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Inside Washington (06/16/2010)

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* WASHINGTON (6/17/10)--Sen. Susan Collins (R-Maine) said Tuesday that she is working to revise her regulatory reform bill provision--which would eliminate the use of trust-preferred securities as Tier 1 capital--to include a five-year phase-in for certain financial institutions. She also said she is investigating whether smaller institutions with less than $5 billion in assets should be treated differently under the provision. Collins’ measure was not intended to prevent federal funds from counting toward Tier 1 capital, she said in an interview with American Banker (June 16) ... * WASHINGTON (6/17/10)--In an unexpected move, lawmakers added language to regulatory reform legislation that would overhaul the deposit insurance system. The changes would set the deposit insurance limit at $250,000 indefinitely, and extend a program that would give unlimited guarantees for certain accounts and the Federal Deposit Insurance Corp. more leeway to set premiums (American Banker June 16). House and Senate conferees Tuesday agreed to keep the $250,000 limit permanent and retroactive to cover 2008 failures. The limit was increased to $250,000 from $100,000 in October 2008, and was set to return to $100,000 after 2013. (See related story: “Reforms may add NCUA to oversight council, cement NCUSIF level”) ... * WASHINGTON (6/17/10)--The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac, who are operating in conservatorship, to delist their common and preferred stock from the New York Stock Exchange and any other national securities exchange. After the delisting, the stock is expected to be quoted on the Over-the-Counter Bulletin Board. The direction does not indicate any reflection on either entity’s performance. It is related to stock and exchange requirements for maintaining price levels and curing deficiencies, said FHFA Acting Director Edward DeMarco. Each enterprise’s common stock price has been at about $1 over 30 trading days for most months since the conservatorships became effective in September 2008 ...

Reforms may add NCUA to oversight council cement NCUSIF level

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WASHINGTON (6/17/10--As credit unions await further action on interchange legislation, there have been a number of other developments related to the bicameral discussion of financial regulatory reform. One such development was the Tuesday approval of language that would permanently increase the share insurance limit of the National Credit Union Administration’s (NCUA) National Credit Union Share Insurance Fund (NCUSIF) to $250,000. The conference committee on Wednesday also began discussion of legislative language that would require financial institutions with over $1 billion in assets to disclose compensation structures that include any incentive based elements. That legislative language would also require federal financial regulators to eliminate seemingly inappropriate or imprudently risky compensation practices as part of solvency regulation. Conferees will also discuss including the NCUA in the potential Financial Stability Oversight Council later today, and the Credit Union National Association (CUNA) expects this proposal, which will be made by the House members of the committee, to be added to the final regulatory reform bill. While CUNA supports making the NCUSIF limit permanent, CUNA has opposed the proposed compensation disclosure measures. CUNA has urged legislators to oppose the compensation disclosure measures via a letter to conferees Rep. Barney Frank (D-Mass.), Rep. Spencer Bachus (R-Ala.), Sen. Chris Dodd (D-Conn.) and Sen. Richard Shelby (R-Ala.). CUNA President/CEO Dan Mica said that while he understands the concerns regarding the effect that compensation structures that encourage excessive risk-taking “have on the safety of financial institutions and the economy,” the current proposal unnecessarily covers credit unions and would create an unnecessary regulatory burden. Mica noted that credit unions, which have an average chief executive salary of $93,000, “neither caused the economic crisis nor engaged in the type of compensation arrangements that this language seeks to address.” “Therefore, we urge the Conference Committee to reject either the House Offer or amend it to exclude credit unions from its scope,” Mica added. For the full letter, use the resource link.

131 House members sign letter urging conferees to strike interchange

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WASHINGTON (6/17/10)--A total of 131 House members, led by Reps. Debbie Wasserman Schultz (D-Fla.) and Kenny Marchant (R-Tex.), weighed in on the interchange debate Wednesday, telling their congressional colleagues of their “grave concerns” over portions of the financial regulatory reform package that would allow the federal government to impose controls on the fees paid to use electronic payment networks. In a letter sent Wednesday to House and Senate conferees, the legislators urged their colleagues to reject the interchange language that would “devastate credit unions and community banks, while providing no discernible benefits for consumers.” The 70 Democratic and 61 Republican legislators also called for greater analysis and consideration of the many issues surrounding the interchange system, adding that there was “far too much uncertainty” that the “sweeping” changes wrought by this interchange legislation could “harm both consumers and the small financial institutions” that are vital to economic recovery. "This letter sends a powerful signal to conferees that the Senate interchange amendment should be taken out of the broader regulatory reform bill," noted Credit Union National Association President Dan Mica. "The fact so many House members object to its inclusion is further evidence the interchange amendment, at a minimum, deserves more study and careful consideration to avoid unintended consequences that will hurt consumers. It should not be part of the broader reform legislation." Four additional House members also produced their own letters opposing interchange changes. In a Wednesday release, Schultz said that the interchange amendment would force Americans to “pay more for basic banking products and credit cards” and prevent them from receiving the “valuable services like fraud and identity theft protection” that are paid for by the current interchange system. “Worse, the Senate amendment destroys the economics of prepaid debit card programs, which are increasingly relied upon to deliver banking products to underserved and unbanked recipients because they provide a convenient, lower cost form of payment. Under the Senate amendment, consumers lose,” she added. Rep. Marchant also commented in the release, saying that the interchange legislation would allow the government to “pick the winners and losers in a private transaction.” The letter and release follow recent Hill visits from hundreds of credit union representatives and ongoing calls and emails from over 550,000 credit union backers nationwide. Those credit union activists have all urged legislators to remove the interchange language, which was only included in the Senate version of regulatory reform. Mica this week urged credit union leaders to keep up the drive against interchange limits and thanked legislators for opposing the interchange changes. The interchange provisions were also discussed during a Wednesday Senate Appropriations subcommittee hearing chaired by Sen. Richard Durbin (D-Ill.), who sponsored the interchange amendment that was added to the Senate’s regulatory reform bill last month. Interchange is expected to be addressed by the conference committee early next week. For the full letter, use the resource link.

NCUA to discuss FOM changes today

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ALEXANDRIA, Va. (6/17/10)--The National Credit Union Administration (NCUA) later today will discuss the final version of recently proposed chartering and field of membership (FOM) policy changes that would set objective and quantifiable criteria to determine the existence of a well-defined local community for areas that encompass multiple group zones. The FOM changes, which were proposed late last year, have also proposed a new, objective definition for rural districts. Overall, the Credit Union National Association (CUNA) has said that the NCUA’s planned changes are too restrictive. CUNA will provide more pointed analysis of the NCUA’s plan following today’s meeting, which will take place at 10 a.m. ET. While the NCUA meeting will also include discussions of the delegation of chartering authority, the NCUA on Tuesday removed discussion of a proposed rule on interest rate risk policies from the list of items to be considered. The NCUA also will discuss the accounting standards, the payment of insured shares, and assessments related to its Temporary Corporate Credit Union Stabilization Fund will have its monthly report on the status of its National Credit Union Share Insurance Fund during the meeting. During the closed portion of the meeting, the NCUA will discuss a number of supervisory activities.

NCUA to CUs Work constructively to resolve CRE issues

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ALEXANDRIA, Va. (6/17/10)—The National Credit Union Administration (NCUA) has encouraged credit unions to “work constructively with member-borrowers to implement prudent member business loan workouts that are in the best interest of both the credit union and the member-borrower.” Wednesday the NCUA released guidance that centered on a recent Federal Financial Institutions Examination Council policy statement that aims to aid credit unions and other financial institutions that are working with commercial real estate borrowers experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. The policy statement stressed that performing loans--including those that have been renewed or restructured on reasonable modified terms--made to creditworthy borrowers will not be adversely classified solely because the value of underlying collateral has declined. The NCUA in the release recommended that credit unions working with member-borrowers in financially stressed situations maintain risk management practices “appropriate for the complexity and nature of the lending activity, and consistent with safe and sound lending practices and regulatory requirements.” “Prudent loan workout arrangements should improve the prospects for repayment of principal and interest, and should be supported by a comprehensive analysis of the member-borrower’s willingness and ability to repay the loan, an evaluation of support provided by guarantors, and a current assessment of the underlying collateral,” the NCUA added. For the full NCUA release, use the resource link.