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Matz MBL cap lift increases CU safety soundness

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WASHINGTON (6/17/11)—Raising the “artificially low” credit union member business lending (MBL) cap, which stands at 12.25% of assets, would increase the safety and soundness of credit unions by helping them diversify their portfolios and reducing risk concentrations, National Credit Union Administration (NCUA) Chairman Debbie Matz said during Thursday testimony before the Senate Banking Committee. The NCUA chairman testified before a committee hearing on S. 509, a bill that would increase the credit union member business lending cap to 27.5% of assets. Credit Union National Association President/CEO Bill Cheney and other credit union and bank representatives also testified during the hearing. The relatively small size of credit union business loans, and the agency’s strong underwriting standards, significantly ease any safety and soundness concerns that would accompany increased business lending authority, Matz added. The NCUA leader said that 2,200 credit unions are active in the business lending market, and only one of those credit unions failed due to issues with its business lending practices. Overall, business lending delinquencies at credit unions have declined during the last quarter, and delinquent loans held by credit unions do not always result in losses if the loans are well collateralized. It’s part of the NCUA’s job to ensure that credit unions are backing their loans with the needed collateral to avoid significant issues, Matz said. She added that the agency will make sure that credit unions that are starting up new business lending programs or are expanding their existing programs do so prudently. Matz said that her agency would soon issue a draft rule for comment on changes to its MBL regulations. The proposal will, she said, “clarify and revise a number of current provisions.” However, she urged the banking panel to increase the MBL cap for credit unions to allow small businesses to obtain “reasonably priced loans.” If legislative changes increase the current cap on member business lending, Matz indicated that NCUA would move swiftly to amend its rules and vigorously supervise the law’s implementation. For more on the hearing, use the resource links.

Cheney to Congress CUs will help those ignored by banks

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WASHINGTON (6/17/11)--As small business owners continue to be turned away by banks when they come in search of a loan, credit unions stand ready to pick up the slack and provide small businesses access to much needed credit without putting taxpayer funds at risk, Credit Union National Association (CUNA) President/CEO Bill Cheney said at a Senate Banking Committee hearing yesterday.
Click for slide show At the Thursday Senate Banking Committee hearing on a bill to increase member business lending (MBL) authority for credit unions, CUNA President/CEO Bill Cheney both made the credit union case in favor of helping the economy by providing more credit to the nation’s small businesses through a higher MBL cap and warded off banker attacks against the change. (CUNA Photo)
Cheney’s remarks were made at Thursday’s hearing on S. 509, legislation that would expand credit union business lending authority to 27.5% of total assets. Cheney, National Credit Union Administration (NCUA) Chairman Debbie Matz, and other credit union and bank representatives testified during the hearing. In a Thursday letter sent to all senators after the hearing, Cheney said it is disturbing that bankers seem more concerned with keeping credit unions from lending to small businesses than with helping small businesses themselves. Cheney during his testimony said that bank loans to businesses have fallen by 4% since March, while credit union business lending has increased by 5% during that same time period, he said. Banks have remained reticent to lend in spite of the federal government’s gifting them with $30 billion in taxpayer-funded small business lending incentives. Cheney contrasted the MBL cap lift proposal with these recent government-backed actions, saying that the cap lift is “a job creation proposal that would not cost the taxpayers a dime and would not increase the size of government.” While credit union business lending has been a major growth area, “credit unions have expanded their member business lending portfolios carefully and prudently,” Cheney added. The CUNA CEO said that the cap lift is a necessary change for smaller credit unions to become more involved in business lending. The additional income will allow credit unions that otherwise would not have participated in business lending to bring in personnel with business lending expertise and to establish the procedures, safeguards, and internal controls needed to run a business lending program, he added. “The cap is a reason that so few credit unions do business lending,” he added. CUNA has estimated that lifting the cap would inject $13 billion in funds into the economy, creating over 140,000 new jobs. S. 509 had 19 co-sponsors at press time, including Senate Majority Leader Harry Reid (D-Nev.). Fellow co-sponsor Sen. Charles Schumer (D-N.Y.), in a statement submitted for the hearing record, called the cap lift a “commonsense way to immediately increase the amount of credit available to small businesses.” A House version of MBL cap lift legislation was introduced earlier this year by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.), and that bill has 38 total co-sponsors. The Competitive Enterprise Institute’s John Berlau and the Heartland Institute’s Eli Lehrer also called the MBL cap lift bills “a step in the right direction,” adding that “current rules preventing credit unions from lending more than 12.25% of their assets to businesses make no sense.” For more on the hearing and CUNA’s letter to Congress, use the resource links.

Final NCUA NGN offering nets 2.2B

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ALEXANDRIA, Va. (6/17/11)--The National Credit Union Administration (NCUA) sale of NCUA Guaranteed Notes (NGNs), which was completed this week, netted a total of $50.5 billion to fund the resolution of troubled corporate credit unions. The first of the agency’s 13 NGN offerings was closed in October of 2010 and brought in around $3.8 billion in income. The agency announced yesterday that the last of the offerings was released on June 6 and brought in $2.21 billion in proceeds. The NGNs were comprised of $50 billion of legacy assets held by the NCUA. Those legacy assets are primarily of private label, residential mortgage-backed securities that were significantly devalued during the turmoil in the overall mortgage market. A total of $35 billion of those assets were reissued as NGNs and sold on the open market. NCUA Chairman Debbie Matz said that the securitization program “was hugely successful in helping to manage the problem assets of failed corporate credit unions. It was a cost-effective method for funding the legacy assets owned by the corporate credit unions, ensuring the system as a whole endured.” The NCUA amended its definition of low-risk assets to allow credit unions to invest in NGNs, and these investments received a zero risk weight due to their federal government backing. For the full NCUA release, use the resource link.

Financial data protection gets House Senate committee attention

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WASHINGTON (6/17/11)--“Cybersecurity and Data Protection in the Financial Sector” is the title of a newly posted hearing on the June 21 agenda of the Senate Banking Committee. Scheduled witnesses include Kevin Streff, associate professor and director of the Center for Information Assurance, Dakota State University; Leigh Williams, BITS president, The Financial Services Roundtable; and Marc Rotenberg, president, Electronic Privacy Information Center. Additional witnesses may be announced. Also on the calendar, the House Financial Services Committee has scheduled a field hearing June 29 at the National Computer Forensics Institute in Alabama to take a close look at cybercrimes. The committee’s chairman, Rep. Spencer Bachus (R-Ala.), said in an announcement that a recent series of high-profile cyberattacks, such as one in which the CIA fell victim, should “serve as a major wakeup call for our country.” “Cybercriminals here at home and abroad are constantly trying to discover and exploit weaknesses in our security, both on a national level and a personal level. The committee’s hearing at the National Computer Forensics Institute could not come at a more appropriate time as the frequency of these attacks appears to be growing.” Other recent cyberattacks noted by Bachus include hacking incidents at the International Monetary Fund, the European Union’s headquarters, Citigroup, Sony Corp., Lockheed Martin Corp., RSA Security, the U.S. Senate and Nintendo Co. The committee’s field hearing at the National Computer Forensics Institute will examine the threat hackers pose to individuals, businesses and financial institutions; the methods hackers employ; and ways law enforcement has been able to foil hackers and solve cyber crimes. Earlier this week, the Secure and Fortify Data Act, intended to establish uniform nationwide standards for data security and data breach notification, was discussed during a hearing conducted by the House Energy and Commerce subcommittee on commerce, manufacturing and trade.

Inside Washington (06/16/2011)

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* WASHINGTON (6/17/11)--The National Credit Union Administration (NCUA) has issued an alert for fraudulent corporate checks drawn on Consumer FCU, Greenville, Tenn. The credit union has advised this is a Nigerian check cashing scam. Consumer FCU did not suffer any losses and there is an ongoing investigation. For more information, contact Michael Veksler at 718/266-2204. Additional information on fraudulent schemes can be found on NCUA’s website ... * WASHINGTON (6/17/11)--The Federal Reserve will pay close attention to how it determines whether large U.S. banks can pay dividends to shareholders, a top Fed official said Wednesday. The central bank will carefully monitor capital distributions going forward, and expects bank boards and senior management do the same, Patrick Parkinson, director of the division of banking supervision and regulation for the Fed, said in a speech to the Exchequer Luncheon (American Banker June 16). Before the financial crisis, the Fed and other regulators did not pay close enough attention to bank distribution activities, Parkinson said. Last week the Fed issued a proposal that would require banks with more than $50 billion of assets to submit an annual capital plan … * WASHINGTON (6/17/11)--Oversight of banks with more than $10 billion in assets by the Consumer Financial Protection Bureau (CFPB) will start as planned July 21, Steven Antonakes, the top bank supervisor at the bureau, said Wednesday. Antonakes will oversee 111 credit unions, banks, and thrifts--about $10 trillion, or 80% of U.S. banking assets, Bloomberg June 16). The CFPB will conduct four- to 12-week examinations, depending on the size and complexity of the institution. If an exam is clean, a financial institution likely won’t hear from the bureau for two years, said Antonakes, who spoke at a conference of the American Bankers Association in Washington. Financial institutions with issues found on exams can expect closer monitoring. Financial institutions with more than $100 billion in assets will be subject to stronger supervision, particularly banks involved in consumer finance. The CFPB won’t gain the full authority granted by the Dodd-Frank Act until it has a Senate-confirmed director. President Barack Obama has yet to select a nominee … * WASHINGTON (6/17/11)--U.S. Sen. Robert Menendez (D-N.J.) on Wednesday called for an investigation of Citigroup’s recent data breach. In a letter to the acting head of the Office of the Comptroller of the Currency (OCC) John Walsh, Menendez emphasized the importance of investigating the matter, given the implications it has for the security of the financial industry and Citigroup’s failure to immediately notify customers of the security breach. “As Citigroup’s primary regulator with jurisdiction for data security issues, I hope that you also believe this to be unacceptable for consumers,” Menendez wrote in the letter. “Reportedly, customer and account information, including card numbers and e-mail addresses, were viewed during this breach. Obviously, the implications of this, combined with the lengthy delay, are troubling,” he said. Citibank said Wednesday about 360,000 credit cards were affected by the attack, nearly double the amount previously indicated (The Wall Street Journal June 16) …

NEW Matz asks Senate panel to increase MBL cap

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WASHINGTON (UPDATE 6/16/11, 10:20 a.m. (ET)--National Credit Union Administration (NCUA) Chairman Debbie Matz, testifying now in front of the Senate Banking Committee on credit union member business lending, says her agency will soon issue a draft rule for comment on changes to its MBL regulations. The proposal will, she said, “clarify and revise a number of current provisions.” However, she urged the banking panel to increase the MBL cap for credit unions to allow small businesses to obtain “reasonably priced loans.” In her written testimony, Matz noted:
* Today, credit unions have more than 167,000 outstanding loans to businesses, and statistics suggest that credit unions serve a small but important segment of the marketplace; * Approximately 2200 credit unions hold member business loans, up 10 percent since 2006; * Eighty-three percent of MBLs are secured by real estate; * The average size of an MBL is $223,000; and * While nearly 30% of credit unions underwrite business loans, these loans comprise just 1% percent of all commercial lending.
MBL averages range from $17,000 for unsecured lines of credit, to $680,000 for construction and development loans. Matz noted. In 2010, credit unions granted or purchased $12.1 billion in MBLs, and another $3.1 billion were added in the first quarter of 2011. If legislative changes increase the current cap on member business lending, Matz indicated that NCUA would move swiftly to amend its rules and vigorously supervise the law’s implementation. Answering lawmakers' questions now, Matz underscores credit unions' favorable delinquency rates and the positive safety and soundness record associated with such credit union loans.