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NCUA Could Subject Largest CUs To Stress Tests

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ALEXANDRIA, Va. (10/25/13)--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 rule proposed by the National Credit Union Administration Thursday.

Click to view larger image CUNA Deputy General Counsel Mary Dunn (left) Executive Vice President for Strategic Communications Paul Gentile (center) and General Counsel Eric Richard (far right) meet with NCUA Chairman Debbie Matz following Thursday's open board meeting. (CUNA Photo)
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 economic value.

"This proposed rule will further our efforts to dedicate more resources to the largest credit unions, which by their sheer size pose the greatest risks to the share insurance fund," NCUA Chairman Debbie Matz said.

Ensuring the liquidity of the credit union system is the NCUA's responsibility, board member Richard Metsger added.

The four credit unions with more than $10 billion in assets already conduct their own stress tests, agency staff said during their presentation. 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. Metsger said he was already disposed toward public disclosure, but he also welcomed credit union comments on the issue.

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 costs would be charged to the National Credit Union Share Insurance Fund, not the NCUA operating budget. Any costs in excess of $4 million would need board approval. The agency plans to outsource the stress testing to a vendor.

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.

Anti-Money Laundering Bills Intro'd In House

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WASHINGTON (10/25/13)--Bills that would close loopholes, tighten anti-money laundering laws, encourage greater transparency and give financial regulators greater authority to punish violations of the Bank Secrecy Act were introduced by two high ranking U.S. House members on Thursday.

House Financial Services Committee Ranking Democrat Maxine Waters (D-Calif.) in a release noted that "a number of recent, high-profile cases show how several multinational banks actively turned off anti-money laundering controls to accommodate terrorist financing and drug cartels." The U.S. Department of Justice has levied high fines against these banks, "but not a single individual has been held accountable," Waters added. Her bill, the Holding Individuals Accountable and Deterring Money Laundering Act (H.R. 3317), would seek to "correct that injustice by making it easier to go after unscrupulous bankers and mandating punishments as strict as those the imposed on the drug dealers themselves."

The bill would achieve this, in part, by allowing regulators to remove or ban bankers that violate the law.

Financial Services capital markets subcommittee ranking member Carolyn Maloney's (D-N.Y.) Incorporation Transparency and Law Enforcement Assistance Act would back up these efforts by helping to "identify the true ownership of legal corporations and deter the use of shell companies for illegal purposes," according to the release.

For more on both bills, use the resource link.

CLF, Fed Discount Window Are Only Sources For Emergency Liquidity In NCUA Rule

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ALEXANDRIA, Va. (10/25/13)--A new rule addressing emergency liquidity and contingency funding plans for credit unions contains some important changes that improve the final rule compared to the proposal and the Credit Union National Association said it appreciates these revisions. However, CUNA does not agree the rule is needed at this time.

Click to view larger image CUNA Senior Vice President for Compliance Kathy Thompson (right), talks credit union shop with board member Richard Metsger (left) following Thursday's meeting. Also pictured is NCUA Deputy Director of Examinations and Insurance Dave Shetler. (CUNA Photo)
Under the final rule, which was approved at Thursday's National Credit Union Administration open board meeting, 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. This threshold was raised from $10 million in the proposal. All federally insured credit unions (FICUs) with assets of $50 million or more--also up from the proposal--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 a change from the original proposal of $100 million, and as a result, a number of credit unions that would have been required to obtain a federal source of emergency liquidity will avoid this requirement under the final rule. CUNA said this was a positive development that will benefit these credit unions.  
The rule "is part of a global regulatory effort to promote sound liquidity risk management," NCUA Chairman Debbie Matz said. "Financial institutions need to maintain ample liquidity to withstand unexpected contingency events. This rule will strengthen individual credit unions and, as a result, the entire system," she added.
The final rule does not include the Federal Home Loan Banks (FHLB) as an acceptable source of emergency liquidity, although eligible credit unions required to meet the federal source provisions would be free to borrow from a FHLBank for nonemergency purposes.

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.

CUNA 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 applauds the NCUA's decision to raise the thresholds for different compliance responsibilities, but does not agree the rule is needed, CUNA Deputy General Counsel Mary Dunn said.
The rule becomes effective on March 31, and approximately 374 credit unions will be required to establish a new federal source of emergency liquidity.

NCUA: No NCUSIF Assessment In 2013

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ALEXANDRIA, Va. (10/25/13)--Thursday's National Credit Union Administration open board meeting featured good news for credit unions: There will be no National Credit Union Share Insurance Fund premium assessment in 2013, agency Chief Financial Officer Mary Ann Woodson reported.

Woodson on Thursday noted that the NCUSIF remains strong, with $110.3 million in net income, $11.7 billion in total assets and an equity ratio of 1.31% as of Sept. 2013.

The NCUA quarterly financial report also showed:
  • The number of CAMEL code 4 and 5 credit unions declined to 317 from 330 in the second quarter, with more than half of the CAMEL 4 and 5 credit unions holding less than $10 million in assets; and
  • The number of CAMEL code 3 credit unions declined to 1,483 from 1,508 in the second quarter, with 47% of those credit unions holding less than $10 million in assets.
CAMEL Code 4 and 5 credit unions held 1.58% of insured shares, or approximately $13.7 billion. CAMEL 3 credit unions held 11.13% of insured shares, or $96.7 billion. Combined, insured shares in CAMEL 3, 4, and 5 credit unions represent approximately 12.7% of total insured shares.

For a CUNA summary of the board meeting, use the resource link.

E-Filing Reg Approved By NCUA

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WASHINGTON (10/25/13)--In a packed Thursday open board meeting that addressed emergency liquidity and stress tests, National Credit Union Administration board members also approved a final rule addressing e-filing. They were briefed on proposed joint federal agency diversity standards for regulated financial institutions and a proposed interagency rule on loans in areas having special flood hazards.

The final e-filing rule approved by the agency will require all federally insured credit unions to file financial, statistical, and other reports and credit union profiles electronically using the NCUA's information management system or other electronic means specified by the agency. 

The Credit Union National Association following the meeting urged the agency to provide assistance to those remaining credit unions if necessary in order to comply with the transition to all electronic filing of financial reports.

"All but a few dozen credit unions already file their financial reports electronically, and for those that do not have the capacity, our Office of Small Credit Union Initiatives is ready to assist. The change will save time and money, remove unnecessary paperwork and enable NCUA to report industry-wide data more quickly," NCUA Chair Debbie Matz said. OSCUI will offer up to $7,500 in funding available to credit unions that do not have a computer through its urgent needs grants program, and agency staff will also provide technical support to credit unions that need it.

The NCUA will also adjust its call report filing deadlines for 2014 to give credit unions more time to adjust to the new requirement.

A letter to credit unions detailing the regulation and providing guidance for credit unions will be released soon, the agency added. CUNA is also developing a final rule analysis for credit unions.

The rule will become effective on Jan. 1.

The agency on Thursday was also briefed on a joint agency proposed rule that would implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. Specifically, the proposal would establish requirements with respect to the escrow of flood insurance payments, the acceptance of private flood insurance coverage, and the force-placement of flood insurance. The proposal also would clarify the agencies' flood insurance regulations with respect to other amendments made by the act and make technical corrections. The NCUA is accepting comment on the release until Dec. 10, and CUNA will develop a comment call on the proposal.

Joint standards for assessing diversity policies and practices were also discussed. The standards were detailed in a Wednesday joint agency release. (See Oct. 24 News Now story: Federal Regulators Propose Diversity Policies For FIs.) This joint agency proposal will be open for public comment for 60 days after it is published in the Federal Register.

CUNA Seeks Contact By CUs Ceasing Remittance Services

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WASHINGTON (10/25/13)--The Credit Union National Association encourages credit unions to contact the trade group immediately if they plan to stop offering international remittance services because of  compliance burdens imposed by a new Consumer Financial Protection Bureau rule that goes into effect Monday.
"If your credit union has stopped offering international remittance services because of concerns with the rule, CUNA would like to hear from you," encouraged CUNA Senior Vice President and Deputy General Counsel Mary Dunn Thursday.
She recommended such credit unions contact CUNA immediately at
Under CFPB rule, remittance transfer providers are required to give prepayment and receipt disclosures to the consumer-sender that include the exchange rate, certain fees and taxes associated with a transfer, and the amount of money that will be received on the other end of the transfer. Remittance transfer providers will also be required to investigate disputes and correct errors.