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NCUA to set guidelines for new CDFI capital program

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ALEXANDRIA, Va. (2/4/10)—The National Credit Union Administration (NCUA) announced Wednesday it would act with “appropriate speed” to develop a rule that enables qualifying credit unions to make full use of the U.S. Treasury Department’s program aimed at expanding financial institution lending in low-income areas. Details of the TARP Initiative for Community Development Financial Institutions were announced yesterday. (See related story: $1B TARP plan includes CDFI CUs) As the program name suggests, participation is open to financial institutions, including low-income credit unions, which have been designated as Community Development Financial Institutions, and its funding will be available under the Troubled Assets Relief Program (TARP). NCUA Chairman Debbie Matz applauded the program, calling it a “bold and innovative proposal” and stating it will provide “significant benefits to low-income credit unions as they strive to find new ways to reach consumers in disadvantaged communities.” “Now that the program has been unveiled, the NCUA board will move with all appropriate speed to develop a rule that enables qualifying credit unions to make full use of this program. I am confident that credit unions will see the promise and possibilities in this initiative, and will utilize the new funding to enhance service to those who need credit unions the most," Matz said in a statement. The Credit Union National Association (CUNA) also on Wednesday noted its appreciation of the Treasury’s announcement. However, CUNA President/CEO Dan Mica added that CUNA maintains that “the most effective way to help many more credit unions help the economy is by giving credit unions greater capacity to make business loans.”

Inside Washington (02/03/2010)

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* WASHINGTON (2/4/10)--Ben Bernanke was formally sworn in for a second four-year term as chairman of the Board of Governors of the Federal Reserve System Wednesday in Washington. Bernanke began his second term on Monday following his confirmation by the Senate on Jan. 28 and a hearing on Dec. 3 by the Senate Committee on Banking, Housing and Urban Affairs. His term as chairman ends Jan. 31, 2014, and his 14-year term as member of the board ends Jan. 31, 2020 ... * WASHINGTON (2/4/10)--Lawmakers are criticizing President Barack Obama’s proposal to tax big banks and told Treasury Secretary Timothy Geithner on Tuesday that the proposal is counterproductive. The tax applies to financial service companies with more than $50 billion in assets. Sen. John Kyl (R-Ariz.) asked why banks that did not receive Troubled Asset Relief Program funds or that repaid the funds would be taxed. Sen. Robert Menendez (D-N.J.) said he fears the tax will be passed on to consumers (American Banker Feb. 3). Bankers could reduce compensation payments to make up for the tax, Geithner said. Modest reductions would help absorb the fee, he added. Sen. Bill Nelson (D-Fla.) said the administration could tie a bank’s tax rate to its compensation practices. Banks that have responsible practices would see no loss in benefits, he said ... * WASHINGTON (2/4/10)--Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), said his hands may be tied on the future of Fannie Mae and Freddie Mac in a letter to Senate Banking and House Financial Services Committees Tuesday that (American Banker Feb. 3). While there are some options available for the two post-conservatorship, the only option that FHFA may implement is to bring the two companies back under their current charters. DeMarco’s letter comes after lawmakers questioned the futures of Fannie Mae and Freddie Mac. The enterprises have been in conservatorship since 2008 ... * WASHINGTON (2/4/10)--Policymakers should work on creating tougher underwriting standards instead of proposing to require lenders to retain a portion of loans they securitize (American Banker Feb. 3). The proposals are “indirect and imprecise,” said John Dugan, Comptroller of the Currency. If policymakers want to achieve quality underwriting, they should establish minimum standards that can be applied to all mortgages for a level playing field, he added. There are four areas where regulators can mandate the minimum standards: down payments, income verification, debt-to-income ratios and qualifying borrowers for higher rates if their monthly payments will increase ...

1B TARP plan includes CDFI CUs

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WASHINGTON (2/4/10)--The U.S. Department of the Treasury on Wednesday announced that it will set aside up to $1 billion in Troubled Asset Relief Program (TARP) funds for use by Community Development Financial Institution (CDFI) credit unions and other financial institutions. Under the Treasury plan, credit unions would be able to borrow as much as 3.5% of their total assets over an eight-year period. Commenting on the announcement, Credit Union National Association (CUNA) President/CEO Dan Mica said that while CUNA appreciates the Treasury’s announcement, CUNA “continues to contend that the most effective way to help many more credit unions help the economy is by giving credit unions greater capacity to make business loans.” “Doing so – through legislation raising the amount of loans credit unions can make in business loans to 25 percent of total assets – would inject more than $10 billion into the economy and create 108,000 new jobs in the first year. There is no public policy reason to deny credit unions this, while at the same time giving banks – who are not lending -- $30 billion as an enticement to do what credit unions are already doing, and are willing to do more of,” he added. National Federation of Community Development Credit Unions President/CEO Clifford Rosenthal met with Treasury Secretary Tim Geithner just prior to the announcement, and was among those in attendance during the announcement. The program will not require legislative approval and is not connected to the Obama administration’s proposal to channel billions to community banks to support small business lending. The Treasury's CDFI Fund helps locally based financial institutions offer small business, consumer and home loans in communities and populations that lack access to affordable credit. The Treasury last year announced a total of $113 million in funding would be made available through the CDFI Fund during 2010, and under National Credit Union Administration regulations, credit unions that are certified to take part in the CDFI program may apply for as much as $2 million in funding that will help maintain their credit union's presence in the community.

NCUA seeks recoup of 10M following Conn.-based fraud case

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ALEXANDRIA, Va. (2/4/10)--The National Credit Union Administration (NCUA) has filed suit against Wells Fargo Investment Advisors seeking the repayment of $10 million in insurance-fund losses related to the now-deceased Edwin Rachleff's theft of funds from New London Security FCU. The NCUA sought the recovery of $12 million in losses from his estate in early 2008. Rachleff, a former employee of A.G. Edwards, which is now owned by Wells Fargo, created fraudulent account statements, according to the NCUA. The current suit, which was filed on Jan. 29 in the U.S. District Court for the District of Connecticut, makes many of the same claims, alleging that Rachleff’s fraud against the credit union began in 1998 and continued into 2008. Rachleff, allegedly stole $7.5 million from one of his clients, and also managed investments for New London. However, it was later found that the investment vehicle that Rachleff managed for the credit union did not exist, and the resulting loss of funds caused the credit union to fail. New London Security FCU was closed in July 2008 with the NCUA serving as the liquidating agent, and, at that time, assuming coverage of all losses associated with the credit union failure through its National Credit Union Share insurance Fund. According to the complaint, A.G. Edwards, and, later, Wells Fargo failed to notify the credit union that the investment accounts maintained by Rachleff did not exist. The NCUA has also accused Wells Fargo of neglecting to properly supervise Rachleff and of ignoring the possibility that this lack of supervision could result in fraud. The NCUA has requested a jury trial.

CUNA blankets Capitol Hill with MBL letters

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WASHINGTON (2/4/10)--Responding to the Obama administration’s recent decision to funnel $30 billion of unspent Troubled Asset Relief Program (TARP) funds into smaller banks for business lending, Credit Union National Association President/CEO Dan Mica said that “there is no good public policy reason to deny credit unions greater capacity for making business loans to their members, while at the same time giving community banks a subsidy to do so.” Under the Obama administration’s plan, which was released on Tuesday, the TARP funds would be available as capital investments for community banks, pending congressional approval. The majority of credit unions would not be eligible for these TARP funds, as the Federal Credit Union Act defines capital as only the retained earnings of the credit union. In a letter sent to all members of Congress on Wednesday, Mica said that credit unions do not oppose the subsidy for the banks out of hand – but they do question not including credit unions in proposals to foster more business lending. Mica added that pending legislation in the Senate and House, which would raise the cap on credit union business lending to 25 percent of total assets “could provide up to $10 billion in new loans to small businesses and create as many as 108,000 jobs – without costing the taxpayers a dime, or increasing the size of government.” “Credit unions’ impediment to additional small business lending is not the need for more capital but an arbitrary statutory limit on business loans of 12.25% of their total assets,” Mica said, adding that they “do not need the taxpayer assistance to do more business lending because, unlike some banks, credit unions remain generally well capitalized.” For the full letter to Congress, use the resource link.