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Corp CU investment tech changes voted by NCUA

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ALEXANDRIA, Va. (3/18/11)--Definitions of the National Credit Union Share Insurance Fund’s (NCUSIF) “equity ratio” and credit union “net worth,” as found in the Federal Credit Union Act, would be revised by National Credit Union Administration (NCUA) actions proposed on Thursday. The equity ratio changes aim to clarify that the NCUSIF’s equity ratio must be based solely on the financial statements of the NCUSIF alone without consolidation with other statements, such as those of conserved credit unions. Under the net worth changes, credit unions will be permitted to count special section 208 assistance provided by the NCUSIF as part of their net worth ratio. The new net worth standards will apply to loans and accounts with remaining maturities of more than five years. These loans and accounts must be subordinate to all other claims, including those of shareholders, creditors, and the NCUSIF. They must not be pledged as a security on a loan to, or other obligation of, any party, and may not be insured by the NCUSIF. The agency also approved the final version of a rule that assigns a zero risk-weighting to the NCUA Guaranteed Notes (NGNs) for risk-based net worth requirements under PCA for complex credit unions purchasing the notes. The Credit Union National Association supported the NCUA’s implementation, and has noted that credit unions that invest in these notes will have no increased risk-based prompt corrective action requirements since they will be entered as a zero in the risk-based net worth equation. Corporate credit unions will also be able to invest in NGNs after the board approved a final rule that corrects the definition of “collateralized debt obligation.” This final rule also corrects the existing list of investments exempt from the single obligor limits and credit rating requirements.

NCUA could tighten rate-risk program rules

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ALEXANDRIA, Va. (3/18/11)—A proposed rule that would require federally backed credit unions to create written interest rate risk policies and develop an individual interest risk management insurance program was the central topic of Thursday’s National Credit Union Administration (NCUA) board meeting. The rate-risk policies must include procedures for identifying, measuring, monitoring, controlling, and reporting interest rate risk. The policies may be incorporated into many of a credit union’s existing policies, including its investment, asset liability management, funds management, or liquidity policies. However, the policies may also be handled separately, the NCUA said.
Click to view larger image The NCUA on Thursday emphasized that safety and soundness concerns were behind their introduction of new interest rate risk regulations. CUNA plans to review the NCUA's proposal, and will oppose any unneeded or superfluous requirements. (CUNA PHOTO)
Once the interest rate risk programs have been developed, they eill be monitored during the NCUA’s periodic credit union examinations. All credit unions with less than $10 million in assets would be excluded from the proposed rule. Credit unions with $10 million to $50 million in assets would also be excluded if their holdings of mortgages and investments with lifespans of over five years is less than 100% of the credit union’s net worth. Agency staff noted that the complexity of a given credit union’s policy should increaqse with its level of risk, and the amount of time needed to develop interest rate risk management policies will vary from institution to institution. NCUA Chairman Debbie Matz said that the agency is introducing the measure to avoid further credit union failures in the event that interest rates on share deposits and other sources of funds increase. Matz encouraged credit unions to begin planning for the rule as soon as possible. The interest rate risk proposal was unanimously supported by all board members. Low home prices and mortgage interest rates, combined with government home purchase incentives, have led to increased volumes of fixed-rate, long-term mortgage originations, and CUNA Senior Economist Mike Schenk has said that these factors can lead to increased interest rate risk because the cost of funding to hold these long-term loans and other assets in a rising rate environment could outstrip the interest income these long-term, fixed-rate investments earn. The NCUA board said it would be beneficial for credit unions to assess their interest rate risk while interest rates remain at historic low levels. Credit unions’ collective exposure to potential interest rate “shocks” imperils the safety and soundness of credit unions, the NCUA said. While she is sympathetic to the existing regulatory burden that is placed on credit unions, NCUA Board Member Gigi Hyland said that bringing credit unions’ interest rate risks under control is vital. Credit unions would have three months to comply if the rule is adopted as final. There is a 60-day comment period for the proposal. The Credit Union National Association continues to have concerns about over regulation. However, CUNA recognizes the need for credit unions to make sure they manage all risks appropriately, CUNA Deputy General Counsel Mary Dunn said. CUNA will be reviewing the proposal carefully with its examination and supervision subcommittee “and will certainly oppose any requirements they and other credit union officials identify as unnecessary or superfluous,” Dunn added.

Number of CAMEL 3-5 CUs dips slightly

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ALEXANDRIA, Va. (3/18/11)—The number of CAMEL Code 3, 4 and 5 credit unions fell between January and February, and those troubled credit unions hold a combined $172 billion in assets, the National Credit Union Administration (NCUA) reported on Thursday. NCUA CFO Mary Ann Woodson reported that there are currently 360 CAMEL 4 and 5 credit unions, representing 5% of insured shares, and 1803 CAMEL 3 credit unions, representing 18% of insured shares. The equity ratio of the National Credit Union Share Insurance Fund stood at 1.29% as of February 28, and the fund held $758 billion in insured shares and $1.2 billion in reserves at that time, Woodson said. The agency last month did not write off any of the NCUSIF’s assets as insurance loss expenses in February. The NCUA had budgeted $54.2 million in funds to cover insurance loss expenses during that month. Woodson also reported on the status of the Temporary Corporate Credit Union Stabilization Fund, noting that that fund’s net equity position was negative $5.984 billion as of February 28. This is an improvement from January’s numbers.

Govt. funding resolution cuts CDFI funds

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WASHINGTON (3/18/11)—The latest in a series of continuing resolutions to fund the federal government was signed into law on Thursday, and this resolution would again cut funding to the U.S. Treasury’s Community Development Financial Institutions (CDFI) Fund to the tune of $3 million. The resolution, which will fund the government until April 8, was passed by the Senate earlier in the day and passed the House on Tuesday. The CDFI Fund helps locally based financial institutions offer small business, consumer and home loans in communities and populations that lack access to affordable credit. According to the Treasury Department in January, credit unions represent 13% of the total applicant pool for the 2011 round of the CDFI Fund program. The administration sought $250 million in CDFI funding for FY 2011.

Inside Washington (03/17/2011)

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* WASHINGTON (3/18/11)--Federal Deposit Insurance Corp. Chairman Sheila Bair's last scheduled address to the American Bankers Association underscored the tension between the regulator and financial institutions, including credit unions. Bair was direct in her comments to the group, saying that financial institutions did not serve the best interests of American consumers in the events leading up to the financial crisis. “In policy terms, the success of the financial sector is not an end in itself, but a means to an end--which is to support the vitality of the real economy and the livelihood of the American people,” Bair said. “What really matters to the life of our nation is enabling entrepreneurs to build new businesses that create more well-paying jobs, and enabling families to put a roof over their heads and educate their children. In our national economic life, your contribution as bankers, and ours as regulators, can only be measured against this yardstick. And let’s be completely honest--in the period that led up to the financial crisis we did not get the job done.” The question-and-answer period of Bair’s presentation added to the tension (American Banker March 17). Bankers argued that the Dodd-Frank Act was overregulating their industry and interfering with their day-to-day operations. Credit unions have registered many of the same arguments. Bair said Dodd-Frank was targeted to large institutions and small financial institutions were exaggerating the effects of the law … * WASHINGTON (3/18/11)--The Department of Housing and Urban Development (HUD) has initiated an enforcement action against a large lender that coerced title agents into covering settlement costs that exceeded the amounts disclosed on good faith estimatex. HUD would not identify the lender (American Banker March 17). If closing costs end up exceeding the estimate given to loan applicants, the lender must repay borrowers above set amounts, according to Real Estate Settlement Procedures Act rules. The large lender sent letters and invoices to title agents demanding reimbursements and threatened to deny them future business if they didn’t pay, Laura Gipe, a Respa specialist at HUD, told the American Land Title Association on Tuesday … * WASHINGTON (3/18/11)--At a House hearing nominally scheduled as oversight of the rules creating the Consumer Financial Protection Bureau (CFPB), the conversation at one point turned to a settlement agreement being negotiated between a group of state attorneys general and several federal agencies with the major mortgage servicers. During the hearing, some lawmakers slammed Elizabeth Warren of the CFPB for her role in the negotiations. Meanwhile, outside the hearing room, two state attorneys general voiced their opposition to the proposed deal. Both indicated that mistakes banks had made in mortgage servicing needed to be corrected, but said the 27-page proposed agreement went too far when it pushed principal reductions and other broad changes (American Banker March 17) …

MBL cap gets Senate floor attention

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WASHINGTON (3/18/11)--As anticipated, Sen. Mark Udall (D-Colo.) took to the Senate floor Thursday and asked his colleagues to include an increased cap for credit union member business lending (MBL) in a small business bill currently under debate. Also as anticipated, it was questioned whether the MBL provision could be added to the larger bill under the Senate’s strict rules about germaneness--which demands that the amendment be acutely relevant to the core bill. The core bill came to the Senate Floor via the Committee on Small Business and Entrepreneurship. Sen. Mary Landrieu (D-La.) introduced the core small business bill (S. 495), which would revise provisions and extend the funding of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR). Objecting to the MBL amendment’s addition, Landrieu said that the Senate Banking Committee would have jurisdiction over MBL legislation. Udall’s MBL bill would, in part, increase the MBL cap to 27.5% of a credit union’s assets, up from the current 12.25%. His bill, Small Business Lending Enhancement Act of 2011 (S. 509), currently has 17 sponsors. Credit Union National Association (CUNA) research has shown that the increased MBL cap could provide up to $13 billion to small businesses in the first year alone and create over 140,000 new jobs. CUNA underscores that these economic benefits come at no cost to taxpayers. CUNA Senior Vice President of Legislation John Magill reiterated Thursday that Udall’s action is “just the beginning” for MBL legislation this year. He said CUNA and credit unions are serious and engaged in the MBL effort, and are grateful that the Congress remains “keenly focused on this important credit union issue."

iWSJi editorial bashes interchange rule

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WASHINGTON (3/18/11)--A Thursday editorial featured in the Wall Street Journal had biting words for the Dodd-Frank Act provisions instructing the Federal Reserve to “fix prices on debit cards,” and for the lawmakers who supported the price-fixing. The editorial explains that Dodd-Frank ordered the Fed to “fix prices” on what card issuers may charge merchants “each time they swipe a transaction” with a customer’s debit card. “Under the new Fed rule, which will take effect in April unless Congress acts to stop it, that fee will be capped at 12 cents per transaction, reducing the charges by some $12 billion to $14 billion and in effect transferring the cost of debit cards from the merchants who pay the fees to the consumers who use them,” the editorial said. It also took aim at merchants’ claims that they would pass savings from the lower debit cahrge interchange fees on to consumers as lower prices on merchandise. “While that is doubtful, the loss of that revenue will force debit card issuers to raise fees elsewhere to compensate,” the editorial charged. Just look at the 2009 credit card reforms, which are driving free checking to extinctions, and you can extrapolate what will happen with debit cards, it said. While acknowledging the “Durbin amendment,” so called because it was drafted by Sen. Richard Durbin (D-Ill.), included an exemption for small issuers with $10 billion of less in assets, the Wall Street Journal said it was meaningless: “(F)ew small (issuers) will be able to compete in a marketplace blanketed with the artificially lowered fees of larger institutions. The editorial also gave the amendment’s congressional supporters a hard poke. “Amended to Dodd-Frank at the last moment, the Durbin gambit avoided the scrutiny of hearings and passed the Senate 64-33.” The bi-partisan nature of the vote, with 17 Republicans included, “proves that ignorance is bipartisan.