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Inside Washington (02/09/2011)

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* WASHINGTON (2/10/11)--The Federal Reserve Board on Wednesday approved a final rule to implement the provisions of the Dodd-Frank Act that give banks a period of time to align their activities and investments to the so-called Volcker Rule. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading in securities, derivatives, or certain other financial instruments and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. The statute generally provides banking entities two years to bring their activities and investments into compliance and allows the Fed to extend the period under certain conditions. The rule can be viewed online … * WASHINGTON (2/10/11)--The National Federation of Community Development Credit Unions and the Institute of Mexicans Abroad will offer a webinar to provide information on an ACH-based remittance platform that the Federal Reserve Bank of Atlanta and Banco de Mexico (BANXICO) have developed. The webinar, to be held at 2 p.m. ET Feb. 23, will present an overview of Directo a Mexico, an alternative platform for sending money to Mexico. Directo a Mexico provides participant financial institutions with tools to serve the needs of immigrant consumers and with opportunities to work with the growing network of Mexican Consular offices throughout the U.S. It also offers a bridge for cross-border collaboration between U.S. and Mexican credit unions. Register for the webinar here. Another network that works with primarily with Hispanic clients is the International Remittances Network (IRNet), operated by the World Council of Credit Unions (WOCCU). About 109 U.S. credit unions participate in WOCCU’s IRNet, a remittance service operated by WOCCU Services Group. The service transmits remittances to eight countries and has taken part in over $2.9 billion in total transactions since its inception. Overall, $307 billion in remittances were sent from the U.S. to other nations in 2008, according to WOCCU estimates … * WASHINGTON (2/10/11)--The House Financial Services Committee will meet at 10 a.m. Feb. 15 to examine the economic and market impact of the derivatives title of the Dodd-Frank Act, announced Chairman Spencer Bachus (R-Ala.). The Dodd-Frank Act requires that all derivatives contracts be cleared through a central clearinghouse and that collateral is posted for each contract. The hearing will review the strengths and weaknesses of the derivatives title; the potential effects on U.S. competitiveness, job creation, and the overall U.S. economy; the likelihood of international harmonization of derivatives regulation; the consequences of the derivatives marketplace shifting from the U.S. to foreign markets; and the establishment of margin and capital requirements for end users who engage in legitimate hedging of business risks. “The derivatives market has evolved over the past 25 years into a highly sophisticated market that provides U.S. businesses with the ability to protect themselves against legitimate business risks, said Bachus. “Requiring companies that did not cause nor contribute to the financial crisis to be treated like banks will unnecessarily remove capital from the economy. We will work to ensure that the derivatives title of Dodd-Frank does not force valuable capital to sit on the sidelines or create a patchwork regulatory regime leaving market participants with conflicting regulatory mandates,” he said … * WASHINGTON (2/10/11)--Directors and officers of failed institutions may access bank records “where appropriate,” provided that the information is subject to the terms of a confidentiality agreement or protective order, according to Federal Deposit Insurance Corp. (FDIC) General Counsel Michael Krimminger. In recent months, the FDIC has discovered that former directors and officers of still-open banks have removed copies of confidential bank records, much of which is protected by federal law. Some of the banks subsequently failed. In a letter to the American Association of Bank Directors, Krimminger said the FDIC’s policy is not new nor does it represent a change in interpretation. Directors and officers may have individual interests in accessing bank records after failure but prior to the implementation of legal or administrative action. At issue are the lawsuits against former directors and officers for their roles in bank failures. Krimminger said the FDIC understands the interests of those seeking the information but proper procedures must be followed … * WASHINGTON (2/10/11)--The Federal Deposit Insurance Corporation (FDIC) Monday issued a Notice of Proposed Rulemaking intended to improve consumer awareness of deposit insurance coverage. Certain bank staff would receive annual training on the basic principles of deposit insurance coverage with the FDIC providing the materials--a computer-based module-- with no recordkeeping required by the insured institution. The rule would limit the required training to those employees who open accounts or are authorized by the bank to answer deposit insurance questions. Bank employees opening new accounts would be required to ask whether the customer has other accounts at that institution and determine whether the aggregate deposits may exceed the deposit insurance limit of $250,000. Read the Financial Institution Letter here

CUNA will work with CUs as corporate system realigns

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WASHINGTON (2/10/11)--Credit Union National Association (CUNA) President/CEO Bill Cheney on Wednesday said that CUNA appreciates the National Credit Union Administration’s (NCUA) concerns regarding overconcentration of assets, but will work with the NCUA and various stakeholders to determine how individual credit unions can be given the most flexibility as the future structure of the corporate credit union system is decided. Cheney’s statement followed the release of the NCUA’s letter to corporate credit unions No. 2011-02. In that letter, the NCUA cautioned that “the concentration of services or the aggregation of service volumes in one entity large enough to introduce systemic risk may create an unacceptable ‘too big to fail’ scenario.” As the NCUA letter noted, many have suggested that corporate credit unions or specialized credit union service organizations would benefit from larger client/member bases. While consolidation could promote greater efficiency and improve the long-term viability of the credit union system, consolidation can also be overdone, the NCUA said. CUNA’s Corporate Credit Union Task Force and its Next Steps Working Group have backed consolidation when necessary, and Cheney noted that the NCUA has taken the steps needed to ensure that the surviving corporate credit unions will operate in the best interest of their members. The agency in its letter also warned that consolidation, and the increasingly large institutions that could result, could create issues in the event of a failure or other difficulties, potentially denying natural person credit unions access to essential services. The agency also cited the need for a comprehensive contingency plans, and reminded corporates that while the NCUA was forced to step in and take several corporates into conservatorship in recent years, “future agency action to provide such systemic support cannot be factored into contingency plans.” The NCUA added that generating income, identifying risks, and ensuring stability are “difficult enough during normal business operations,” and can “become even more complicated during any consolidation process.” For the full NCUA letter, use the resource link.

Treasury housing plan could eliminate GSEs

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WASHINGTON (2/10/11)—Government-sponsored enterprises Fannie Mae and Freddie Mac, and the concept of government-backed mortgages itself, could be eliminated under a U.S. Treasury plan, Bloomberg News has reported. GSE elimination is one of three options that will soon be presented by Treasury Secretary Tim Geithner, the Bloomberg story said. White House Press Secretary Robert Gibbs confirmed that that presentation would be made before Congress this Friday. The Treasury is also expected to suggest a gradual phasing out of government guaranteed mortgage-backed securities, thus restricting government intervention in the mortgage market to only the worst of financial situations. Geithner will also propose an incremental reduction in the government’s support of the GSEs as a third option. The conforming loan cap, which currently stands at just over $729,000, would also be reduced under one proposal. The Treasury will stop short of proposing specific legislation, and sources told Bloomberg that the proposal could change before it is delivered to the Congress. GSE reform, and, more specifically, transitioning the GSEs out of their current conservatorship was the focus of a Wednesday hearing before the House Financial Services Committee’s capital markets subcommittee. Republican House members and other GSE critics have taken issue with taxpayer costs associated with the government takeover of Fannie Mae and Freddie Mac. The Credit Union National Association (CUNA) also weighed in on the GSEs early last month, supporting "meaningful, comprehensive efforts" to address numerous GSE-related issues. In a letter sent to Geithner, Consumer Financial Protection Bureau architect Elizabeth Warren, and House and Senate financial committee leaders, CUNA recommended that the government find a way to promote housing market efficiency, even if Fannie and Freddie are replaced. The government should also develop a strong supervisory system for secondary mortgage market participants, and that secondary mortgage market should remain open to all parties, CUNA added.

Bernanke backs spendingtax reform in Hill testimony

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WASHINGTON (2/10/11)--Substantive changes to national tax and spending policies would reduce the national deficit and enhance the long-term growth potential of the U.S. economy, Federal Reserve Chairman Ben Bernanke said in testimony delivered before the 112th Congress on Wednesday. Bernanke called on both the Congress and the Obama Administration to make the needed changes. The tax and spending changes could encourage saving, aid investment in employee and workforce training, and promote research and development, Bernanke added. The House Ways and Means Committee is continuously examining the nation’s tax system, and examined economic and administrative issued posed by the current tax system during a Jan. 19 hearing. A number of other tax related hearings are expected. The credit union tax exemption was not on the agenda for the recent hearing, and is not slated to come up in the near future. However, the Credit Union National Association (CUNA) continues to guard against any legislative action regarding the tax exemption by touting the exemption as one of the highest-yielding investments the federal government has made. CUNA figures show that America's 92 million credit union members receive substantial benefits in the form of better pricing on services, saving them about $7.5 billion a year. The $7.5 billion savings to consumers is especially significant when measured against the $1.5 billion in lost federal revenue a year that the government says is represented by the credit union tax exemption. "Further, the tax exemption helps to ensure consumers have choices beyond commercial banks in the financial marketplace. It is appropriate to view these results as evidence of sound public policy," CUNA President/CEO Bill Cheney has remarked.

CUs are 13 of CDFI Funds native American program applicants

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WASHINGTON (2/10/11)--The Community Development Financial Institutions Fund (CDFI Fund) announced a sharp jump in applications for grants and assistance under the FY 2011 round of its Native American CDFI Assistance (NACA) Program. The program, run under the auspices of the U.S. Treasury Department, saw nearly a 50% spike in both the number of applications and in total dollar amounts requested as compared to the 2010 round, “paralleling the rapid expansion of the Native CDFI industry in recent years”, a CDFI Fund announcement said. Loan funds made up the bulk of applicants at 82%, but for financial institutions credit union involvement was way ahead. Credit unions represented 13% of the applications, while banks, thrifts and holding companies comprised just 5% of the applicants. Applicants requested just a hair under $35 million in NACA financial assistance, technical assistance, or both. The CDFI Fund’s NACA Program addresses a lack of economic opportunity in Native communities by increasing access to capital and financial services. The financial and technical assistance is intended to foster the development and expansion of Native CDFIs. According to Treasury, the Native CDFI industry has grown from just 14 certified Native CDFIs in 2001 to 59 as of December 2010, with an additional 60 preparing for certification. “I am delighted to see the strong growth in applications for the NACA Program as Native CDFIs continue their critical work overcoming barriers to capital and promoting economic development in Native communities,” said CDFI Fund Director Donna Gambrell in a release. “Native communities face critical economic challenges and Native CDFIs are providing the leadership and stability to expand opportunity and create lasting change in the communities they serve.” Use the resource link below for more information on Treasury’s CDFI Fund and its programs.