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NEW: Fed Policymakers Hold The Line

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WASHINGTON (FILED at  2:40 p.m.  ET 5/1/13)--As expected, the Federal Reserve's monetary policymakers, the Federal Open Market Committee (FOMC), held the line on the Fed's bond-buying and interest rates another month. However, it formally announced, for the first time, that it would increase or decrease the bond buying policy "as the outlook for the labor market or inflation changes."

Noting that "economic activity has been expanding at a moderate pace," the committee, in its statement  today after a two-day meeting, said it will continue buying back $40 billion a month in Treasuries and $45 billion a month in mortgage-backed securities (MBS) as part of its continued quantitative easing policy.

The targeted federal funds rate for short-term loans remains at 0% to 0.25%. The Fed has said in the past it would keep the rates at near-zero levels until unemployment fell to 6.5% or lower--if inflation forecasts were no more than 2.5%.  Currently the unemployment rate is at 7.6%, and the inflation gauge is below the 2% target.

The FOMC noted that labor market conditions have shown some improvement in recent months but the unemployment rate remains elevated. "Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable," said its statement.

The committee said that "with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of price stability and fostering maximum employment.

FOMC "continues to see downside risks to the economic outlook" and "anticipates that inflation over the medium term likely will run at or below its 2% objective."

In deciding to continue to purchase more agency MBS and longer-term Treasury securities, known as quantitative easing, FOMC said it "is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

The committee "will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability," the statement said. It added the FOMC "is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives."

In deciding to keep the target range for federal funds at 0% to 0.25%,  FOMC said it "expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens." It anticipates "that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored.

In determining how long to maintain a highly accommodative stance of monetary policy, the committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. "When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."

Voting for the policy action were Fed Chairman Ben S. Bernanke; Vice Chairman William C. Dudley; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.

Esther L. George, who voted against the action, said she was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

For the full statement, use the link.

Members Borrow More In Q1, Save Less Than Year Ago

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MADISON, Wis. (5/1/13)--First-quarter credit union financial results indicate members were more willing to borrow and less willing to save than a year earlier, according to a Credit Union National Association economist's analysis of March's monthly sample of credit unions.

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"Loan balances rose 0.4% in the first three months of 2013, compared with a slight decline in the first quarter of 2012," Steve Rick, CUNA senior economist, told News Now. "Members are in the auto-buying mood with new- and used-auto loan balances rising 2.5% and 2.3%, respectively, in the first quarter, compared with 0% and 1.2% last year.

CUNA economists are forecasting overall credit union loan balances to rise 5.5% this year, "the fastest pace since 2008," he added. "The increase in loan balances, combined with the simultaneous drop in the dollar amount of delinquent loans, brought down the loan delinquency rate--delinquent loans to total loans--from 1.15% at the end of 2012 to 1.03% at the end of March 2013. We expect the delinquency rate to fall another 10 basis points to end the year around 0.93%."

CUNA released its Monthly Credit Union Estimates Tuesday. Credit union loans totaled $617.3 billion, compared with $586.9 billion in March 2012. Credit union loans outstanding rose 0.3% during March, compared with a 0.1% increase for the same month last year. Fixed-rate first mortgages led loan growth, increasing 1.6%. Used-auto loans rose 1.2%, home-equity increased 1%, and new-auto loans went up 0.9%. Adjustable-rate mortgages declined 1.6%, other loans outstanding dropped 1.4%, and unsecured personal loans decreased 0.5%.  

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Credit union savings totaled $931.1 billion in March--or $46.5 billion more than $884.6 billion in March 2012. Credit union savings balances rose 1.8% in March, compared with a 2.7% increase in March 2012. Share drafts led savings growth with an increase of 3.9%, followed by regular shares (2.8%), individual retirement accounts (1.6%), and money market accounts (0.9%). One-year certificates fell 0.2% during March.  

"First-quarter savings balance growth (3.8%) came in below last year's pace (4.6%) due to the expiration of the payroll tax cut, higher gas prices and an increased willingness by members to spend," Rick explained. "For the year, we expect savings balance growth to come in at 5%, slightly below last year's pace of 6%."

The movement's overall capital-to-asset ratio remained at 10%. The total dollar amount of capital is $111 billion.

"Credit unions reported first-quarter earnings of 0.75%--as a percentage of average assets--similar to the pace set last year," Rick said. "This earnings rate should be sufficient to boost capital-to-asset ratios from 10.2% today to 10.7% by year end."

Total credit union membership grew 0.3% during March 2013. As of February, credit union membership totaled 96.7 million.

With savings outpacing loans, credit union's average loan-to-savings ratio decreased one percentage point, to 66.3% in March from 67.3% in February. The liquidity ratio--the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities--is 21%.

Credit unions' 60-plus-day delinquency rate declined to 1% during March from 1.1% in February.

Illinois League Legislative Day Kicks Off Today

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SPRINGFIELD, Ill. (5/1/13)--More than 110 credit union activists are expected to attend the Illinois Credit Union League's annual legislative day and reception today in Springfield.

The event continues a new format started last year with an earlier start time to provide attendees with opportunity to visit their local lawmakers earlier in the day.

Other events include:

  • Regulatory Update. Officials including National Credit Union Administration Board member Michael Fryzel and Illinois Department of Financial and Professional Regulation acting secretary Manny Flores will discuss key regulatory developments impacting the credit union movement.
  • "Debunking the Taxation Argument." Mike Schenk, Credit Union National Association economist, will refute banker taxation arguments.
  • Sponsor Award Presentation--SB16 (Foreclosure Fast Track and Funding Bill). ICUL Legislative consultant Joe Lyons, will present sponsor awards to state Sens. Jacqueline Collins (D-Chicago) and John Mulroe (D-Chicago), and Cook County Recorder Karen Yarbrough, in appreciation for their roles in passing critical mortgage foreclosure legislation in 2012.
  • Credit Union Legislative Issues Briefing. Steve Olson, ICUL executive vice president, general counsel, will brief participants on key credit union and league legislation to prepare for visits with legislators.
  • State Capitol visits. Participants will be shuttled to the Capitol so they can personally call on lawmakers and view the legislative process firsthand. The Illinois House already has passed its third reading deadline April 19, and the Senate reached its third reading of substantive bills April 25.
  • Open House of New Legislative Offices. A showcase of the league's new Springfield office space, including a ribbon cutting, is scheduled between Capitol visits and the Legislative Day Reception.
  • Legislative Reception. All 177 lawmakers from both sides of the aisle, plus constitutional officers, and other dignitaries, have been invited to a reception for further credit union networking.
Last week, the league hosted a new telesession to further brief registrants on the top credit union legislative issues.

Kansas CUs End 2012 With Growth

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WICHITA, Kan. (5/1/13)--Kansas credit unions reported strong performances in several key areas for 2012, led by gains in assets and loans, the Kansas Credit Union Association said.

"Kansas credit unions are deepening relationships with members, exploring new delivery channels and finding ways to reach borrowers in the communities they serve," said Tammy Wendland, consultant for KCUA. "Despite increasing regulatory burdens, our credit unions continue to elevate the financial health of 626,000 Kansas member-owners."

Total assets at Kansas credit unions increased 7.84% from December 2011, exceeding the national average of 6.23%. Loans rose 6.15% in Kansas compared with the national average of 4.54%.

Kansas credit unions reported a 7.79% gain in shares. This exceeds the 6.09% growth rate in shares nationally. The growth was led by an 18.73% jump in money market shares.

Kansas credit unions reported an average capital ratio of 11%, compared with the national average of 10.4%. Revenues for 2012 grew 3% in 2011 and are beginning to return to 2009 levels, said KCUA.

Sales of mortgage loans on the secondary market have assisted in creating a 22.8% increase in non-interest income over 2011, KCUA said. The sales have helped hold up credit union bottom lines as loan yields continue to fall in the current low interest-rate environment.

Delinquency rates remained fairly constant among Kansas credit unions, compared with 2011, standing at 0.94% at the end of 2012 and beating the national average by 22 basis points. Net charge-offs at Kansas credit unions for 2012 was 0.58%, decreasing 71 basis points from the end of 2011 and beating the national average of 0.74%, KCUA said.

Bethex's Cousminer Inducted Into Co-op Hall of Fame

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WASHINGTON (5/1/13)--Credit union activist Joy Cousminer, who has devoted 58 years to breaking economic and educational barriers and improving the lives of people in New York's economically distressed South Bronx area, will be one of four cooperative innovators honored May 8 at the Cooperative Development Foundation's (CDF) 2013 Cooperative Hall of Fame Induction Ceremony.

Gasper Kovach Jr., board chair of the CDF, says on the foundation's website that induction to the Cooperative Hall of Fame is reserved for those who have made "genuinely heroic contributions to the cooperative community."

Cousminer, founder and now president/CEO of Bethex FCU, is being recognized for bringing financial services into an area that had no banking facilities and no access to credit.

"The many innovative programs and partnerships offered by Bethex reflect (Cousminer's) recognition of the financial, educational, and business needs of the people of the South Bronx and her efforts to meet them. Her work embodies the ideals of community spirit, determination, vision, and cooperation. She is a leader with a quintessentially cooperative spirit," the CDF website says of Cousminer's nomination.

She will be honored at a dinner and recognition ceremony held at the National Press Building here next Wednesday. The other inductees on the program are:

  • Steven Dawson, founding president of the Paraprofessional Healthcare Institute;
  • Rebecca Dunn, executive director of the Cooperative Fund of New England; and
  • Leland Ruth, co-founder and board secretary, California Center for Cooperative Development.

Other credit union movement representatives who were inducted to the CDF Hall of Fame in recent years include David Chatfield, retired president/CEO of the California and Nevada Credit Union Leagues; former Credit Union National Association President/CEO Dan Mica; and Larry Blanchard, former senior vice president for special projects from CUNA Mutual Group.

Regulator: Wash CUs Can Offer Key-Person Insurance

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OLYMPIA, Wash. (5/1/13)--The Washington State Department of Financial Institutions (DFI) Division of Credit Unions, in an interpretive statement, outlined the permissibility and standards for state-chartered credit unions' purchase of "key-person" life insurance products.

The April 24 statement by Division of Credit Unions Director Linda Jekel addressed two types of insurance:  key-person insurance, known as bank-owned life insurance (BOLI) , which benefits the credit union, and employee benefit plans that include life insurance products that benefit the employee.

BOLI key-person insurance is commonly used by financial institutions to protect against the loss of a key person whose services are essential to the institution's continuing success and whose untimely death would be disruptive.

Federal credit unions also have the ability to make otherwise impermissible investments to fund employee benefit obligations, said the statement.

Jekel said the DFI has said that purchasing and holding of the two types of life insurance is permissible and facilitates the delivery of financial services to the credit union's members. 

They may purchase and hold life insurance products so long as the credit union follows the standards set forth in  the interpretative statement, including provisions from the National Credit Union Administration regarding the Employee Benefits Rule and an Interagency Statement of the Purchase and Risk Management of Life Insurance from four federal agencies--the Office of the Comptroller of the Currency, the Federal Reserve Board of Governors, the Federal Deposit Insurance Corp. and the former Office of Thrift Supervision.

The Northwest Credit Union Association also alerted its member credit unions to the interpretive statement in its Anthem newsletter Tuesday.

CU Link Cooperative Ad Campaign Launched

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LANSING, Mich. (5/1/13)--Michigan's CU Link cooperative advertising campaign has launched on TV, radio, outdoor and online, said the Michigan Credit Union League.

The campaign has $2.4 million worth of advertising, plus an additional $500,000 provided to credit unions to spread the campaign at the grassroots level. It is backed by a record total of more than $1 million in contributions from credit unions (Michigan Monitor April 29).

This year's campaign emphasizes that consumers can do all their "banking" at a credit union, and highlights the value of membership that credit unions bring to the marketplace. The ads highlight the lower loan and credit card rates credit unions have compared to banks, and focus on how much members can save every year, the league said.

All of the media elements direct potential new members to www.culinkMichigan.com. The information that appears in all credit union finders online are pulled from one credit union finder, "A Smarter Choice."

Credit unions can update their own information. All participating credit unions also were sent a CU Link marketing kit with instructions that tell them how to create and maintain their profile page.

Raising awareness about the value of credit unions is a key component of credit unions' Unite for Good campaign to achieve the strategic vision: "Americans choose credit unions as their best financial partner," according to the Credit Union National Association. For more information, use the link.

Court Stays Eight NCUA Suits Pending Appeal Resolution

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KANSAS CITY, Kan. (5/1/13)--Eight lawsuits by the National Credit Union Administration against big banks that sold residential mortgage-backed securities (RMBS) to corporate credit unions before the financial crisis hit are on hold, pending a decision by the Tenth Circuit Court of Appeals on two consolidated cases.

U.S. District Court Judge John W. Lungstrum in Kansas City, Kan., Monday ordered the stay in the cases, pending the appeals' court resolution of an interlocutory appeal. The lawsuits are against RBS Securities Inc., Wachovia Capital Markets LLC, J.P. Morgan Securities LLC, UBS Securities LLC, Barclays Capital Inc., and Credit Suisse Securities (USA) LLC, and others.

Lungstrum's decision was made after a status conference Monday. In the order, he wrote that a stay is "appropriate in each of these cases" because "the appeal may materially advance the ultimate termination of expensive and complex litigation.

"Indeed, the Tenth Circuit's opinion (applied to each of these cases) could result in the dismissal of all claims with respect to a number of certificates, including the dismissal of all claims against certain defendants," Lungstrum wrote.

"Interests of judicial economy and the time and expense that could be spared the parties depending on the outcome of the appeal, which are served by a stay, significantly outweigh the detrimental effect of a delay in starting the discovery process," said the order.

The stay halts all proceedings except the completed briefing and resolution of any pending motion to dismiss, and any submission by NCUA--if it chooses--of a motion related to statistical sampling it described in the status conference.

RBS Securities appealed a July 25, 2012, ruling by U.S. District Judge Richard D. Rogers in Topeka, Kan., in the two consolidated cases.  At issue is whether NCUA brought its claims within the three-year statute of repose period required to file a civil lawsuit. NCUA argued that an Extender Statute allows more time to file its lawsuits. Rogers had agreed that the extender statute applies, and RBS Securities appealed to the Tenth Circuit Court in Denver.

The appeals court will decide whether the Extender Statute applies to the state of repose as outlined in the Securities Act, and whether it applies to federal and state statutory claims (News Now Nov. 20).

Earlier last month, Lungstrum dismissed NCUA's claims on 12 of 20 certificates sold to U.S. Central FCU, Western Corporate FCU, and Southwest Corporate FCU by Credit Suisse, saying NCUA did not file its lawsuits in time (News Now April 11).

In each suit, NCUA claims the RMBS sellers misled the corporates as to the stability of the investments.

Falkland Islands Seek Advice On Forming CU Framework

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STANLEY, Falkland Islands (5/1/13)--Dwayne Naylor, chief operating officer of Local Government CU in Raleigh, N.C., last month volunteered on behalf of the World Council of Credit Unions to help establish a sustainable credit union framework in the Falkland Islands.

Click to view larger image Michael Betts, left, Falkland Islands Development Corp. acting infrastructure development manager, explored credit union development for the islands with Dwayne Naylor, right, chief operating officer of Local Government CU, Raleigh, N.C., during Naylor's visit there in April. Naylor was on assignment for the World Council of Credit Unions. (Photo provided by the World Council of Credit Unions)
One bank branch operates on the Falkland Islands, located off southeastern coast of South America. Residents find it difficult to access credit. The government established the Falkland Islands Development Corp. to provide financing to island businesses that have been refused bank financing.

Islanders also want to share ownership of a financial institution with shareholders holding equal voting rights, said WOCCU. Residents had heard positive things about North American credit unions and requested WOCCU assistance to introduce credit unions in the Falkland Islands.

Naylor reviewed the necessary legislative framework and explained the credit union model to interested citizens and local authorities. He assessed local infrastructure, information systems and professional staff capacity and requirements to provide savings, consumer lending, transaction services, remittances, international transfer services and business lending.

Despite keen local interest, the Falkland Islands' small population makes credit union sustainability a challenge, said WOCCU. With 2,300 working-age islanders, Naylor and Development Corp. staff considered whether a credit union could be sustainable without achieving scale.

"The Falklands' economy is changing rapidly," Naylor said. "Increased access to a credit union will be in the community's interest to grow."

The team continues to review alternative information communication technology strategies for cloud-based, back-office processing and mobile services on the island.

"We knew this would be a challenge from the start when the Development Corp. approached us, but we remain optimistic that in today's world, credit unions can provide an empowering solution for this community as well," said Brian Branch, WOCCU president/CEO.