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Inside Washington (06/12/2009)

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* WASHINGTON (6/15/09)--The Obama administration is expected to detail its regulatory revamp Wednesday, and lawmakers have outlined their ideas for restructuring the financial regulatory system. House Financial Services Chairman Barney Frank (D-Mass.) said he supports his Republican counterparts on limiting the Federal Reserve Board’s emergency powers, restricting credit agencies’ roles, and dissolving the Office of Thrift Supervision. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) has expressed commitment to create an independent consumer protection agency to oversee credit and bank products. The regulator should be included in a proposed systemic risk council, he said. Republicans have proposed taking away much of the Fed’s authority and putting bank oversight under one regulator. Instead of a risk council, Republicans also said they want a “market stability and capital adequacy board” (American Banker June 12). Democrats have said they want a resolution process for systemically significant financial institutions. The Treasury has indicated the Federal Deposit Insurance Corp. should handle the resolution process, but Frank said the decision would include other regulators ... * WASHINGTON (6/15/09)--The inspector general for the Troubled Asset Relief Program and the Congressional Oversight Panel, who are acting as watchdogs for the federal bailout, said they have begun estimating stock warrant values as banks return capital to the government. The estimates aim to ensure the amount on the returns is appropriate (American Banker June 12). Neil Barofsky, special inspector general, and Elizabeth Warren, the panel’s chairman, said they also plan to audit the warrant sale process. The audit seeks to examine the Treasury’s process to value the warrants for repurchase ... * WASHINGTON (6/15/09)--On Thursday, Bank of America Corp. CEO Kenneth Lewis was questioned about his company’s acquisition of Merrill Lynch and Co. last fall (American Banker June 12). During a House Oversight and Government Reform Committee hearing, Lawmakers tried to determine whether Lewis followed through with the deal after former Treasury Secretary Henry Paulson told him that Federal Reserve Board Chairman Ben Bernanke would fire him and his board if the purchase was not completed. Lewis had been hesitant about the deal because of losses Merrill suffered. Lewis said he was not concerned with the threat, but the fact that the Fed would threaten a bank he said was in good standing. Committee Chairman Rep. Edolphus Towns (D-N.Y.) said lawmakers should look at the Fed’s role in the Merrill deal as the government works on financial regulatory reform. It appeared as though regulators were making up their own rules, and more transparency and accountability is needed, he said ... * WASHINGTON (6/15/09)--Roger T. Cole, director of the Division of Banking Supervision and Regulation at the Federal Reserve Board, will retire Aug. 1 after 30 years of service. Cole has served as division director since September 2006. He joined the board's staff in 1979 as a senior financial analyst. Cole was appointed to the Board's official staff in 1988 and was promoted to associate director in 1997 and senior associate director in 2001 ...

Agency guidance on corp. CU stabilization expected

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ALEXANDRIA, Va. (6/15/09)--The National Credit Union Administration (NCUA) is expected to discuss its recently passed corporate credit union stabilization plan at its upcoming board meeting, scheduled for June 18. The NCUA will present its guidance on the corporate stabilization plan and will allow participating credit unions direct access to NCUA staff during a June 24 webinar. The board will also address Section 701.26 of its rules and regulations by discussing a final rule related to operating fees. An interim rule regarding NCUA’s Section 701.21(f), Exception to the Maturity Limit on Second Mortgages, will also be discussed during the open portion of the meeting. The NCUA will also examine its monthly report on the status of the National Credit Union Share Insurance Fund.

FTC disclosure changes should defer to NCUA CUNA

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WASHINGTON (6/15/09)—The Credit Union National Association (CUNA) said recently that for non-federally insured credit unions, the Federal Trade Commission should defer to the National Credit Union Administration (NCUA) rule on share insurance signs for shared branching. In February, the NCUA did away with a complicated requirement that shared branches must display a sign listing each federally insured credit union served by the teller along with a statement that only these credit unions are federally insured. The new rule replaces the required list of federally insured credit unions with a statement that not all of the credit unions served by the teller are federally insured and members should contact their credit union for more information. The FTC’s has proposed a rule that would require all financial institutions—including credit unions--that lack federal deposit or share insurance to provide enhanced disclosures to their members or customers through both signage and the distribution of written disclosures. These rules implement provisions of the Federal Deposit Insurance Corporation Improvement Act, as amended in 2006 by the Financial Services Regulatory Relief Act. Under the rule, the FTC would also require financial institutions to obtain signed copies of a disclosure that acknowledges their financial insurance status from all members and customers. At the moment, these disclosures will be collected from all members or customers that joined after Oct. 13, 2006. CUNA, in a recent comment letter to the FTC, urged that existing credit union members be exempted . Forcing existing members to sign these disclosures would not only be a difficult task to complete, but would be a “public relations nightmare” for credit unions. The FTC should also delay the effective date of these new rules to 9 months after the rules is issued to allow the time needed to create the new disclosures and train staff members. Federally insured credit unions are covered by the NCUA National Credit Union Share Insurance Fund. CUNA estimates that around 200 state-chartered credit unions do not currently have federal share insurance, instead opting for private insurance, which must meet these new FTC requirements. For CUNA’s full comment letter, use the resource link below.

CU members dont face risks of stockholders NCUA reminds

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WASHINGTON (6/15/09)--Members of federally chartered credit unions do not face the same level of risks faced by shareholders in for-profit corporations or individuals taking part in a business partnership, National Credit Union Administration (NCUA) Associate General Counsel Sheila Albin said in a recently released legal opinion letter. The assurance came in response to a query about the differences between the benefits of credit union membership and ownership of shares of a for-profit entity. According to Albin, FCU members, who “invest in and become members of” their credit unions by starting savings, checking, and share certificate accounts have several protections that are not afforded to average corporate shareholders. They include National Credit Union Share Insurance Fund backing of up to $250,000 in total shares that are held in qualifying accounts. Members will also maintain the value of their shares if their FCU “becomes insolvent or is liquidated,” the letter added. Members would also be entitled to a pro-rata share of their credit union’s worth if that credit union is voluntarily liquidated, Albin said. Additionally, Albin said that while holders of traditional stocks can have a cumulative advantage over their fellow shareholders when leadership decisions are made, credit union members only have one single vote, no matter how large or small their accounts are. These members are also entitled to lending and savings rates that outperform those of traditional banks, for the most part. A credit union’s profits may also be redistributed to its members in the form of dividends, Albin added.

NCUA FCUs may modify with shared-appreciation loans

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WASHINGTON (6/15/09)--In a letter to Michigan credit union representatives, the National Credit Union Administration said that credit unions may offer shared appreciation loan modifications to individual borrowers. According to NCUA, nothing in their current rules would prevent federal credit unions from “offering a shared appreciation loan modification, assuming it is done in a safe and sound manner.” Shared appreciation agreements allow mortgage holders to reduce the balance of their loan by sharing any future increases in the home’s value with the cooperating credit union. In the letter, the NCUA said that such “prudent workout arrangements” can prevent foreclosures by creating workable solutions for both credit unions and homeowners. NCUA generally encourages credit unions to “work with members who could benefit from various loan modification arrangements.” However, the NCUA said, credit unions that wish to take part in mortgage loan modification should consult a tax adviser and should also contact the Treasury to ensure that their actions are permissible under the loan modification guidelines in the Treasury’s Making Home Affordable program. For the full letter, use the resource link below.