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Regulators to ease criticism of small biz loans

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WASHINGTON (2/8/10)--The National Credit Union Administration (NCUA) on Friday joined federal and state banks and thrift regulators in a message meant to emphasize “that financial institutions that engage in prudent small business lending after performing a comprehensive review of a borrower’s financial condition will not be subject to supervisory criticism for small business loans made on that basis.” In a joint statement, the regulators said that they “recognize that small businesses play an important role in the economy and know that some are experiencing difficulty in obtaining or renewing credit,” and, in response, are “working with the industry and supervisory staff to ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound small business borrowers.” The statement added that “financial institutions should understand the long-term viability of the borrower’s business and focus on the strength of a borrowers’ business plan to manage risk rather than using portfolio management models that rely primarily on general inputs, such as a borrower’s geographic location or industry.” In the guidance, the regulators also recommended that financial institutions focus on the borrower’s “plan for the use and repayment of borrowed funds,” and maintain “an understanding of the competition and local market conditions affecting the borrower’s business” rather than simply basing their lending decisions “solely on national market trends when local conditions may be more favorable.” The regulators also told financial institutions that their examiners “will not discourage prudent small business lending by financial institutions,” will not “criticize institutions for working in a prudent and constructive manner with small business borrowers,” and, for the most part, “will not adversely classify loans solely due to a decline in the collateral value below the loan balance.” While the examiners will “not classify loans due solely to the borrower’s association with a particular industry or geographic location that is experiencing financial difficulties,” they will “expect institutions to employ sound underwriting and risk management practices, maintain adequate loan loss reserves and capital, and take appropriate charge-offs when warranted.”

New hot topics compliance session slated for Feb. 11

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WASHINGTON (2/9/10)--Pressing credit union compliance issues will be the subject Thursday of a Credit Union National Association (CUNA) audio conference. Through this audio conference, credit union compliance professionals can learn about the current hot topics and will have an opportunity to ask questions of the panel. On the call will be a panel of experts from CUNA's compliance department lead by Kathy Thompson, senior vice president for compliance. Participants in the call will receive an overview of recent compliance developments that will affect credit union operations. The 90-minute audio conference, scheduled to begin 3 p.m. (ET), will be broken into two parts, with the first segment covering areas that currently require special attention by credit unions, including:
* Credit cards: Troublesome areas in the Fed's new credit card rules; * July's open-end Regulation Z changes; * New model privacy notices; * Overdrafts rules; and * Consolidation of the Fed's check processing operations.
The second part of the audio conference will provide a quick update on developing compliance issues, such as:
* Proposed internet gambling regulations; * Risk-based pricing; and * The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).
For more information or to register for the audio conference, use the resource link.

Inside Washington (02/05/2010)

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* WASHINGTON (2/8/10)--Senate Banking Committee Chairman Christopher Dodd (D-Conn.) expressed his frustration at the slow pace of financial reform during a hearing Thursday with bank executives. Dodd has worked on a bill the past few months that would overhaul financial regulation. The White House is on the right track with reform, but many big banks refuse to work with Congress on the effort, Dodd said. Many industry lobbyists also are working to kill “common-sense financial reforms” the public is demanding, Dodd added (The New York Times Feb. 5). Barry Zubrow, chief risk officer and executive vice president of JPMorgan Chase, said President Barack Obama’s proposal to ban proprietary trading and limit bank risk would diverge from policymakers’ work to address the roots of the financial crisis. The activities the administration wants to ban didn’t cause the crisis, he added ... * WASHINGTON (2/8/10)--Resolution of large financial firms was again a hot topic among lawmakers at a Senate Banking Committee hearing Thursday. Hal Scott, a Harvard Law School professor, said interconnectedness among financial firms is a more important issue than the Volcker Rule, which has garnered much debate from policymakers in the past week. President Barack Obama proposed two weeks ago to ban proprietary trading. If banks are too big to fail, Obama’s proposal will have no effect, Scott said. Also during the hearing, Gerald Corrigan, managing director of Goldman Sachs Group Inc., offered some perspective on what is needed to resolve big banks in the event of a failure. A critical hurdle in resolving institutions is getting financial details to regulators on short notice, said Corrigan. Needed disclosures include valuations of asset classes, legal agreements, liquidity information, exposure to all counterparties, risk management frameworks and financial positions with exchanges and clearing houses, he added (American Banker Feb. 5). The reason nobody has been able to figure out a way to wind down institutions is because it’s “hard to do,” Corrigan said. He also recommended that firms conduct their own stress tests ...