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Inside Washington (05/26/2009)

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* WASHINGTON (5/27/09)--The Federal Reserve Board Friday announced a rule that will allow bank holding companies to include senior perpetual preferred stock issued to the Treasury under the Troubled Asset Relief Program (TARP) in their Tier 1 capital. Bank holding companies that are S-Corps can include in Tier 1 capital all subordinated debt issued to Treasury under TARP also, and small bank holding companies that are S-Corps or organized in mutual form can exclude subordinated debt issued to Treasury under TARP from treatment as debt ... * WASHINGTON (5/27/09)--In a Friday letter to bank regulators and Treasury Secretary Timothy Geithner, Sen. Jack Reed (D-R.I.) encouraged the Treasury and regulators to use their leverage to retain Troubled Asset Relief Program (TARP) warrants even if bankers repay their rescue capital (American Banker May 26). Banking groups have encouraged the Treasury to eliminate the warrants so they can exit TARP more easily, but Reed said retaining the warrants could help ensure taxpayers are compensated. Reed said he would monitor the purchases of the warrants and said no legal authority exists to surrender the warrants without requiring adequate compensation ... * WASHINGTON (5/27/09)--Joseph Smith was named chairman of the Conference of State Bank Supervisors. Smith is the North Carolina banking commissioner, a post he has held since 2002 (American Banker May 26). He will serve as chair of the conference until May 2010 ...

Whats next in Congress

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WASHINGTON (5/27/09)—Though many pressing economic issues were addressed by the recent passage of mortgage and credit card reforms, finance should likely remain a focus for the 111th Congress during this summers’ work periods. The U.S. Congress is currently out of session for a Memorial Day District Work Session and will return next week. Both House and Senate then recess on or about June 29 for a July Fourth break. However, according to the Credit Union National Association’s Ryan Donovan, regulatory restructuring could become a frequent topic of discussion for both House and Senate committees during the work periods on Capitol Hill. While the exact makeup of such legislation cannot be predicted, some regulatory changes could see action on the House and Senate floors as early as September, Donovan said. House members may soon hold hearings on H.R. 1479, the Community Reinvestment Modernization Act of 2009, which, as currently written, would broaden the reach of Community Reinvestment Act requirements to more entities, including credit unions. The bill, which was introduced by Rep. Eddie Bernice Johnson (D-Texas) earlier this month, has been referred to the House Financial Services Committee and the House Rules Committee. CUNA continues to monitor any action on this issue. In other matters, although the full content of a bill is not known at this time, portions of an upcoming financial services appropriations bill may also be of interest to credit unions. A more immediate issue that will unquestionably impact credit unions is the confirmation of potential National Credit Union Association (NCUA) Chairman Debbie Matz, which should occur later this summer. Matz, who was selected for nomination by President Barack Obama late last week, has held prior positions as a NCUA board member and as executive vice president and chief operating officer of Suitland, Md.'s Andrews FCU. On a broader schedule, Sen. Charles Schumer (D-N.Y.) has announced plans to draft a bill that would lift the member business lending (MBL) cap for credit unions. Rep. Brad Sherman (D-Calif.) has also come out in favor of lifting the MBL cap, and recently stated that he'd support allowing credit unions to issue alternative capital, another move that would free up credit unions to grant more loans to their members.

Compliance Determining ineligible revenues for CTR exemptions

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WASHINGTON (5/27/09)—It is not always easy to determine if a business member can qualify for a Phase II Currency Transaction Report (CTR) exemption when that member engages some “ineligible” business activities. But according to Financial Crimes Enforcement Agency guidance (FIN-2009-G001), a business “may qualify for an exemption as a non-listed business provided that no more than 50% of its annual gross revenues are derived from one or more ineligible business activities.” For instance, imagine a situation where a federal credit union has a business account related to a small “full-service” real estate company that handles real estate sale/purchase transactions, does title searches, provides real estate brokerage services, and so on. The business engages in a number of large cash transactions during each month that require currency transaction reporting. To determine if the business member qualifies for a CTR exemption, the credit union must make a “reasonable determination” that the member derives no more than 50% of its annual gross revenues from ineligible business activities. To make this determination, the credit union could take into account member certifications regarding annual gross revenues, review the business’ audited financial statements, or review the business’ most recent tax returns. If the business' gross annual revenues derived from the real estate brokerage business activity is less than half the total, then the business should qualify for the exemption. For more on this and other compliance topics, visit the Credit Union National Association’s Compliance Challenge using the link below.

FDIC premium assessments could continue chair says

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WASHINGTON (5/27/09)—The Federal Deposit Insurance Corporation (FDIC) late last week voted to assess a five basis point premium on banks, with FDIC Chair Sheila Bair saying that additional special assessment may be needed later in the year. According to the FDIC, the charges will be assessed on assets minus Tier 1 capital rather than domestic deposits. However, the assessment will be capped at 10 basis points of a given financial institution's domestic deposits. Comptroller of the Currency John Dugan has opposed the FDIC’s plan, stating that public comment on the proposal reinforced his belief that the assessment was too high and could cause duress. The FDIC also should not “create a presumption of special assessments whenever the fund is projected to fall below zero.” Additionally, while supporters of the assessment claimed that there was strong public sentiment for their support, that support came mainly from small banks rather than a broad swath of banks of all sizes, he added. Smaller banks stand to gain the most from this decision, Dugan said.