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Inside Washington (01/02/2011)

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* WASHINGTON (1/3/11)--The creation of the Financial Stability Oversight Council was seen as a key element of the Dodd-Frank Act, but after the council’s first five months of existence observers are wondering if it has the political will to carry out its statutory mandate of identifying and eliminating systemic risk (American Banker Dec. 30). For example, the council’s 15 members disagree on how to implement the Volcker Rule, which bans proprietary trading and puts limits on risky investments. Part of the problem is the different perspectives of regulators, such as the Federal Reserve Board and the Federal Deposit Insurance Corp. (FDIC). Some believe the council is too large to carry out its mandate. Josh Rosner, managing director at the research firm of Graham Fisher & Co., said there are too many voices on the council to create coherent policy. Others said that the diverse views on the committee will be an asset. For example, FDIC Chairman Sheila Bair said it’s important to have the views of the Securities and Exchange Commission and the Federal Housing and Finance Agency in addition to bank regulators on servicing issues … * WASHINGTON (1/3/11)--White House adviser Elizabeth Warren is quietly seeking candidates to head the new Consumer and Financial Protection Bureau (The Wall Street Journal Dec. 30). The search indicated that Warren would not be selected to lead the bureau. The Obama administration considered nominating Warren for the position earlier this year, but delayed that decision because of concerns Republicans considered her anti-business and would block the nomination. Observers say Warren and her senior adviser, Raj Date, have sought input from the Independent Community Bankers of America, the Financial Services Roundtable and the Center for Responsible Lending. Among the names mentioned as possible nominees include Iowa attorney general Tom Miller; New York state bank regulator Richard Neiman; and former Office of Thrift Supervision director Ellen Seidman …

CU ATM takes residence on Hill

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WASHINGTON (1/3/11)—The incoming 112th U.S. Congress, to be sworn in Wednesday, must gird to face some significant challenges in the coming year. However, the credit union movement would agree that there is at least a little bit a good news to greet them as they come to Washington, D.C. The National Democratic Club (NDC) on Capitol Hill has installed a credit union-affiliated ATM for the convenience of its members. The ATM is administered by Congressional FCU. With its multiple-group field of membership, with focus primarily on those affiliated with federal, state and local government, all NDC members are eligible for membership at Congressional. The NDC announcement about its new ATM offering notes that “other bank and credit cards may be used” at the ATM, but also says applications for membership at Congressional are available at the NDC office.

CUNA backs appraiser independence rule with tweaks

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WASHINGTON (1/3/11)—The Federal Reserve Board’s approach to its interim final rule on appraisal independence, overall, will help prevent actions designed to coerce or manipulate appraisers, the Credit Union National Association (CUNA) agreed in a recent comment letter. However, the Fed must do more to protect small financial institutions from an unmanageable burden, the group added. CUNA supported many aspects of the new rule, but encouraged the Fed to increase the asset threshold for the small institution safe harbor from the currently proposed $250 million in assets to a more reasonable $1 billion in assets. The CUNA letter said that the reasons cited by the Fed rule’s preamble for differentiating between small and large institutions apply equally to institutions with up to $1 billion in assets. As an example, CUNA cited the Fed’s example that institutions below $250 million in assets “may decrease their consumer lending operations due to an inability to comply with the rules, such as the firewalls requirement, because of limited staff resources and similar factors.” “This is also true for many institutions with up to $1 billion in assets,” CUNA told the Fed. “Many credit unions and other community financial institutions with more than $250 million but fewer than $1 billion in assets have small staffs and relatively limited resources compared to larger institutions with national or regional presences.” Beyond the asset threshold, CUNA had a series of recommendations to improve the rule. For instance, CUNA recommended some changes in the way appraiser fees are to be assessed. Since 2008, many creditors have used appraisal management companies to avoid the appearance of undue influence on an appraiser’s conclusions under the Home Valuation Code of Conduct, and appraisal management companies have generally depressed the average compensation of appraisers, CUNA noted. “We believe that credit unions that prefer to use appraisal management companies should be free to continue to use them, as the rule contemplates. However, credit unions should be able to consider appraiser fees that existed prior to the Home Valuation Code of Conduct in order to be able to retain the most experienced appraisers who produce the most accurate appraisals,” said the CUNA letter. Use the resource link below for CUNA’s complete remarks.

CUs were in the legislative thick of things CUNA says

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WASHINGTON (1/3/11)--Credit unions were in the thick of things from the beginning to end of the 111th Congress, reminded Credit Union National Association (CUNA) Senior Vice President of Legislative Affairs John Magill last week, and lawmakers in the 112th Congress--to be sworn in Wednesday--should expect no less. “When Congress turned its attention to repairing the regulatory framework that caused the greatest financial crisis since the Great Depression, CUNA, the leagues and credit unions were there to work with Congress to minimize the adverse impact on credit unions,” Magill reminded. He said that effort was typical of the level of involvement and impact that credit unions had throughout the year. As a result of those efforts:
* All but three credit unions will be exempt from examination and enforcement by the Bureau of Consumer Financial Protection (BCFP); * Credit unions will not have to pay for the new agency; * The chairman of the National Credit Union Administration will serve on the oversight council reviewing the BCFP’s rules; * Credit unions will not be required to offer plain vanilla products to their members before offering products that may better meet their needs; * Credit unions will not have to collect deposit account data and report it to the consumer bureau; * Credit unions will not be subject to the Community Reinvestment Act, and the CFPB will not have authority over the CRA; * The legislation included language that CUNA inspired which directs the bureau to review and address outdated, unnecessary and unduly burdensome regulations with the intent of reducing regulatory burden; and, finally * The new law directs the bureau to take into consideration the impact of its regulations on credit unions.
“Congress saw credit union involvement in perhaps unprecedented force,” Magill said. “It set a high bar, but credit unions can be encouraged to see the effect their efforts can have.”

NCUA reports a sound industry with continuing challenges

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ALEXANDRIA, Va. (1/3/11)--For the first three quarters of 2010, the aggregate net worth of the credit union industry was up slightly to just less than 10% of total assets, and more than 94% of federally insured credit unions met the standard for the definition of being “well capitalized with net worth ratios of 7% or greater, according to figures released by the National Credit Union Administration (NCUA). The agency underscored that the overall financial condition of the credit union industry remained sound; even the return on average assets improved--reaching 0.45%. However, in its Letter to Credit Unions (10-CU-25), the agency stated clearly that financial stresses on credit unions remain, and it identified key trends and risks that the federal regulator will continue to supervise closely. For instance, in addition to credit and interest rate risk, the NCUA noted the affect the weak economy continues to have on many credit union members. “As their debts become overwhelming, members who experienced job losses and foreclosures are more likely to file for bankruptcy. The number of members filing for bankruptcy increased by one-third in the third quarter of 2010 and is on pace to exceed the total for 2009. During the first nine months of 2010, the percentage of loans charged off due to bankruptcy increased from 20.8% to 23.7%,” the letter noted. Use the resource link to view the complete letter.

Regulators set supervisory expectations for Internet authentication

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WASHINGTON (1/3/11)--The National Credit Union Administration (NCUA), along with federal bank and thrift regulators, issued a supplemental guidance on Internet banking authentication late last week to update supervisory expectations. The guidance, also meant to reinforce the practices of risk management specified in a 2005 authentication guidance, updates supervisory expectations for the effectiveness of member authentication, layered security and other controls used to secure member accounts and fight fraud. Convenience and cost savings have driven up the use of online transaction services since the 2005 Authentication in an Internet Banking Environment was unveiled, the NCUA noted in its Letter to Credit Unions (10-CU-24), and the “Internet threat landscape has changed significantly.” “Sophisticated hacking techniques and growing organized cybercriminal groups with expertise, skills, and resources are increasingly targeting financial institutions, compromising authentication mechanisms, security controls and engaging in online fraudulent activities,” the agency noted. The NCUA letter, signed by Chairman Debbie Matz, encourages federal credit unions to implement the supplemental guidance to help secure members’ online accounts and sensitive member information. Use the resource link to access the authentication guidance.