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FASB commits to expedited mark-to-market guidance

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WASHINGTON (3/13/09)—At yesterday’s House subcommittee hearing on mark-to-market accounting, the chairman of the Financial Accounting Standards Board (FASB) committed to expediting guidance on that accounting rule and to having it out within three weeks. That pledge came in response to a demand by Chairman Paul Kanjorski, of the House Financial Services subcommittee on capital markets, insurance and government-sponsored enterprises, which conducted the hearing. Kanjorski said he wanted FASB to work more quickly toward meaningful changes. FASB Chairman Bob Herz said, however, that the guidance likely may simply advise practitioners on how to best apply the mark-to-market accounting standard in an illiquid market. Several subcommittee members threatened legislative change if the FASB does not act expeditiously enough. The hearing included testimony from bank regulators, accounting standard-setters, and private investor representatives. The requirement to mark assets to market comes from U.S. Generally Accepted Accounting Principles (GAAP), which federal banking regulators must generally follow. In his opening remarks, Rep. Barney Frank (D-Mass.), who is chairman of the parent financial services committee as well as a subcommittee member, noted that prior to the savings and loan crisis banking regulators had much more flexibility in applying accounting rules. He added that “it is very important that the (Office of the Comptroller of the Currency), and the other banking regulators that are absent today, consider adding back the discretion that was taken out years ago.” Reps. Frank, Ed Royce (R-Calif.), and Gary Ackerman (D-N.Y.) each asked Deputy Comptroller Kevin Bailey, of the Office of Comptroller of the Currency (OCC), what legislative action would be required for the OCC to ignore mark-to-market. Without directly responding, Bailey noted that banking regulators currently do have some flexibility when it comes to following accounting rules. “While the federal banking agencies use GAAP as a starting point in determining inputs to the regulatory capital rules, there are many important deviations that arise from the different goals of financial reporting and prudential regulatory capital requirements,” noted Bailey in his supplemental statement. Several Representatives, as well as panelists, mentioned the possibility of separating the impairment of an asset due to credit losses from losses due to liquidity; a proposal supported by the Credit Union National Association in its formal statement submitted for the hearing. (See related story: CUNA: Congress should direct new look at mark-to-market.) Kanjorski said he will hold a follow-up hearing after the Spring District Work Session to discuss the progress the FASB has made.

CUNA Congress should direct new look at mark-to-market

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WASHINGTON (3/13/09)—Mark-to-market accounting, with the current volatility in the markets, is having an opposite effect than it was designed for and the U.S. Congress should instruct the appropriate standards-setting body to develop a better approach for illiquid assets, wrote the Credit Union National Association (CUNA) Thursday. CUNA submitted a statement on credit union concerns for the record of a hearing on the practices and implications of mark-to-market accounting conducted by the House Financial Services subcommittee on capital markets, insurance, and government-sponsored enterprises. (See related story: FASB commits to expedited mark-to-market guidance.) CUNA wrote that the accounting practice in question was developed to enhance the accuracy of public financial disclosures. However, it actually skews reporting in the present economic environment when applied to certain instruments, CUNA warned. Mark-to-market accounting requires assets be valued at current market prices. Critics say this can force assets to be marked down to artificially low prices due to the current absence of a market for many asset classes, such as mortgage-backed securities (MBS). Natural person credit unions do not generally hold many assets that must be marked to market. However, more flexible investment authority for corporate credit unions has allowed such investments and writing those down under mark-to-market rules has a negative impact on the whole system, CUNA said. CUNA backed a recent statement by Federal Reserve Board Chairman Ben Bernanke that further review of accounting standards governing valuation and loss provisioning would be useful. Such review could result in modifications to the accounting rules that reduce their procyclical effects without compromising the goals of disclosure and transparency. Therefore, CUNA requested that Congress direct the Financial Accounting Standards Board (FASB) or the Securities and Exchange Commission (SEC) to address expeditiously the problems mark-to-market standards have created, including their application to assets that are other-than-temporarily impaired--or OTTI. Both FASB and the SEC have made recent recommendations on how financial institutions and others should account for illiquid assets, but neither goes far enough and anticipated further action will come too late to be of help, CUNA wrote. CUNA reiterated its recommendation to President Barack Obama that a White House Task Force be established to address mark-to-market concerns and added its endorsement of a plan to separate impairment of an asset due to credit losses from losses due to liquidity. Use the resource link below to read the entire statement.

FDICs survey on bank service to underserved released

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WASHINGTON (3/13/09)--The Federal Deposit Insurance Corp. (FDIC) has released results of its nationwide survey of FDIC-insured banks and their efforts to serve underserved individuals and families. A summary distributed by the California Department of Financial Insititutions (DFI) said the report showed room for improvement in the areas of focus, outreach and commitment. Most of the 685 banks responding to the survey, in fact 63%, said they offer basic financial education materials. However, the DFI noted, fewer participate “in the types of outreach efforts that are viewed by the industry as most effective to attract and maintain unbanked and underbanked individuals as long-term customers.” “Banks are concerned about the profitability of doing business with unbanked and underbanked individuals as well as perceived regulatory issues related to anti-money laundering laws and regulations,” according to the DFI. More favorable, the DFI also pointed out that more than half of the banks have offered limited extended hours and foreign language services at their retail branch operations in the last five years in efforts to make the bank more appealing or convenient for unbanked and underbanked customers. The survey, required of the FDIC by law, was conducted by Dove Consulting, a division of Hitachi Consulting. Participation was voluntary and 54% of the random sample of FDIC-insured banks and thrifts responded. Use the resource link below to access the report, complete with 16 cases studies of innovations to serve the underserved.

Truth in Savings among five NCUA agenda items

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ALEXANDRIA, Va. (3/13/09)—The National Credit Union Administration (NCUA) announced Thursday that it will issue a Truth in Savings proposal at its March 19 meeting and is expected to align itself with a Federal Reserve Board rule addressing overdraft protection plans. The Fed rule, effective July 1, 2010. requires financial institutions to:
* Disclose on a periodic statement the dollar amounts charged for overdraft fees and returned item fees, both for the month and year-to-date; and * Provide account balance information through an automated system that discloses only the amount of funds available for withdrawal, without including the additional funds that would be available under an overdraft program.
The Truth in Savings Act requires NCUA to issue rules that are substantially similar to the ones the Fed issues. Also on the NCUA open board meeting agenda:
* A request from Citadel FCU for a community charter expansion; * A proposed rule on credit union reporting (.Parts 741, 748 and 749 of NCUA’s rules and regulations); * A final rule on the agency’s Regulatory Flexibility Program (Part 742); and * The National Credit Union Share Insurance Fund monthly report.
The meeting is scheduled for 3 p.m. (ET), a break from the normal schedule of 10 a.m. (ET) meetings.

April 2 CUNA audio call set for loan mods

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WASHINGTON (3/13/09)—Credit unions can get the latest information on the Obama administration’s recently announced loan modification and refinance program via an April 2 audio conference call offered by the Credit Union National Association (CUNA). Key speakers will include Laurie Maggiano, senior policy advisor for the U.S. Treasury Department’s Office of Financial Stability, who will address issues surrounding the loan modification program. That plan is intended to allow borrowers who are struggling or unable to make their payment to modify their loans so that payments are affordable. Speakers from Fannie Mae and Freddie Mac, to be announced soon, will address the refinance aspects of the administration program, designed to help mortgaged homeowners who are current on their payments, but unable to refinance their loans because of decreased home values. Under the loan modification plan:
* Borrowers may be offered rate reductions to as low as 2%, extending the term of the loan up to 40 years, and possibly forbearing or reducing the principal. Incentives are provided by the government for lenders, servicers, and borrowers to participate.
Under the refinancing provisions:
* For loans owned or securitized by Freddie and Fannie, borrowers will be able to refinance loans with balances up to 105% of the value of their house, up from the current limit of 80%.
Registration information for the 90-minute, 3:30 p.m. (ET) audio conference will soon be available. Watch CUNA’s News Now for more details.

Inside Washington (03/12/2009)

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* WASHINGTON (3/13/09)--Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and Credit
Click to view larger image Sen. Christopher Dodd (right) and CUNA President/CEO Dan Mica, at a Consumer Federation of America luncheon Thursday. (CUNA photo)
Union National Association (CUNA) President/CEO Dan Mica (right) attend a Consumer Federation of America luncheon March 12. Dodd was CFA's keynote speaker and was seated next to Mica prior to his remarks. Mica serves on the CFA board, where CUNA is a charter member. In his comments, Dodd emphasized that his legislative priorities include allowing cramdowns in mortgage bankruptcy, an issue he said the Senate will try to pass in the next few weeks. He added that he and other key Senators will continue working with CUNA to see if it's possible to find common ground with credit unions on the issue. Turning to Mica, Dodd also referenced his appearance at CUNA's Governmental Affairs Conference last month and acknowledged the good work done for consumers by the 140 credit unions in his home state of Connecticut and those throughout the nation ... * WASHINGTON (3/13/09)—Saundra Braunstein, the Federal Reserve Board’s director of consumer and community affairs, said she favors legislation to overhaul mortgage lending rules. However, she said a bill needs to include legal shields for lenders/ Testifying before a House Financial Services subcommittee this week, Braunstein said a bill should protect mortgage lenders from litigation if they comply with certain standards. (American Banker March 12)… * WASHINGTON (3/13/09)—At a press conference this week, U.S. Treasury Secretary Timothy Geithner aligned himself with key lawmakers and said the Federal Reserve Board would be the right agency to be granted the expanded role of systemic risk regulator. Geithner said regulatory reform should, in part, ensure that major institutions, posing the greatest potential risk to the stability of the system, fall under stronger oversight. It should include, he added, carefully designed constraints on leverage. (American Banker March 12) In a separate story, American Banker reported that while House Financial Services Committee Chairman Barney Frank backs a fast-paced legislative agenda that includes creation of the systemic risk regulator, his counterpart, Chairman Chris Dodd (D-Conn.) of the Senate Banking Committee, appears to be backing a slower approach…