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Inside Washington (12/13/2007)

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* WASHINGTON (12/14/07)--Small companies will not be required to report on their internal financial controls, as mandated under a section of the Sarbanes-Oxley Act, for another year, Securities and Exchange Commission (SEC) Chairman Christopher Cox said Wednesday(American Banker Dec. 13). Cox said during a meeting with a House committee that Section 404 of Sarbanes-Oxley is being re-oriented to eliminate inefficient “make-work” procedures …

CUNA Internet gambling plan unworkable

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WASHINGTON (12/14/07)—Credit union compliance with proposed rules to crack down on illegal online gambling would be difficult if not impossible, and the Credit Union National Association (CUNA) urged regulators to shelve their current plan. “The law passed by Congress has commendable objectives, but is difficult to implement,” CUNA wrote in a comment letter to the Treasury Department and Federal Reserve Board about their joint proposal to implement the Unlawful Internet Gambling Enforcement Act. “We feel that rather than continue with implementation of the current proposal, which raises a range of problematic issues, the regulators should work together with Congress to develop an approach that will meet public policy goals in a clearly understood manner and without inflicting undue hardships on the financial institution sector in the process,” CUNA said. The Dec. 12 CUNA letter noted that President/CEO Dan Mica recently communicated his group’s concerns with the Internet gambling proposal to House Financial Services Committee Chairman Barney Frank (D-Mass.). In a letter to Frank, Mica urged a moratorium on actions to implement the law until “a more reasonable approach can be considered by Congress and the regulators.” CUNA identified the following problem areas in the joint agency plan:
* The definition of “Unlawful Internet Gambling” is unclear; * The “Policies and Procedures” explanations should be expanded; * The “safe harbor” should be enlarged; * Enforcement provisions should be clarified; and * The effective date should be extended.
Use the resource link below to read CUNA’s complete letter.

Former CUNA director named to Fed advisory group

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WASHINGTON (12/14/07)--The Federal Reserve Board Thursday announced the names of seven new members of its Thrift Advisory Council (TIAC), including Christopher T. Jillson of Sandia Laboratory FCU in Albuquerque, N.M., a former Credit Union National Association (CUNA) board member. TIAC is an advisory group made up of twelve representatives from thrift institutions. The council was established by the Board in 1980 and includes members from savings and loan associations, savings banks, and credit unions. It meets three times each year with the Board of Governors to discuss developments relating to thrift institutions, the housing industry, mortgage finance, and regulatory issues. In addition to Jillson, the new TIAC members, named for two-year terms beginning Jan. 1, 2008, are:
* F. Edward Broadwell, Jr., chairman/CEO, HomeTrust Bank, Asheville, N.C.; * Michael W. Perry. Chairman/CEO, IndyMac Bank, F.S.B., Pasadena, Ca.; * Joseph R. Ficalora, chairman, president/CEO, New York Community Bancorp, Westbury, N. Y.; * Curtis L. Hage, chairman/CEO, Home Federal Bank, Sioux Falls, S.D.; * Peter L. Judkins, president/CEO, Franklin Savings Bank, Farmington, Me.; and * William A. Donius, chairman/CEO, Pulaski Bank, St. Louis, Mo.

New pandemic guidance for CUs

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WASHINGTON (12/14/07)—The Federal Financial Institutions Examination Council (FFIEC) this week issued guidance for all financial institutions to use to minimize the effects of a pandemic disaster. This guidance is intended to supplement the “Letter to Credit Union 06-CU-06 - Influenza Pandemic Preparedness” issued by the National Credit Union Administration in March 2006, as well the “Interagency Advisory on Influenza Pandemic Preparedness” issued on March 15, 2006 by the federal banking and thrift regulators. The new FFIEC document identifies actions that a financial institution should take to build its business continuity Plan (BCP). Such a plan should include planning for a pandemic event and provide for a preventive program, as well as:
* A documented strategy scaled to the stages of a pandemic outbreak; * A comprehensive framework to ensure the continuance of critical operations, * A testing program; and * An oversight program to ensure that the plan is reviewed and updated.
The FFIEC advised that the pandemic segment of a BCP must be sufficiently flexible to address a wide range of possible effects that could result from a pandemic, and also be reflective of the institution’s size, complexity, and business activities. The FFIEC is comprised of representatives from the NCUA, Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. Use the resource link below to read the interagency guidance.

Lawmakers urge strong consumer protections from Fed

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WASHINGTON (12/14/07)-–Nineteen members of the House Financial Services Committee urged the Federal Reserve Board Thursday to include strong consumer protections in its soon-to-be-released Home Ownership and Equity Protection Act (HOEPA) rules. Federal Reserve Board Governor Randall Kroszner announced during a hearing last week that the Fed would issue proposed HOEPA regulations before the end of this month. He was testifying before the Financial Services Committee during that panel’s look at “accelerating loan modifications, improving foreclosure prevention and enhancing enforcement.” The lawmakers’ letter, addressed to Fed Chairman Benjamin Bernanke, noted the committee’s work on mortgage issues during the past year. During that process, the letter said, the members have identified a number of lending products and practices they believe the Fed should address, such as new rules to:
* Prohibit prepayment penalties for subprime loans and require that any remaining prepayment penalties be limited in size and duration and expire at least three months before an interest rate reset; * Require realistic underwriting of the borrower’s ability to pay a mortgage, not just for the initial “teaser period” but for the entire term of the loan. Prudent underwriting should require a verification of income or assets necessary to repay the loan including the likely taxes, insurance and fees: * Eliminate “perverse incentives” to steer consumers into more expensive loans by, for example, prohibiting originator compensation that varies according to the terms of the mortgage, and promulgating rules that eliminate abusive and discriminatory lending practices; and * Improve disclosures so that consumers can fully understand the material terms of their loans and better compare costs and terms among different loans and loan originators.
The letter was signed by the following Democrats: Reps. Barney Frank (Mass.), Brad Miller (N.C.), Paul E. Kanjorski (Pa.), Maxine Waters (Ca.), Carolyn B. Maloney (N.Y.), Luis V. Gutierrez (Il.), Melvin L. Watt (N.C.) Michael E. Capuano (Mass.), Wm. Lacy Clay (Mo.), Carolyn McCarthy (N.Y.), Joe Baca (Ca.), Al Green (Tex.), Emanuel Cleaver (Mo.), Gwen Moore (Wi.), Albio Sires (N.J.), Paul Hodes (N.Y.), Keith Ellison (Mn.), Ed Perlmutter (Co.), and Christopher S. Murphy (Conn.).

NCUSIF dividend for 2007 unlikely says agency

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ALEXANDRIA, Va. (12/14/07)--A dividend from the National Credit Union Share Insurance Fund (NCUSIF) to federally insured credit unions for 2007 is unlikely, said National Credit Union Administration (NCUA) staff during yesterday’s monthly board meeting. Meanwhile, the board voted unanimously to maintain the 2008 NCUSIF normal operating level at 1.3% and approved a policy to determine and monitor future levels. The operating level is the upper end of the target range for the NCUSIF's equity ratio, which represents the amount of insured shares in relation to the amount in the NCUSIF. A dividend must be distributed to federally insured credit unions when the equity in the fund exceeds the normal operating level at the end of a year. Data showed the fund's equity ratio dropped to 1.27% in June, after remaining at 1.31% for the first quarter and 1.32% for April and May. The agency projected two more months at 1.27% before that ratio might return to 1.31% and better during the September though December period of this year. However, NCUSIF dividends to credit unions are determined on year-end calculations, and NCUA CFO Dennis Winans said it seemed unlikely a dividend will be paid for 2007. During the same meeting, the board unanimously approved changes in how it sets the NCUSIF normal operating level, as well as determines dividends and premium assessments. The purpose of the change is to provide greater transparency in the process, according to the agency. To determine adequacy of the equity level, the policy includes stress scenarios to apply when preparing quantitative analysis to set the normal operating level. Stress scenario applications include:
* Highest share level in past 10 years; * Highest NCUSIF operating expense level in past 10 years; * Highest insurance loss level in the past 10 years; and * 300 basis point shock of the investment yield in the NCUSIF investment portfolio.
Stress test results will “determine a range in which the equity level can be actively managed to avoid premiums during a decline in the business cycle,” said the agency. The NCUA Board traditionally set the NCUSIF normal operating level at the end of each calendar year. NCUA said the new policy will continue to review the operating level at least annually, taking action when change is necessary. CUNA Associate General Counsel Mary Dunn said the agency's goal to provide more transparency is laudable, but said credit unions should have had the opportunity to comment on the policy before it was adopted. She said CUNA will analyze the policy in greater detail and raise any concerns with NCUA.

NCUA puts strategic plan out for comment

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ALEXANDRIA, Va. (12/14/07)—-During its monthly meeting yesterday, the National Credit Union Administration (NCUA) Board released for comment the agency’s five-year strategic plan, and revised its National Credit Union Share Insurance Fund (NCUSIF) investment policy. The five-year plan covers 2009-2014 and is based on NCUA’s mission of “providing a safe, sound credit union system.” The NCUA strategic plan highlights three major goals:
* Ensure a safe, sound, and healthy credit union system; * Increase access to financial services to all eligible individuals within the credit unions' fields of membership; and * Provide a flexible and efficient regulatory environment for all federal credit unions.
The proposed plan includes specific objectives for how the goals will be attained. The strategic plan will be open for comments for 60 days. Use the resource link below to access the draft strategic plan online. Comments are due by Feb. 29. During the same meeting, the NCUA board unanimously approved revisions to the NCUSIF investment policy, which provides guidelines for the investment of NCUSIF funds. “These revisions will establish maturity limits, clarify permissible investments, and describe the general investment strategy,” according to the NCUA. Under these revisions, the NCUSIF funds will be invested under the following strategy:
* Maintain an overnight liquidity target determined by projected liquidity needs; * Invest 5% of the non-liquidity balance minus $50 million in a five-year Treasury ladder each quarter; and * Invest $50 million in a 10-year Treasury ladder each quarter.
By adding this additional Treasury ladder to the investment portfolio, NCUA said the fund will “experience additional earnings stability while providing a higher expected future return.”