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Inside Washington (04/09/2009)

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* WASHINGTON (4/10/09)--Evidence of Treasury’s success or failure to help solve the financial crisis is mixed, according to Elizabeth Warren, chair of the Congressional Oversight Panel. The panel has released its April Oversight Report, “Assessing Troubled Asset Relief Program (TARP) Strategy.” The report comes out six months after TARP was created under the Emergency Economic Stabilization Act of 2008. Treasury has spent or committed $590.4 billion in TARP funds in the past six months, and has relied on the Federal Reserve’s balance sheet--which has expanded by more than $1 trillion, the report said. The Treasury’s outlook on the crisis focuses on banks’ problems as temporary--and fails to acknowledge that the crisis may be deeper, Warren said. “Treasury’s efforts to date could be enough, but we will continue to press them,” she said ... * WASHINGTON (4/10/09)--The Obama administration is encouraging large investment companies to establish bailout funds--similar to war bonds, which were created during World War I to help soldiers (The New York Times April 9). The theory behind the bailout funds is that they would purchase troubled securities from banks, helping lenders make loans to stabilize the economy. The funds could eventually be sold to garner a profit. However, analysts say investors could lose money if banks’ assets aren’t worth as much as investors thought. The funds, which are currently under discussion, would not be created for several months if the plans are approved ... * WASHINGTON (4/10/09)--The banking industry is in better shape than some think, according to federal examiners who spent the last eight weeks stress-testing institutions to see how they would fare if the recession gets worse (The New York Times April 9). Though some banks are holding up in the tests--regulators say 19 of the banks being examined will pass--the nation’s largest lenders may need a bailout. Citigroup, JPMorgan Chase and others are expected to report their first-quarter results soon. Though the results could indicate that the banks are bouncing back, the banks also could report large losses on real estate and corporate loans, and credit cards ... * WASHINGTON (4/10/09)--The Federal Deposit Insurance Corp. (FDIC) Thursday was scheduled to offer a second conference all for investors interested in participating in its Legacy Loans program (American Banker April 9). The first call attracted 2,700 participants. The Legacy Loans Program aims to attract private capital through an FDIC debt guarantee and Treasury equity co-investment ...

CU comment wanted on operating fee plan

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WASHINGTON (4/10/09)—The National Credit Union Administration’s (NCUA) plan to exclude investments in CU SIP or CU HARP from a credit union’s calculation of its operating fee is intended to encourage investment in those programs. The Credit Union National Association (CUNA) is asking credit unions to comment on whether there might be any hidden drawbacks to the proposal. The Federal Credit Union Act requires a federal credit union to pay an annual operating fee to the NCUA, but the agency has discretion in defining how the fee is determined. Under the NCUA’s current formula, there is a direct correlation between the amount of a credit union’s investments and its operating fee. The NCUA established CU SIP, or the Credit Union System Investment Program (CU SIP), and CU HARP, or the Credit Union Homeowners Affordability Relief Program, late last year as part of its effort to stabilize the corporate credit union system. Under CU SIP, credit unions borrow from the Central Liquidity Facility (CLF) and then invest those proceeds in a corporate credit union. Under CU HARP, credit unions borrow from the CLF and then invest those proceeds in a two-year guaranteed CU HARP note issued by a corporate credit union. CU HARP funds are used to modify mortgages at risk of default. The NCUA has encouraged credit unions to participate in both CU SIP and CU HARP. However, the agency said in March it is concerned that since investments in both these programs result in increased operating fees, some credit unions will refrain from participating. The agency will accept comments on its proposal until May 4. CUNA requests credit union comment by April 21. In addition to identifying any unintended consequences that could occur under the proposal, CUNA also asks for credit union comment on any other changes that could help increase CU SIP and CU HARP participation. Use the resource link to read the CUNA comment call.

More accounting guidance sent to NCUA examiners

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WASHINGTON (4/10/09)—National Credit Union Administration (NCUA) examiners received additional clarification today regarding credit unions' flexibility in booking the National Credit Union Share Insurance Fund (NCUSIF) deposit impairment, according to NCUA. The agency wants to ensure that its field staff is consistent with advice to credit unions that they have some flexibility in deciding whether to book the impairment of the NCUSIF deposit on their March 31 statements. The newest guidance addresses the recently released Accounting Bulletin (AB 09-02) and subsequent memo to field staff on accounting for the insurance costs associated with NCUA Corporate Stabilization Plan. According to Mary Dunn, Credit Union National Association (CUNA) deputy general counsel, the newest communication clarifies that for any credit union using the accrual basis of accounting, examiners should not take exception with either of the following decisions:
* If the credit union records the deposit impairment and premium expense consistent with the guidance in AB 09-2; or * If the credit union accounts for the deposit impairment and premium expense (including not recording them at all) in accordance with written guidance from a licensed practitioner that states the guidance is consistent with generally accepted accounting principles—or GAAP.
Even if a credit union delays booking the impairment of the NCUSIF deposit without guidance from a licensed practitioner, Dunn said Thursday, the NCUA has indicated that examiners are directed not to take harsh action. They should instead note such action as an exception under "Informal Discussion Item" or at most an "Examiner's Finding" on the credit union's examination report. CUNA will continue to work with the NCUA as corporate credit union issues continue to develop.