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Inside Washington (04/17/2009)

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* WASHINGTON (4/20/09)--Regulators could publish a paper Friday about the methodology behind stress tests given to 19 of the nation’s largest banks (American Banker April 17). The tests were given to gauge the institutions’ ability to withstand adverse economic conditions. Regulators plan to release the preliminary test results May 4 ... * WASHINGTON (4/20/09)--Federal Deposit Insurance Corp. (FDIC) Chief Operating Officer John Bovenzi announced that he plans to leave the agency in several weeks. Bovenzi started his career at the FDIC before the savings and loan crisis, later managed the FDIC’s research department and then became top deputy to former FDIC Chairman L. William Seidman (American Banker April 17). Bovenzi took a break from his job at the FDIC in July to become CEO of the failed IndyMac Bank, which the FDIC took into conservatorship ... * WASHINGTON (4/20/09)--The Treasury Department has been asked by financial industry trade groups to allow banks to repay Troubled Asset Relief Program (TARP) rescue funds without charging them to repurchase extended warrants under the program. Public companies are required to issue warrants that equal up to 15% of the government’s investment, while nonpublic companies were required to pay 5% (American Banker April 17). If the warrants aren’t redeemed, the Treasury could risk criticism that it’s continuing to help the banks, said Gil Schwartz, a partner at Schwartz and Ballen LLP. Industry representatives met with President Barack Obama on the issue last week ...

NCUA releases summary of PIMCO report

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ALEXANDRIA, Va. (4/20/09)--The National Credit Union Administration (NCUA) released a summary of the analysis of the Pacific Investment Management Company, LLC (PIMCO) on the residential mortgage-backed securities held by corporate credit unions Friday. The summary does not provide a detailed review of PIMCO's analyses or findings, but it provides information on the process for valuing the loans on which the mortgage-backed securities are based and information on PIMCO's views and conclusions. The summary states: “The results of cash flow projections (for the underlying loans) showed a wide range of possible value results due to the volatility of the items that impact cash flow projections. Market prices derived from third party vendors and PIMCO's internal analysis were significantly lower than the aggregate fair value of the same securities reported by the corporate credit unions (as of Jan. 31, 2009).” Earlier last week, it was expected that NCUA would also address extinguishment of the capital in WesCorp and U.S. Central. However, the release said that issue will be addressed following the release of the analysis for the Clayton Fixed Incomes Services, Inc. Clayton is reviewing private label mortgage-backed securities at U.S. Central and WesCorp. NCUA used the Pacific Investment Management Company (PIMCO) to supplement its own analysis of the corporates, but Clayton’s review will help to more fully inform NCUA of projected loss exposure for the share insurance fund, NCUA said. The Clayton analysis is expected to be complete by the end of this month or early May for posting March 31 statements. CUNA had urged NCUA to hold off making further statements about capital extinguishment until the Clayton analyses are available. Unlike impairment, which is addressed by Generally Accepted Accounting Principles, extinguishment of capital would be determined by NCUA. Once extinguishment has been determined, any recoveries relating to the securities would go to the corporate credit union's retained earnings and would not have to be distributed on the basis of paid-in-capital and member capital accounts at the time of conservatorship, even though such capital would be used for the losses. CUNA questions whether extinguishment for corporate credit unions is appropriate and continues to urge NCUA to consider other alternatives. CUNA will continue to urge NCUA to provide more information to credit unions on its loss estimates for the two conserved corporate credit unions and how those estimates are determined.

Whats ahead in Congress this week (04/17/2009)

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WASHINGTON (4/20/09)--Congress is back in session this week after a two-week break. Both senators and congressman are expected to take up issues of interest to credit unions. The House Financial Services Committee is expected to consider and vote on Rep. Carolyn Maloney’s (D-N.Y.) bill that aims to curb abusive and deceptive credit card practices. The panel also may mark up legislation on predatory mortgages. Maloney’s bill would require credit card companies to give 45 days’ notice prior to an interest rate change and prohibit credit card companies from increasing rates on existing balances except under certain circumstances. A similar bill has been introduced by Sen. Christopher Dodd (D-Conn.) in the Senate. On the Senate side, the Credit Union National Association has continued to work for modifications in pending legislation that would allow bankruptcy courts to modify, or “cramdown,” terms of existing mortgages. On March 5, the House voted 234-191 in favor of H.R. 1106, Helping Families Save Their Homes Act, which contained cramdown provisions. CUNA strongly opposes the House bill and has continued to work in the Senate for changes before that chamber votes on the measure. CUNA believes there is an opportunity to limit the scope, application and duration of the legislation. Though CUNA does not support the cramdown provisions in H.R. 1106, it does support another provision that would make higher share and deposit insurance ceilings permanent. Although H.R. 1106 is highly controversial in the Senate, a vote could be called within the next few weeks.