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Proposed federal spending bill steady on CU programs

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WASHINGTON (12/16/11)--An omnibus appropriations bill that has been agreed to by House and Senate conferees, and could be voted on by the U.S. Congress this week, would allow the National Credit Union Administration's (NCUA) Central Liquidity Facility (CLF) to continue to operate under its statutory cap and would impact some other issues of great interest to credit unions.

The CLF is authorized by the Federal Credit Union Act to lend up to 12 times its paid-in capital, and this lending limit would be continued in 2012 provided the administrative expenses of the CLF in the 2012 fiscal year do not exceed $1.25 million.

The appropriations bill also addresses the NCUA's Community Development Revolving Loan Fund (CDRLF), the U.S. Treasury Department's Community Development Financial Institution (CDFI) Fund, and the Cooperative Development Program (CDP).

Funding for the CDRLF, which provides loans and technical assistance to federal and state credit unions that are designated as a low-income credit union, as defined by NCUA regulations, would be dropped slightly under the omnibus bill. The 2012 funding would fall to $1.25 million. The Obama administration had asked for $2 million in CDRLF funding for fiscal 2012.

Funding for the CDFI Fund would also be reduced slightly under the omnibus agreement, dropping to $221 million from the Obama administration's requested total of $227.3 million.

Funding for the Office of Cooperative Development has not been determined, but the 2012 budget for the U.S. Agency for International Development (USAID) will be cut by 13% under the omnibus bill. However, the omnibus bill would direct $10 million in funds to cooperatives and credit unions that take part in overseas development assistance programs.

CUNA Senior Vice President of Legislative Affairs Ryan Donovan said the legislation could be considered today.

NCUA cites improvement back to quarterly insurance reports

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ALEXANDRIA, Va. (12/16/11)--Noting that the credit union system appears to be returning to a more steady state, the National Credit Union Administration (NCUA) on Thursday said it would scale back its monthly reporting on the status of the National Credit Union Share Insurance Fund (NCUSIF) and  the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) to a quarterly basis.

Until October 2008, the NCUA chief financial officer (CFO) traditionally made a public accounting of NCUSIF before the NCUA board on a quarterly basis. At that time, then-Chairman Michael Fryzel asked NCUA CFO Mary Ann Woodson to prepare a monthly until the end of the year, but that practice continued to the most recent meeting. Fryzel also requested at that time that the report include an additional slide, one which would provide clearer information regarding insurance loss expense.

In this month's insurance fund report, Woodson said credit unions with CAMEL Code ratings of 1 or 2 held 82.7% of total credit union assets for the second straight month, and asset distributions in CAMEL Code 3, 4 and 5 credit unions again held steady in November. Approximately 17.3% of all cu assets were in CAMEL code 3, 4 or 5 credit unions, Woodson said. There are currently 399 CAMEL 4 and 5 credit unions and 1,735 CAMEL 3 credit unions, the NCUA reported.

The NCUSIF ended November with a 1.32% equity ratio and a reserve balance of $871.6 million, and the TCCUSF held $5.9 billion in liabilities as of Nov. 31, the report said.

The agency did not write-off any insurance loss expense and reported net income of $7.3 million for the month. For more on the NCUA's December board meeting, use the resource link.

NCUA proposes RegFlex loan participation changes

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ALEXANDRIA, Va. (12/16/11)--Changes to credit union liquidity access, loan participation investment rules, and the National Credit Union Administration's Regulatory Flexibility (RegFlex) Program were all addressed at the agency's final board meeting of 2011. The agency also okayed Virginia-based Henrico FCU's application to expand its community charter.

The board also approved for a 60-day public notice and comment period an Advance Notice of Proposed Rulemaking (ANPR) regarding whether the NCUA should issue a regulation to require FICUs to have access to backup federal liquidity sources.

The agency's ANPR outlines a number of options that credit unions could take to ensure they maintain needed liquidity in times of financial stress. Under the ANPR, credit unions could ensure liquidity by:

  • Becoming a member of the NCUA's Central Liquidity Facility (CLF) by subscribing to CLF stock or through a corporate credit union;
  • Obtaining and maintaining "demonstrated access" to the Federal Reserve Discount Window; or
  • Maintaining a certain percentage of their assets in highly liquid U.S. Treasury securities.
The Credit Union National Association's Corporate Credit Union Task Force will be reviewing the ANPR.

Another NCUA proposal released on Thursday would revise the NCUA's existing loan participation investment rules for all federally insured state credit unions (FISCUs) that purchase participations in loans originated by other credit unions. Under the proposal, loan originators would need to retain 10% of the original loan.

The proposal would also limit loan participations involving a single originator to 25% of the FISCU's net worth and set a 15% of net worth limit on loans to one borrower.

The 25% net worth requirement would not be subject to waiver, but credit unions should ask their regional directors to allow them to exceed the 15% net worth limit.

Credit unions with loan participation investments that exceed these limits would be grandfathered in to the new rule, and could exceed these limits until its loan participations have been paid off or sold.

NCUA Chairman Debbie Matz said that loan participations "are a valuable tool for credit unions to diversify loan portfolios, improve earnings, and manage their balance sheets," but also noted that "large volumes of participated loans tied to a single originator, borrower, or industry – or serviced by a single entity – have the potential to impact multiple credit unions if problems occur."

Just over 1,400 federally insured credit unions held over $12.4 billion in outstanding loan participations this year, and loan participation balances have grown by 28% since 2007, the NCUA noted.

CUNA Deputy General Counsel Mary Dunn said loan participations "are useful tools for credit unions in a variety of ways, including allowing credit unions to originate more loans that their members need."

"While material problem areas should be addressed--but only in a very targeted way--regulatory efforts should also be pursued to enhance the ability of well-managed credit unions to be involved in loan participations," she added.

Dunn also commented on the NCUA's regulatory flexibility proposal, saying that "credit unions are overburdened with too many regulations and regulatory flexibility is needed now more than ever."

The NCUA on Thursday proposed eliminating the RegFlex program and, instead, "enabling all federal credit unions to engage in activities permitted by the existing RegFlex rule without the need to apply for a RegFlex designation."

Specifically, the NCUA said, all credit unions would be permitted to donate funds to the charities of their choosing, to accept non-member deposits, subject to predetermined limits, from local governmental entities or other credit unions, and purchase private-label commercial mortgage-related securities, subject to certain net worth constraints and safety and soundness rules. Other rights would also be granted to the 1,770 credit unions that are not covered under the RegFlex designation.

A final rule that makes clarifying changes and other amendments to the NCUA's corporate credit union rule, Part 704, was also approved. The final rule includes a CUNA recommendation that the NCUA not incorporate proposed credit ratings provisions until the agency can finalize a separate proposal on credit ratings.

CUNA's Examination and Supervision Subcommittee, along with other key CUNA groups, will be reviewing the proposals in detail, and regulatory comment calls on these proposals and a Final Rule Analysis on the corporate credit union rule changes will be posted early next week.

All three of the proposals will have 60-day public comment periods.

The NCUA also approved Virginia-based Henrico FCU's application to expand its community charter, allowing the $120-million-in-assets, 21,000-member credit union to serve residents in the greater Richmond, Va. area. Matz said the credit union's community focus and its low $5 minimum balance requirement for membership convinced her to support the charter expansion.

For more on the NCUA's December board meeting, use the resource link.

Performance budget strategic plan approved at NCUA meeting

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ALEXANDRIA, Va. (12/16/11)—The National Credit Union Administration's (NCUA) near-future plans, and the budget for that agency's oversight of its NCUA Guaranteed Notes program, were approved during Thursday's open board meeting.

The NCUA in its 2012 Annual Performance Budget identified its top priorities for the coming year as: monitoring and controlling risk in natural-person credit unions, continuing to stabilize the corporate credit union system, and ensuring that the transition from bridge corporates does not cause disruption to member services.

The agency also identified ensuring a safe, sound, and healthy credit union system, promoting credit union access to all eligible persons, and improving regulatory transparency as other key goals for 2012.

The Credit Union National Association (CUNA) said it would press the agency to stick to these goals, with a particular emphasis on the need to improve the regulatory environment faced by credit unions.

Many of these goals are also reflected in the NCUA's 2011-2014 strategic plan, which was released during the board meeting. For instance, ensuring a safe, sound, and healthy credit union system, promoting credit union access to all eligible persons, are also key priorities under the strategic plan.

The NCUA approved a budget of $7.7 million to cover administrative costs, including security valuation, accounting, and reporting costs, related to its NGN program.

Management and oversight of the NGN program is being handled by the NGN Securities Management and Oversight Committee, which was approved by NCUA board members in August. The committee's duties include monitoring the performance of the NGNs and their underlying collateral, ensuring the programs compliance with legal and accounting requirements, and maintaining the NGN Programs transparency to credit unions and other key stakeholders.

For more on the NCUA meeting, use the resource link.

Inside Washington (12/15/2011)

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  • WASHINGTON (12/16/11)--Neil Barofsky, former special inspector general for the Troubled Asset Relief Program (TARP), criticized the Obama administration and Treasury Department for their response to the housing crisis. Barofsky, during a panel discussion on the foreclosure crisis the non-profit news organization ProPublica, said the administration's Home Affordable Modification Program (HAMP) was a failure because the White House feared being accused of helping "undeserving homeowners" (American Banker Dec. 15). The Obama administration backed away from its goal of helping three million to four million homeowners after CNBC editor Rick Santelli accused the government of promoting bad behavior with the HAMP program. Barofsky said the $28 billion left in TARP should be used to modify home loans …
  • WASHINGTON (12/16/11)--The U.S. Department of the Treasury's Community Development Financial Institution's (CDFI) Fund has certified Cascade Forest Products CU, Kent, Wash., as a CDFI. Incorporated in 1953, Cascade Forest Products CU provides access to capital for the low-income community of Clark County, Wash. Its services include financial counseling, youth accounts, workout loans, debt consolidation loans, and payday lending alternatives. Its targeted market is the low-income in Clark County, Wash. …

Progressive Policy Institute backs MBLs to help economy

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WASHINGTON (12/16/11)--While descrying the "deep freeze" in credit for small businesses as one of the most damaging consequences of the U.S. financial meltdown to the country's economy, the Progressive Policy Institute (PPI) offers a "simple solution" for providing smaller firms with greater access to credit: allowing credit unions to offer more small business loans.

In its latest policy memo, entitled "The Credit Gap: Easing the Squeeze on the Smallest Businesses"  and written by Brian Martin, an independent policy analyst, PPI notes that as the financial system all but shut down in 2007-2008, "millions of small business owners across America found themselves unable to get the credit they desperately needed to run their businesses, let alone expand." The result, the analysis says, was that thousands of firms that may have otherwise flourished were pushed into bankruptcy or closure, with thousands of Americans losing their jobs.

The policy memo notes that while the crisis of credit availability is starting to ease for some small businesses, the smallest--those with fewer than 50 workers--are "still at risk of being left behind."

"These smaller businesses account for nearly one in three private-sector jobs in America, yet they are much less likely to be able to get the credit they need to stay in business or grow," Martin writes.

The PPI memo goes on to call increased member business lending (MBL) authority the "easiest and most obvious" public policy option for expanding credit to those smaller businesses.  Credit unions, he adds, are "some of the lenders who are already the most likely to be working with smaller businesses" as their members.

Recalling the history of the current MBL cap of 12.25% of assets, set in 1998 as part of legislation enacted in response to a Supreme Court ruling that would have tightened credit union membership rules, the report says that cap "was not considered a major provision of the legislation at the time and is now an arbitrary limit on the ability of credit unions to help smaller businesses make the leap toward growth."

The PPI report says that increasing the MBL cap to 27.5% of assets, as proposed by legislation in both the U.S. House and Senate and strongly backed by the Credit Union National Association, could substantially benefit smaller business owners and in turn the economy at large.

"It would enable credit unions to extend more credit to their existing members who are small business owners interested in expansion or who are just starting out a new venture, while the current low cap may block these opportunities for growth."

The PPI statement joins an increasing chorus of support for an MBL increase, including from other think-tanks, like the Heartland Institute in Chicago, bi-partisan backing on Capitol Hill, and support from small business groups.