'd absolutely draw the line at CUNA's suggestions that CUs be able to take government money as capital and special exceptions for nonmember deposits. This would be dangerous dabbling beyond the credit union structure.

There's a name for financial institutions that take government bailouts and build protective barriers around themselves--they're called banks.

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Sarah Snell Cooke

Editor-in-Chief