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CUNA informs CUs on Treasury actions

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WASHINGTON (10/15/08)—Amid fast-breaking developments in the government’s evolving actions to address concerns with the functioning of the country’s credit markets, the Credit Union National Association (CUNA) continues to press for clarifications regarding how each of the administration’s steps affects credit unions. The U.S. Treasury Department has indicated it will be providing more details of the Troubled Asset Relief Program (TARP) soon, and CUNA will be analyzing that information for credit unions. Meanwhile, CUNA has drawn up the following summary of recent actions. On the Federal Deposit Insurance Corp.’s (FDIC’s) decision to provide full deposit insurance coverage for non-interest bearing transaction accounts until December 31, 2009:
* These are accounts that, for example, businesses use to fund their payroll payments. Participating institutions will be assessed a 10-basis point insurance surcharge. * The initial announcement from the administration indicated only that non-interest bearing transaction accounts insured by the FDIC would be eligible for this coverage. * CUNA was in immediate contact with the National Credit Union Administration and the Treasury to clarify whether such accounts at credit unions will have the same coverage under the National Credit Union Share Insurance Fund (NCUSIF). CUNA will continue to press for clarification, which in CUNA’s view should be that such credit union accounts have the same full insurance converge through the NCUSIF
Regarding a new capital infusion program for certain banks, bank holding companies, savings and loans and thrift holding companies that agree to participate by November 14, 2008 and whose primary regulator confirms their eligibility:
* Under this program, the Treasury will make available up to $250 billion of the $700 billion authorized under the Emergency Economic Stabilization Act of 2008 to purchase preferred stock in these institutions. * The minimum subscription amount would be 1% of an institution's risk-weighted assets up to the lesser of $25 billion or 3% of risk-weighted assets. * The shares will qualified as Tier 1 Capital and will pay 5% for each of the first five years and then increase to 9% each year. The shares would generally be non-voting and any institution that sells shares to the Treasury, under this program, will have to agree to the executive compensation limitations similar to those under the Troubled Asset Relief Program. *Under the program, Treasury will receive warrants to purchase shares of common stock of the institutions valued at 15% of the amount of the preferred stock.
On a conference call today with senior Treasury officials in which CUNA was a participant, it was clarified that the administration is seeking ways institutions such as S Corporation banks and mutual thrifts could participate. While credit unions are not included in the definition of institutions that may be eligible, CUNA is discussing the ramifications of this program with NCUA and other policymakers. Under another initiative, the FDIC will provide debt guarantee for certain newly issued unsecured senior debt of all FDIC insured banks and thrifts, as well as such debt of their holding companies. This will include promissory notes, commercial paper, inter-bank funding, and the unsecured portion of secured debt, and:
* Coverage is limited to June 30, 2012, and banks will be charged a 75-basis point fee to protect debt issues; and * There will be enhanced supervision of institutions that accept the guarantee, which will expire on June 30, 2009.
On the conference call, Treasury officials indicated they are considering whether community banks that do not have senior debt could be able to receive guarantees for some of their debts. CUNA is also discussing the ramifications of this program with policymakers. Finally, regarding the Federal Reserve Board's purchase of commercial paper, beginning October 27:
* The Federal Reserve's Commercial Paper Funding Facility will be able to purchase commercial paper of 3-month maturity from "high-quality" issuers. * The Facility is designed to support the commercial paper market as needed and will provide funding for eligible entities that use commercial paper to help finance their operations.

Treasury seeks comment on troubled-asset program

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WASHINGTON (10/15/08)—The U.S. Treasury Department Tuesday released a request for public comment on its insurance program for troubled assets, known as TARP. The program is required by the Emergency Economic Stabilization Act of 2008 (EESA), and its purpose is to restore liquidity and stability to the financial system, while minimizing any potential long term negative impact on taxpayers. A Treasury release noted that under the EESA, the Treasury secretary is charged with establishing a program to guarantee principal of, and interest on, troubled assets originated or issued prior to March 14, 2008. The program may take any form and may vary by asset class, but it must be voluntary and self-funding. The Secretary has the authority to set premiums to reflect the credit risk characteristics of the insured assets so as to ensure that taxpayers are fully protected. Treasury invited comment on how the program should be structured to minimize adverse selection, including how premiums should be calculated, what events should trigger insurance payout, what form that payout should take, and which institutions and assets should be eligible. The department also asked for public comment on technical considerations, including what legal, accounting, or regulatory issues would arise and what administrative challenges the program will create. Comments are due by Oct. 28. Use the resource links below to read the Treasury’s request for comment or to submit a comment.

Fryzel to national TV audience CUs safe secure

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ALEXANDRIA, Va. (10/15/08)—National Credit Union Administration (NCUA) Chairman Michael Fryzel assured a national television audience Tuesday that credit unions are a safe, secure source for loans and savings. Appearing on Fox Business Network’s “Money for Breakfast” with Alexis Glick, Fryzel reminded that credit unions are member-owned cooperatives and, as such, do not pay dividends to share holders. The cooperative structure, he said, often enables credit unions to pay higher yields and charge lower rates on loans. Fryzel also underscored the message that while credit unions are either federally chartered or state chartered, nearly all are federally insured up to $250,000 per account, according to the NCUA. “By and large credit unions loans and investments have not been affected by the economic turmoil,” Chairman Fryzel noted. “NCUA was encouraged to see credit unions included in recent legislative changes that will ensure access to liquidity and asset programs if need arises.” Fryzel also commented on the newly announced Troubled Asset Relief Program (TARP) Capital Purchase Program, a voluntary program announced Tuesday by the U.S. Treasury Department. The program is intended to encourage the country’s financial institutions to build capital to increase the flow of financing to both businesses and consumers and to bolster the economy. A key provision of the progam is that financial institutions must decide by Nov. 14 to participate or not. "I have had contact at the highest level of the Treasury Department, and am in the process of assessing the Program’s applicability to credit unions. I have also directed staff to determine how prevalent non-interest bearing accounts are within the credit union industry, and how credit unions offering these types of accounts could be affected by participation in the Capital Purchase Program,” Fryzel said. He also directed viewers to the agency website to locate a credit union or learn more about credit union insurance protection.

ICU Day reception to showcase CU good news

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WASHINGTON (10/14/08)—As part of a day-long celebration of International Credit Union Day (ICU Day) this Thursday, the Credit Union National Association (CUNA) will join with the World Council of Credit Unions (WOCCU) to sponsor a special late-afternoon reception at the Cannon House Office Building on Capitol Hill. At the reception, credit union contributions will be honored before invited guests who will include Capitol Hill staffers, National Credit Union Administration board members, representatives from the credit union trade press, and credit union representatives. “Elsewhere throughout the world, credit unions and their trade associations will celebrate with parades, picnics and special events to celebrate the role that not-for-profit member-owned financial cooperatives play in improving the lives and financial wellbeing of their members,” WOCCU announced in a recent release. This year's ICU Day theme is “My Credit Union: It Belongs to Me.” The theme is designed to recognize the important role that member-ownership plays in defining credit union value to members. The role takes on even more significance given current global financial challenges, according to WOCCU Chairman Melvin Edwards. WOCCU represents credit unions and their associations on a global scale CUNA President/CEO Dan Mica noted, “In a movement that is marked by cooperation rather than competition, ICU Day is the perfect time for credit union groups to demonstrate their spirit of unity and service to members. “At credit unions, which are not-for-profit financial cooperatives, every customer is both a member and an owner,“ Mica said. “This year's theme celebrates the economic democracy and equal ownership rights of each credit union member, regardless of how much money a member has on deposit. Our unique structure and the philosophy it engenders are at the root of the extraordinary affinity that members have for their credit unions.”

CU savings flow a mixed bag says CUNA

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WASHINGTON (10/15/08)—Credit Union National Association (CUNA) Chief Economist Bill Hampel predicted Tuesday that credit unions, overall, will start seeing a marked influx of share deposits by next year. To date, he said, CUNA economists have not seen a “huge flight” of savings to credit unions as a result of the country’s economic turmoil. “As many credit unions have said that they have experienced greater than normal savings growth in the last six weeks as have said they have had weaker savings growth,” Hampel reported. He said the same can be said of credit union experience on the lending side of the business. However, the CUNA economist added that he predicts that over the next year, credit unions overall will see a substantial deposit increase because consumers won’t be spending as much and will be trying to build up their savings.

Inside Washington (10/14/2008)

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* WASHINGTON (10/15/08)--The U.S. Treasury Department announced Tuesday that it has hired Bank of New York Mellon to serve as custodian for the implementation of the Troubled Asset Relief Program (TARP) authorized under the Emergency Economic Stabilization Act. A Treasury release said the New York City-based firm began work immediately to help the department with custodial, accounting, auction management and other infrastructure services needed to administer the “complex portfolio of troubled assets the Department will purchase.” Treasury said it hired the Bank of New York Mellon to provide the accounting of record for the portfolio, hold all cash and assets in the portfolio, provide for pricing and asset valuation services and assist with other related services… * WASHINGTON (10/15/08)--The Treasury Department's Go Direct campaign to boost direct deposits of federal benefits checks is accepting registrations through October for its "Go Direct Champions” recognition program. Credit unions and other depository institutions can register for the program designed to recognize the success of participants in increasing the use of direct deposit among members or customers receiving Social Security or Supplemental Security Income. Top performers over the October 2008 through May 2009 program period will receive an award and official recognition from the Treasury. Interested parties can register at The Credit Union National Association is a Go Direct national partner… * WASHINGTON (10/15/08)--The Senate Banking Committee and the House Financial Services Committee have scheduled hearings to focus on the current financial crisis and regulation. On Thursday, the Senate Banking Committee is slated to meet. Witnesses include Arthur Levitt, senior advisor, The Carlyle Group; Eugene Ludwig, CEO, Promontory Financial Group; Jim Rokakis, treasurer, Cuyahoga County, Ohio; Marc H. Morial, president/CEO, National Urban League; and Eric Stein, senior vice president, Center for Responsible Lending. The House Financial Services Committee has scheduled a hearing Oct. 21 to address the need for regulatory restructuring and reform for the financial markets. Witnesses have yet to be announced ... * WASHINGTON (10/15/08)--The Federal Deposit Insurance Corp. (FDIC) adopted an interim final rule to simplify deposit insurance rules for accounts held at FDIC-insured institutions by mortgage servicers. Coverage will be provided to lenders and investors as a collective group, based on the cumulative amount of borrowers’ payments of principal and interest. This will enable the FDIC to make deposit insurance determinations on accounts more quickly. Under current rules, accounts maintained by a mortgage servicer comprised of principal and interest payments are insured based on the ownership interest of each lender or investor. “This simplification of coverage rules for accounts will help prevent losses to otherwise insured depositors and prevent withdrawals of deposits for principal and interest payments from depository institutions,” said FDIC Chairman Sheila Bair ... * WASHINGTON (10/15/08)--National Credit Union Administration (NCUA) Chairman Michael E. Fryzel (left) recently met with Housing and Finance Board member Geoff Bacino at the NCUA headquarters. “I welcome former NCUA board member Geoff Bacino to NCUA as a fellow regulator responsible for oversight of the nation’s Federal Home Loan Banks. Bacino and I share not only an Illinois background but also a regulators perspective, given his former and my current service on the NCUA Board,” Fryzel said. (Photo provided by the National Credit Union Administration) ...