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Bair Large banks need to increase capital

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WASHINGTON (4/2/09)--Large banks deemed “high risk” should raise their capital to protect the overall financial system, said Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair in a speech Wednesday that was widely reported by national media. The capital requirements should be a part of regulatory oversight of risky institutions. Regulators must end the notion that large banks are “too big to fail,” Bair said (Associated Press April 1). Last week, the Obama administration released details of a plan that would overhaul financial regulation. The plan would establish a single agency to oversee systemically important firms and critical payment and settlement systems. It also would establish higher standards on capital and risk management for systemically important firms (News Now March 27). Earlier this year, Bair said that U.S. banks were well-capitalized. However, she acknowledged that prolonged shocks to the banking system would require institutions to increase their capital reserves (News Now Feb. 25).

Committee to vote today on credit card bill

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WASHINGTON (4/2/09)--The House Financial Services subcommittee on Financial Institutions is scheduled to vote today on H.R. 627, the Credit Cardholders’ Bill of Rights Act, which amends the Truth-in-Lending Act. The bill would establish fair and transparent practices related to the extension of credit under an open-end consumer credit plan. On Tuesday, the Credit Union National Association (CUNA) sent a letter to Rep. Luis Gutierrez (D-Ill.), chairman of the subcommittee. In the letter, CUNA noted that H.R. 627 would require creditors to provide cardholders, in each periodic statement, a telephone number, Internet address and website address at which the cardholder may request the payoff balance on the account. Most credit unions already provide a telephone number but should not be required to also provide an Internet address and website since not all credit unions have interactive Internet capabilities, CUNA said. CUNA supports an amendment to the bill that would extend the legislation’s effective date from three months to one year after enactment or June 1, 2010--whichever comes first. “With this change, credit unions can continue to prepare to comply with the new regulations--without the additional cost associated with expediting compliance--while providing their members with the financial tools and services on which they rely,” wrote CUNA President/CEO Dan Mica. On Tuesday, the Senate Banking Committee voted Tuesday in favor of S. 414 that would amend the Consumer Credit Protection Act to ban abusive credit practices, enhance consumer disclosures and protect underage consumers.

Inside Washington (04/01/2009)

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* WASHINGTON (4/2/09)--Federal Reserve Board leaders and former leaders expressed their concerns about creating a systemic regulator (American Banker April 1). According to Alan Greenspan, former Fed chairman, regulators can’t identify systemic risk very well in advance. Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in a speech Tuesday that new regulatory restrictions would trigger large supervisory costs and stifle innovation. Creating a new regulator also would add a “new layer on top of an already complicated system,” said Vincent Reinhart, Fed former director of monetary affairs. The Obama administration announced last week a plan for financial regulatory overhaul that would include creating a regulator to oversee systemically significant institutions (News Now March 27) ... * WASHINGTON (4/2/09)--The Treasury Department needs to establish a better system to collect dividend payments under the Troubled Asset Relief Program (TARP), the Government Accountability Office (GAO) said in a report released Tuesday. TARP had received about $2.9 billion in dividends through March 20. But dividends were not declared or paid to Treasury for $733 million of cumulative dividends from American International Group (AIG) under the Systemically Significant Failing Institution Pogram and $150,000 of noncumulative dividends from eight institutions under the Capital Purchase Program (CPP), according to the report. As of March 27, Treasury has disbursed $303.4 billion of the $700 billion in TARP funds, most of which went to purchase preferred shares of 532 financial institutions under the CPP. Treasury “has continued to improve the integrity, accountability and transparency of TARP,” GAO said. However, it provided six recommendations for executive action in its report to improve the program ... * WASHINGTON (4/2/09)--The Treasury Tuesday announced that it will extend its temporary money market funds guarantee program through Sept. 19 to support stability in the financial markets. The program was scheduled to end April 30. The Treasury also released an extension notice to provide the procedures for participating funds to ensure participation in the program and instructions for making extension participation payments. An extension payment, notice and updated AnnexA are due by April 13. A Bring-Down notice is due May 11 ...

NCUA reiterates Flexible stance on impairment accounting

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WASHINGTON (4/2/09)—The National Credit Union Administration (NCUA) intends to issue an accounting bulletin stating the agency will be flexible about when a credit union books the cost of the premium being assessed to replenish the National Credit Union Share Insurance Fund (NCUSIF). In a communication provided to the Credit Union National Association (CUNA) yesterday the NCUA said it will not object if a credit unions works with its accountant and delays booking the impairment of the 1% NCUSIF deposit. The insurance costs, which include replenishing the 1% NCUSIF deposit and an insurance premium to restore the NCUSIF to 1.3%, pay for the costs to the NCUSIF associated with NCUA’s actions involving corporate credit unions. These actions include placing U.S. Central FCU and Western Corporate FCU into conservatorship March 20, providing deposit guarantees for corporate credit unions and $1 billion in capital to U.S. Central. The bulletin language will state, "The regulatory reporting guidance in Accounting Bulletin 09-2 reflects the actions the NCUA has taken which appropriately should be reported by the March 31, 2009 quarter-end. “The various proposed legislative alternatives, if granted by Congress and acted upon by the board, could help the credit union industry spread the impact of assessments to reposition the NCUSIF to cover future losses." The agency announced last week that it has drafted legislation that will allow credit unions to spread out the deposit replenishment costs. There is also pending legislation to allow NCUA to spread out insurance costs for up to five years. CUNA supports such legislative action and continues to urge that insurance costs be spread out over seven or eight years. CUNA also supports legislation to increase the agency's borrowing authority to help finance the insurance costs. The bulletin, expected this week, will provide official notice of what a senior NCUA staff member told CUNA last week (News Now March 30). Stressing the need for congressional action for the bill to become law—and the uncertainty that surrounds that process—the NCUA bulletin will state that if a credit union’s licensed practitioner is willing to provide a written opinion that allows for the delay in the recording of the expenses and indicates in their opinion it is in compliance with GAAP, NCUA examiners will not take exception absent a definitive ruling from the accounting profession to the contrary.

CUNA backs FASB OTTI fair value plans

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WASHINGTON (4/2/09)—The Credit Union National Association (CUNA) backed two recent Financial Accounting Standards Board (FASB) proposed staff positions (FSPs) that are intended to provide additional application guidance regarding fair value measurements and impairments of securities. In summary, FASB released the following for comment on March 18:
* Proposed FSP FAS 157-e, called Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, would provide guidelines on how to best apply FASB Statement No. 157, Fair Value Measurements, in a market that is not active. * Proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b, Recognition and Presentation of Other-Than-Temporary Impairments(OTTI), is intended to provide greater clarity and consistency in accounting for and presenting impairment losses on securities.
In an April 1 comment letter to FASB, CUNA wrote generally supports the proposed FSP on OTTI and encouraged the board to make the guidance applicable both to debt and equity securities. CUNA wrote that FASB’s companion proposed FSP on fair value likely would minimize the need for the OTTI proposal. However, the group encouraged FASB to also adopt the OTTI plan “as long as it is entirely consistent with the proposal on fair value and other existing guidance.” CUNA also asked FASB to make the guidance retroactive to Dec. 31, 2008. FASB has proposed both sets of guidance would be effective for interim and annual periods ending after March 15. FASB has scheduled an April 2 meeting to evaluate all comment letters and other input received on the FSPs. Use the resource link below to read CUNA’s comment in its entirety.

Payday Loan Reform Act hearing today

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WASHINGTON (4/2/09)--The House Financial Services subcommittee on Financial Institutions is scheduled to hold a hearing today on the Payday Loan Reform Act--H.R. 1214--which would address two major payday loan concerns. H.R. 1214 focuses on the fees charged by lenders for payday loans and the cycle of debt that consumers incur when they cannot immediately repay their loans. If approved, the bill would create a federal floor on which state consumer protections can be added and give borrowers a three-month repayment plan with no additional fees or interest. The bill also would prohibit lenders from making more than one payday loan at a time to a consumer, or to accept a payment plan payment from another payday loan. “The status quo in the payday lending industry is unacceptable,” said Rep. Luis Gutierrez (D-Ill.), subcommittee chairman. “And I will fight to provide a federal safety net for the working poor who are suffering the most in this economic downturn.” H.R. 1214 would “improve the payday lending laws in 23 states and provide additional consumer protections for millions of hardworking Americans who do not have access to the mainstream financial system,” Gutierrez added.