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NEW: Largest CUs Could Be Subject To Agency Stress Tests

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ALEXANDRIA, Va. (10/24/13 12:14 p.m. ET)--Federally insured credit unions with assets exceeding $10 billion would be required to develop and maintain capital plans, and undergo annual stress tests, under a proposed rule approved by the National Credit Union Administration.

The stress test requirements, drafted by the agency's Office of National Examinations and Supervision, would require impacted credit unions to conduct specific capital analyses to evaluate how changes in variables, parameters and inputs used by credit unions in their capital plans could impact capital. Credit unions would also need to test how interest rate shocks of at least 300 basis points would impact their net economy value.

The four credit unions with more than $10 billion in assets already conduct their own stress tests, agency staff noted.
The agency would meet with representatives from those credit unions if the separate stress tests garner different results, NCUA staff said. However, the agency has not said what actions it would take to address any differences.

The NCUA has not decided whether the results of stress tests would be released publicly. Credit unions can comment on the benefits and drawbacks of publicly releasing stress test results, Matz said. The agency hopes to have the rule finalized next year.

Setting up stress testing for credit unions could cost the agency as much as $4 million in the first year, according to unofficial agency estimates. The costs should decline after the first year, NCUA staff added.

The proposal will be open to public comment for 60 days.

"We share NCUA's basic safety and soundness objectives reflected by the proposal," Credit Union National Association Deputy General Counsel Mary Dunn said. "The extent to which a new costly program is needed to accomplish those objectives is one of the key issues we will be discussing with our members. We also have concerns about public disclosure of stress testing results, an issue the agency is seeking comments on," she added.

CUNA Hails Waiver Provision In New Patent Reform Bill

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WASHINGTON (10/14/13)--A House bill intended to fight predatory "patent trolls," introduced Wednesday by House Judiciary Committee Chair Bob Goodlatte (R-Va.), includes a waiver provision strongly advocated by the Credit Union National Association.

"We appreciate that Rep. Goodlatte recognized the importance of including a discretionary fee waiver for covered business method patent review proceedings in his bill to help entities wishing to defeat patent trolls. CUNA strongly advocated for the inclusion of this provision. This bill is a first step in the direction of defeating patent trolls, and CUNA is working to ensure that credit unions have a voice at the table as the legislation moves forward," said CUNA President/CEO Bill Cheney.

The bill is intended to increase the transparency of patent ownership and, by doing so, help combat a growing practice by some patent holders that are misusing patents by suing unsuspecting consumers alleging infringements and extorting settlements.

Specifically, an organization will become the target of a demand letter claiming it has infringed a patent. The patent-holder "troll" will offer an opportunity to settle the matter but threatens litigation if the party does not agree to pay a settlement.

The problem revolves holders of questionable patents who purchased the patents solely for the purpose of collecting settlements from entities that do not want a legal fight. Under current law, financial institutions receiving such a threatening letter can seek a review from the U.S. Patent Office that could invalidate the questionable patent.

However, that process carries a hefty price tag starting at around $35,000--too steep for many small financial institutions, like credit unions, to bear. The Goodlatte bill includes a fee-waiver provision that was strongly supported by CUNA. If the bill is passed, that provision would give the Patent Office power to waive the fee on a discretionary basis--broadening the opportunity for smaller entities to protest.

CUNA has expressed deep concerns about the "patent troll" issue because credit unions increasingly have become a target of the abusive practices.

In a joint letter with 42 other trade associations to the U.S. Congress earlier this year (see resource link below), CUNA noted disturbing statistics:
  • Since 2005, the number of defendants sued by patent trolls has quadrupled;
  • Last year, patent trolls sued more than 7,000 defendants and sent thousands more threat letters;
  • The activity cost the U.S. economy $80 billion in 2011, and productive companies made $29 billion in direct payouts; and
  • Trolls no longer sue only large tech corporations. Small and medium-sized businesses of all types, including start-ups, are now the most frequent targets.
Goodlatte's bill joins a number of other patent reform bills in both the House and Senate.

CAMEL Rating For Corporates Coming In January

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ALEXANDRIA, Va. (10/24/13)--As reported in the Sept. 16 edition of the Credit Union National Association's Regulatory Advocacy Report, the National Credit Union Administration this fall approved using the CAMEL rating system to judge the safety and soundness of corporate credit unions starting in January.

The CAMEL system will replace the Corporate Risk Information System, which the agency has used since 1999. The NCUA said the change will have no impact on the corporate exam process.

"With the addition of a risk-evaluation component to the CAMEL system, there is no substantive difference between the two ratings systems, so it made sense to return to one system for all credit unions. Corporate board members, CEOs of member credit unions, are already familiar with the CAMEL system. This change makes things simpler and more efficient, because it's the same scorecard," an NCUA official said.

CDFI Fund Receives 310 NMTC Program Applications

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WASHINGTON (10/24/13)--The New Markets Tax Credit program has received 310 applications, requesting a total of $25.8 billion in tax credit allocation authority, from entities in 43 states, the District of Columbia and Puerto Rico.

The application total was announced by the U.S. Treasury's Community Development Financial Institutions Fund, which oversees the tax credit program, on Wednesday.

Credit unions are among those eligible to participate in the NMTC, which seeks to spur the investment of new private sector capital into low-income communities. To do so, it permits individual or corporate taxpayers to receive a credit against federal income taxes for making Qualified Equity Investments. Those investments must be made in designated Community Development Entities. The CDFI Fund allocates the tax credits annually through a competitive application process.

The CDFI Fund said 749 awards totaling $36.5 billion in tax credit allocation authority have been made through the first ten yearly cycles of the NMTC.

For the CDFI Fund release, use the resource link.

IRS Announces Two-Week Tax Season Delay

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WASHINGTON (10/24/13)--The U.S. Internal Revenue Service on Wednesday announced the opening of the 2014 tax filing season could be delayed by as much as two weeks to allow adequate time to program and test tax processing systems following the 16-day federal government closure.

The delay could push the original start date of Jan. 21 back as far as Feb. 4. A final starting date for the tax season will be announced in December, and the IRS said it is exploring ways to shorten the potential delay. However, this delay does not necessarily equal good news for late filers: The April 15 tax filing deadline will not be impacted by the delay, the IRS noted.

The IRS explained it is nearly three weeks behind schedule due to the government shutdown.

Many important behind-the-scenes processes, like the programming, testing and deployment of the more than 50 IRS systems needed to process nearly 150 million tax returns begin in the fall, the agency said.

"Readying our systems to handle the tax season is an intricate, detailed process, and we must take the time to get it right," IRS Commissioner Danny Werfel said. "The adjustment to the start of the filing season provides us the necessary time to program, test and validate our systems so that we can provide a smooth filing and refund process for the nation's taxpayers.

"We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season."

For the full IRS release, use the resource link.

Federal Regulators Propose Diversity Policies For FIs

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WASHINGTON (10/24/13)--Diversity standard guidelines, and guidance on how credit unions and others can assess their own diversity policies, are addressed in a proposal released Wednesday by the National Credit Union Administration and five other federal financial regulators.

The NCUA board will receive a staff briefing on the proposal at today's open board meeting, which starts at 10 a.m. (ET).

The standards, if approved, would encourage regulated entities to include diversity and inclusion considerations in both employment and contracting as an important part of their strategic plan. The standards, required by the Dodd-Frank Act, would also encourage those entities that collect workforce data to use that data to evaluate and assess workforce diversity and inclusion efforts.

Regulated entities would also need to demonstrate supplier diversity policies that provide "for a fair opportunity for minority-owned and women-owned businesses to compete in procurements of business goods and services."

An institution's commitment to these standards will also need to be demonstrated in a transparent fashion, the standards said. The proposed standards are tailored to account for an institution's:
  • Asset size;
  • Number of employees;
  • Governance structure;
  • Income;
  • Number of members or customers;
  • Contract volume;
  • Location; and
  • Community characteristics.
The agencies in their joint release said they "recognize standards may need to change and evolve over time." The proposed standards were developed following joint agency roundtable discussions with credit unions, representatives from other depository institutions, holding companies and industry trade groups.

Financial professionals, consumer advocates, and community representatives were also consulted during the process. The agencies said they seek comments specifically on how they might better take into account individual entities' circumstances, especially for small regulated entities.

The proposal will be open for public comment for 60 days after it is published in the Federal Register.

The Federal Reserve, Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Securities and Exchange Commission joined the NCUA in releasing the standards.

For the full release, use the resource link.

House Postpones CFPB, Reg Burden Hearings, Adds FHA Discussion

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WASHINGTON (10/24/13)--Hearings on small entity regulatory burden and legislative proposals to reform the makeup of the Consumer Financial Protection Bureau have been postponed. Both were originally scheduled for today.

The House Financial Services financial institutions and consumer credit subcommittee has rescheduled the CFPB hearing for 10 a.m. (ET) on Oct. 29.

The House Small Business Committee, which scheduled the regulatory burden hearing, has not announced a makeup date.

The Financial Services Committee has also set a hearing on the recent taxpayer-funded bailout of the Federal Housing Administration for 10 a.m. (ET)52666 on Oct. 29.

A House Financial Services capital markets and government sponsored enterprises subcommittee hearing entitled "Legislation to Further Reduce Impediments to Capital Formation" will still be held today at 2 p.m. ( ET).

Votes in the House will reportedly be suspended today so lawmakers can attend a funeral for Rep. C. W. "Bill" Young (R-Fla.). Young died this week at age 82. The funeral will be held Thursday in Largo, Fla.

NEW: CLF And Fed Discount Window Are Only Sources For Emergency Liquidity In New NCUA Rule

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ALEXANDRIA, Va. (10/24/13, UPDATED: 11:05 A.M. ET)--A final rule addressing emergency liquidity and contingency funding plans for credit unions has just been approved at today's National Credit Union Administration open board meeting.

Under the final rule, credit unions with less than $50 million in assets would need to maintain a basic written emergency liquidity policy, but would not be required to take further action. All federally insured credit unions with assets of $50 million or more would be required to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations.

FICUs with assets of $250 million or more would be required to have access to a backup federal liquidity source for emergency situations. That is up from the original proposal of $100 million.

The final rule does not include the Federal Home Loan Banks (FHLB) as an acceptable source of liquidity.

The 12 Federal Home Loan Bank presidents, in their own comment letter, urged the NCUA to add their banks to the agency's list of approved emergency liquidity providers for credit unions.

The Credit Union National Association also strongly supported the use of the home loan banks for liquidity. Without the FHLB, credit unions have two options to ensure a federal liquidity source for emergency situations: Becoming a member of the NCUA's Central Liquidity Facility (CLF) by subscribing to CLF stock or access to the Federal Reserve's discount window.

CUNA did not support the NCUA's proposed emergency liquidity regulations for federally insured credit unions and does not agree that a new rule on liquidity is needed.

Watch News Now for details on another board meeting item, a proposed rule addressing credit union capital planning and stress testing.

Other items on today's open meeting agenda include:
  • A board briefing on an interagency rule on loans in areas with special flood hazards;
  • A board briefing on joint agency diversity standards; and
  • The quarterly National Credit Union Share Insurance Fund report.
Two requests made under the Federal Credit Union Act are on the closed board meeting agenda.