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Inside Washington (11/16/2009)

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* WASHINGTON (11/17/09)--The Federal Deposit Insurance Corp. (FDIC) voted Thursday to require insured financial institutions to prepay about three years’ worth of estimated insurance assessments. The pre-payment will boost the FDIC’s cash position of the Deposit Insurance Fund (DIF) without impacting industry earnings. Payment of the assessment is due Dec. 30. The agency estimates it will collect $45 billion from the pre-payment. The assessment is different from a special assessment, which the FDIC collected on Sept. 30, because it does not affect bank earnings, the agency said in a release ... * WASHINGTON (11/17/09)--National Credit Union Administration (NCUA) Board Member Michael Fryzel met with Central Credit Union of Illinois CEO Joan Jensen in Bellwood, Ill. Fryzel and Jensen discussed corporates, member business loans, alternative capital, credit card issues, real estate trends and activities in Congress regarding regulatory reform and consumer protection. “Regardless of size, credit unions across this country are staying aware of all the important issues that impact their operations and what they can do for their members,” Fryzel said. “I am encouraged by the involvement of these individuals who truly put helping others first.” Central Credit Union of Illinois has $78 million in assets. * WASHINGTON (11/17/09)--Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said injecting capital into the nation’s banks through the Troubled Asset Relief Program (TARP) was a mistake (American Banker Nov. 16). Bair said she regrets not doing more to stop the move. TARP was originally created to dump toxic loans but was later scrapped for perform capital infusions into the nation’s struggling banks. Bair did not blame Treasury officials for the decision to infuse the capital but said the plan backfired, leading to public outcry. The program has had a “terrible” impact on public attitudes toward the financial system, she said ... * WASHINGTON (11/17/09)--Financial industry representatives are working on a strategy to respond to a regulatory reform bill that the Senate Banking Committee hopes to pass by next month (American Banker Nov. 16). The banking industry has a growing list of complaints about the discussion draft of the legislation, released Nov. 10, but the list is so long, many industry representatives do not know where to start. Larger financial institutions are concerned about the proposed creation of a consumer protection agency, derivatives contracts changes, and the elimination of national bank preemption. Smaller institutions are focused on the consumer agency and proposed consolidation of regulators. Credit Union National Association (CUNA) President/CEO Dan Mica has said that credit unions need a “unique” regulator in all aspects of examination and supervision (News Now Nov. 11) ... * WASHINGTON (11/17/09)--The Federal Deposit Insurance Corp. (FDIC) has softened the wording of the orders the agency sends to stressed financial institutions (American Banker Nov. 16). FDIC has changed cease-and-desist orders to “consent orders” and relaxed some of the wording used in the order’s introduction. Traditional cease-and-desist orders will now be issued to banks that refuse to stipulate and seek administrative hearings. Banks that consent will receive the newer version of the order. No new orders have been made public so far ...

Matz NCUA looking at legal issues of legacy assets

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ALEXANDRIA,Va. (11/17/09)—The topic of corporate credit union capital depletion remains a topic of internal and external discussions at the National Credit Union Administration (NCUA), said the agency chairman Monday. Debbie Matz, who heads the NCUA, issued a statement saying that each day since the NCUA’s Nov. 5 meeting on the issue of capital depletion, the agency leadership and staff has been carefully weighing the issues and considerations raised by stakeholders at that meeting. At that meeting Thursday, Credit Union National Association (CUNA) President/CEO Dan Mica urged the agency to allow a process that would leave the door open to future capital recoveries if the magnitude of losses at the corporate credit unions is not as great as the NCUA has estimated. In a follow-up letter to the NCUA, Mica added, “(T)he central issue is that it is unfair to require credit unions to write down their capital in these corporates on the basis of estimates of their future losses, with absolutely no possibility of future recovery should those estimates turn out to be inaccurate." Matz said in her Monday missive: “Any successful solution will hinge on whether or not current holders of depleted capital accounts can legally retain some form of rights to any future earnings on corporates’ ‘legacy assets.’ At this time, it appears unlikely that earnings or losses from legacy assets can be isolated or set aside in ongoing corporates. Nor can corporates’ depleted capital be frozen in a way that would preserve the integrity of their capital going forward.” “However,” Matz continued, “we are still exploring creative ideas to address legacy assets as well as to allow affected capital holders to benefit if confirmed losses are less than recognized losses. Any such alternative approach must be consistent with all legal and accounting requirements, and uphold the fundamental purpose of capital.” CUNA continues to work on solutions to the problem of capital depletion.

CUNA analyzes revocable trust rule

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WASHINGTON (11/16/09)--The Credit Union National Association (CUNA)has posted analysis of a recent National Credit Union Administration (NCUA) action that finalized a rule eliminating the concept of "qualifying beneficiaries" for share insurance coverage purposes. Informal and formal revocable trust accounts, which are created by credit union members, are covered under the NCUA’s share insurance. These accounts are controlled by the creating member, and transfer any assets in the account to listed beneficiaries in the event that the accountholder dies. The final rule is very similar to an NCUA interim rule issued in October of 2008 which made coverage rules for revocable trust accounts easier to understand and apply. However, the new final rule does reflect a statutory Standard Maximum Share Insurance Amount increase to $250,000 level, the new $1,250,000 benchmark for revocable trust account coverage, and revised examples. The final rule also adopts the calculation created by the interim final rule to determine revocable trust coverage. Under the rule, owners of trust accounts with as many as five beneficiaries are insured up to $250,000 per beneficiary. For owners with over $1,250,000 in a revocable trust, and more than five beneficiaries of that trust, the trust is insured for the greater of $1,250,000 or the aggregate amount of the beneficiaries’ interests, limited to $250,000 per beneficiary. The NCUA final rules will become effective on Nov. 30. For more detailed analysis of the new rules, use the resource link.

FinCEN amends Patriot Act search requirements

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WASHINGTON (11/17/09)--Certain foreign law enforcement authorities beginning in 2010 will be allowed to submit information requests on financial institutions through the 314(a) program after the Financial Crimes Enforcement Network (FinCEN) on Monday released a notice of proposed rulemaking (NPRM). The 314(a) search requirements, which are part of the USA Patriot Act, require financial institutions to comply with law enforcement requests that the institution search its records for "persons of interest." The rule, as proposed, would allow State and local law enforcement to also submit information requests through FinCEN. According to FinCEN, the information requests “would enable these agencies to know whether a financial institution has established an account or conducted a transaction with a person reasonably suspected, based on credible evidence, of engaging in terrorist activity or significant money laundering.” However, FinCEN noted, requesting law enforcement agencies “would have to certify that the matter is significant, and that it has been unable to locate the information sought through traditional methods of investigation and analysis” before they can make use of the 314(a) program. FinCEN will also submit information requests for the Treasury Department, according to the rulemaking notice. FinCEN Director James Freis, Jr. said that the information sharing program “is a proven tool, and these changes will help further protect the integrity of our national financial system." FinCEN is also exploring other avenues to improve the transfer of information among law enforcement, financial industries, and regulators, according to the release. Additionally, FinCEN is looking to amend portions of the Bank Secrecy Act (BSA) that address its administrative ruling system. For the full FinCEN release, as submitted to the Federal Register, use the resource link.

NCUA closes Nev.-based Ensign FCU

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ALEXANDRIA, Va. (9/25/09)--The National Credit Union Administration (NCUA) on Friday closed 7,900-member and $98 million-in-assets Ensign FCU of Henderson, Nevada. According to an NCUA release, Plano, Texas’s EDS CU has purchased and assumed Ensign FCU’s member share accounts, and former Ensign FCU members will “continue to receive uninterrupted credit union service.” EDS CU holds $772 million in assets from 57,000 members in several states nationwide. The NCUA closed Ensign FCU due to its “declining financial condition,” according to the release. Ensign FCU is the 13th federally insured credit union to be closed this year, according to the NCUA. The Federal Deposit Insurance Corporation also reported late last week the closure of Pacific Coast National Bank, which was the 123rd FDIC-insured institution to fail this year.

Congress this week Overdraft returns in Senate maybe in House

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WASHINGTON (11/17/09)--Overdraft legislation will return to the Hill this week, with the Senate Banking Committee holding a Tuesday hearing on overdraft protection programs. The Federal Reserve late last week released an overdraft rule that would require credit unions and other financial institutions to obtain consent from consumers before they could be charged overdraft fees for ATM and one-time debit transactions. CUNA has said that while the Fed rule "may present compliance challenges for certain credit unions," the Fed rule does not present the same challenges or restrictions that are included in either the House or Senate overdraft legislation. Specifically, CUNA has expressed concern over portions of Dodd’s bill which would impose a proportional fee structure on overdraft fees and limit the number of overdraft transactions that a consumer could make to one per month and six per year. The Credit Union National Association (CUNA) will submit a statement for the record, but will not testify at the hearing, which will include testimony from the Center for Responsible Lending’s Eric Halperin and Pentagon FCU President/CEO Frank Pollack, among others. The House Financial Services Committee could also begin overdraft discussion this week, although it is not on the schedule at this time. The House Committee is set to resume its markup of H.R. 2609, the "Federal Insurance Office Act of 2009", H.R.3996, the "Financial Stability Improvement Act of 2009," and H.R.3904, the "Overdraft Protection Act," on Tuesday. The committee is expected to begin the session by considering H.R. 3996, and this weeks’ committee discussion may be limited to the systemic risk bill. Returning to the Senate, the Dodd-led Banking Committee is expected to begin consideration of the "Restoring American Financial Stability Act of 2009," which would provide many comprehensive reforms of the financial regulatory system, on Thursday. However, the Thursday hearing is only expected to include opening statements from Senators, and the real work of modifying the bill may not begin until late November, at the earliest, and may not kick off until the first week of December, according to CUNA’s Vice President of Legislative Affairs Ryan Donovan.