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CUNA comment on corporates suggests new model

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WASHINGTON (3/10/10)--Credit Union National Association (CUNA) President/CEO Dan Mica in a comment letter to the National Credit Union Administration (NCUA) said that CUNA supports corporate credit unions but not the business model that many, but not all, used. The comment letter, which addressed the NCUA's proposal to drastically revise the regulation of corporate credit unions, was developed by CUNA's Corporate Credit Union Task Force. Responding to the views of credit unions around the country that they would not recapitalize a corporate credit union, CUNA's letter called for a new business model for corporate credit unions that would require relatively smaller amounts of capital and result in small balance sheets comprised mostly of the settlement balances of natural person credit unions. This approach would allow corporate credit unions to focus on key services for natural person credit unions, such as settlement, payment and liquidity. Corporate entities could also help meet the investment needs of credit unions by providing advisory or management services or by providing access to key investment services through a corporate credit union service organization, the letter suggested. “Few issues have been as disruptive to the entire credit union system as the corporate credit union investment problems that led to the establishment of the NCUA's Corporate Stabilization program. Natural person credit unions are in the process of paying approximately $9.5 billion, as presently estimated, for losses that resulted from the current business model. This includes an estimated $6 billion for the Corporate Stabilization, about $3 billion of lost reserves and undivided earnings of corporates, and upwards of $400 million in paid-in capital at corporates,” the letter added. Shifting corporate credit union business practices toward payment and settlement services "would protect credit union influence on the financial system and provide opportunities for economies of scale," CUNA's letter emphasized. Corporates could also meet the investment needs of natural person credit unions by operating or providing access to money market mutual funds and other investment funds and providing brokerage or financial advisory services. A move toward these types of services, which could be "provided through the entity, entities or through subsidiaries or vendors," would allow the existing corporates to avoid "undue regulatory intervention," according to CUNA. Corporates would still be able to "serve natural person credit unions' interests effectively, the letter added. While the NCUA's proposal provided a reasonable regulatory framework that would accommodate a new business model for corporate credit unions, CUNA in the letter also called on NCUA to make significant changes, including taking a leadership role in facilitating the transition to a new model. While the capital and prompt corrective action provisions are generally appropriate, CUNA said that the NCUA has reserved too much authority for itself to require additional capital beyond the levels in the proposal and to downgrade a corporate credit union's net worth for seemingly arbitrary reasons. While it felt that the requirements for disclosure of compensation of officials were too cumbersome, CUNA did speak in support of allowing up to 20% of the directors of a corporate credit union to come from outside the credit union system to provide additional expertise to the corporate. CUNA in the letter also announced that it will form a new working group to address potential issues caused by the pending corporate credit union system transitions. Further, the letter urges the agency to address the issue of corporate credit unions' legacy assets so that future capital will not be at risk for future losses related to those current mortgage and asset backed securities. CUNA commended NCUA Chairman Debbie Matz for addressing this issue, but asked the agency to issue a communication to credit unions on its potential plans for the legacy assets. The NCUA should also develop a plan for dealing with those assets that is in the best interest of credit unions before the final corporate rule is adopted, CUNA added. For the full comment letter, use the resource link.

House committee chair Frank CRA to be re-examined

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WASHINGTON (3/10/10)--Speaking during a Tuesday House Financial Services Committee hearing on community development financial institutions (CDFIs), Committee Chairman Rep. Barney Frank (D-Mass.) suggested that he and committee colleague Rep. Maxine Waters (D-Calif.) could soon re-examine and consider expanding the reach of the Community Reinvestment Act (CRA). Potential legislation that would extend the CRA beyond banks to other financial institutions, including credit unions, has several co-sponsors and could come up in Congress this year. The National Federation of Community Development Credit Unions last year spoke out against forcing credit unions under CRA standards, instead promoting voluntary initiatives such as its Community Development Partners Program. Assistant Treasury Secretary for Financial Institutions Michael Barr called for greater support for CDFIs, and Community Development Financial Institution Fund Director Donna Gambrell highlighted the CDFI Fund’s recently begun review of its authorizing statute. Rep. Spencer Bachus (R-Ala.), the ranking minority member of the committee, said that greater oversight of CDFI programs is needed. In a prepared statement, Bachus said that while CDFIs “have a proven track record of providing economic development dollars to underserved communities,” the success of CDFIs should not “lead to looser standards” and the government should “ensure that the CDFI Fund program is properly administered so that funds are provided to individuals and entities that both have productive uses for it and would otherwise not have access to financing.” Bachus also opposed redirecting funds from the Treasury’s Troubled Asset Relief Program into the CDFI Program.

Inside Washington (03/09/2010)

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* WASHINGTON (3/10/10)--The New York Times Tuesday reported that the Senate’s upcoming financial regulatory reform plan would limit the Federal Reserve’s regulatory powers to the largest of banks. The story, which was based on anonymous sources, said that under the new regulatory plan, which is expected to be released this week, the Fed would only cover banks with over $100 billion in assets, effectively limiting the Fed’s influence to 23 of the nearly 5,000 bank holding companies on U.S. shores. Banks that are not covered by the Fed will be overseen by a new regulator that is comprised of a potentially merged Office of the Comptroller of the Currency and Office of Thrift Supervision. State banks would fall under the purview of the Federal Deposit Insurance Corp. Sens. Chris Dodd (D-Conn.), Bob Corker (R-Tenn.) and Mark Warner (D-Va.) reportedly support the plan. Sens. Judd Gregg (R-N.H.) and Mike Johanns (R-Neb.) oppose the plan, according to the Times… * WASHINGTON (3/10/10)--Thirty-nine members of Congress have provided their support for the 2010 Credit Union Cherry Blossom Ten
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Mile Run by signing up as honorary race chairs. The legislators represent 22 states and the District of Columbia. The run will be held April 11 in Washington, D.C. PSCU Financial Services is the lead corporate sponsor. The money earned from the race will benefit Children’s Miracle Network hospitals. Runners and other individuals have donated more than $150,000 in the online giving program for the 2010 run. Credit unions also will provide 500 volunteers who will serve on race day. Last year, the run had 133 sponsors, including 95 credit unions. Roughly 15,000 runners participated. This will be the ninth year credit unions have sponsored the event. Through the sponsorship, credit unions have donated $4 million to Children’s Miracle Network hospitals. The pictured map indicates which U.S. states have honorary chairs and where children’s hospitals are located. (Photo provided by PSCU Financial Services) ... * WASHINGTON (3/10/10)--Federal Deposit Insurance Corp. (FDIC) Sheila Bair said financial reform should include nonbanks. She spoke Monday to a business economists group. Reforms enacted after the thrift crisis of the 1980s contributed to safer industry practices, but the reforms “erred” because they excluded nonbanks and provided incentives for financial services to grow outside of the regulated sector, she said (American Banker March 9). The measures put in place to eliminate moral hazard encouraged risk-taking by nontraditional bankers in the “shadow banking system,” she added. Policymakers are debating financial reform and making sure it affects all aspects of the financial industry ...