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Inside Washington (06/09/2011)

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* WASHINGTON (6/10/11)--A speech last week by Federal Reserve Board Gov. Dan Tarullo has created fear among the largest banks that they may have to hold more capital than previously expected. At issue is a proposed capital surcharge for significantly important financial institutions (American Banker June 8). Under proposed Basel III requirements, all banks would have to hold 4.5% of common equity by 2015, and a 2.5% conservation buffer starting in 2019. Tarullo speculated that regulators could require banks to hold as much as 1.5% to 7% capital on top of the proposed Basel III capital requirements, creating a maximum capital requirement of 14% for the largest banks. Tarullo’s comments created unease among investors causing stock prices to drop at several banks ... * WASHINGTON (6/10/11)--The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have released proposed guidance for stress-testing practices at banks with assets of more than $10 billion. The agencies issued the proposal to emphasize the importance of stress testing for banks to assess the risks they face and potential adverse outcomes. Building on previously issued supervisory guidance that discusses the uses and merits of stress testing in risk management, the proposal provides an overview of how an organization should develop a structure for stress testing. The guidance outlines general principles for a stress testing framework and describes how it should be used at various levels within an organization. The guidance also discusses the importance of stress testing in capital and liquidity planning, and the importance of strong internal governance and controls in an effective stress-testing framework. The agencies request comment on the proposal by July 29 ...

Sens. Johnson Shelby NFIP reforms needed

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WASHINGTON (6/10/11)--Sen. Tim Johnson (D-S.D.) on Thursday said that while he hopes to ensure the National Flood Insurance Program, which provides more than $1.2 trillion in coverage to Americans in flood-prone areas, continues to function, the program is in need of reform. Johnson, the Senate Banking Committee Chairman, added during a Thursday committee hearing that the NFIP “needs certainty” and said he wants to provide it that certainty by approving an extension of the program. Lapses in the program, some of which have occurred recently, “have detrimental effects on both the insurance and housing markets,” Johnson said. Noting that the NFIP is $18 billion in debt to the U.S. Treasury, ranking committee member Sen. Richard Shelby (R-Ala.) said that every aspect of the NFIP “must undergo significant revision for it to survive and continue on a sustainable path.” Cheney suggested that the committee examine the relationship between the NFIP and participating insurance companies, with particular attention paid to increasing transparency and accountability. The types of properties that the NFIP is covering should also be examined “to ensure that its resources are spent effectively,” and privatization of portions of the program should also be considered, Cheney added. The NFIP is currently set to expire on Sept. 30, and legislation that would extend the program for an additional five years was approved by the House Financial Services Committee last month. That legislation would also preserve the rights of credit unions to protect their collateral from flood hazards and would clarify that flood insurance purchased by credit unions "would date back to the date the existing policy lapsed or became insufficient in coverage amount, including any premiums or fees incurred during the 45-day notification period." CUNA has backed these planned changes to the NFIP. For the full comments of Johnson and Shelby, use the resource links.

Cheney to testify at June 16 Senate MBL hearing

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WASHINGTON (6/10/11)—Credit Union National Association (CUNA)President/CEO Bill Cheney is expected to urge the Senate to allow credit unions to help the economy grow and prosper through increased member business lending during a June 16 Senate Banking Committee hearing on a bill to increase the MBL cap. National Credit Union Administration Chairman Debbie Matz is also scheduled to testify. The Thursday hearing will focus on S. 509, which would lift the current MBL cap to 27.5% of total assets. Senate Majority Leader Harry Reid (D-Nev.) this week declared his support for S. 509, adding his name to the list of 19 cosponsors. Sen. Mark Udall (D-Colo.) introduced S. 509 earlier this year. Similar legislation, introduced by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.), is pending in the House. Cheney said yesterday that the hearing is a “terrific opportunity” for CUNA to “tell the good news about credit unions and their business lending success.” An MBL cap increase is among CUNA’s top legislative priorities, a list which also includes gaining authority for credit unions to have supplemental sources of capital beyond retained earnings. Other witnesses scheduled to appear are National Association of Federal Credit Unions Board Chairman and Webster First FCU CEO Michael Lussier, American Bankers Association Chairman Stephen Wilson, and Grand Rapids State Bank CEO Noah Wilcox, on behalf of Independent Community Bankers of America.
Click to view larger image Sen. Mark Udall (D-Colo.), right, says his bill to increase MBL authority for credit unions has growing bi-partisan support. He was addressing the American Association of Credit Union Leagues 2011 governmental affairs and political specialists conference here this week. (CUNA Photo)
Earlier this week, Udall, speaking at the American Association of Credit Union Leagues 2011 governmental affairs and political specialists (GAPS) conference this week, said that both Republican and Democratic colleagues are expressing support for the cap lift, adding that they all have “been looking to forge that key to get our economy back on track.” Udall recommended that credit union advocates urge his colleagues, at a minimum, to allow a vote on the MBL legislation, and said that the type of direct interaction that credit union leagues and credit union leaders, as well as members, have with legislators “really does make a difference.” CUNA has estimated that lifting the MBL cap would generate $13 billion in new small business loans over the first year, creating 140,000 new jobs at no expense to taxpayers. For more on the hearing, use the resource link.

CUNA Strong Senate support can be used to shape interchange rule

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WASHINGTON (6/10/11)--Credit Union National Association (CUNA) President/CEO Bill Cheney said the Senate clearly acknowledged with its 54-45 vote Wednesday that there are issues with the debit card interchange fee cap that need to be examined before a rule goes into effect. “The legislation to delay the interchange provisions of the Dodd-Frank Act required 60 votes to pass the Senate, and it is a sore disappointment that the vote fell short of that. “However, it is important to note that a majority of senators voted with us on the delay--to stop, study, and start over on the fee cap. “We need to use their support as a tool to help improve the interchange implementation rule being drafted by the Federal Reserve Board--to minimize negative effects on credit unions and their members,” Cheney said Thursday in a call to state credit union league presidents. Cheney urged the following actions as the Fed works to meet a July 21 effective date. For senators who supported the delay, Cheney encouraged credit unions to:
* Thank them as soon as possible and urge them to contact the Fed about improvements to the proposed rules. * Tell them it is “absolutely critical” that the Fed take great care in drafting its final rule in a way that goes as far as possible to protect credit unions and other small issuers from the major impact that the new interchange restrictions will have. * Ask them to write to the Fed immediately to ask the agency to use its full authority to protect small debit card issuers and to include all of the appropriate costs when determining a “reasonable and proportional” interchange rate.
For senators who opposed the delay legislation, sponsored by Sens. Jon Tester (D-Mont.) and Bob Corker (R-Tenn.), Cheney said credit unions should: * Contact those senators by email, fax, phone call or letter; * Remind them the interchange statute itself intends to protect credit unions and other small issuers; and * Ask them to speak up on out on behalf of that protection. CUNA has developed a list of 13 specific points senators should be asked to make to the Fed, including asking the agency to require the card networks to report to the Fed that they have developed a two-tiered system that will provide higher fee income for small issuers than the board allows for large issuers. (Use resource link to see remaining points.) Contacts with the Fed should, Cheney advised, be made prior to the agency’s scheduled June 20 meeting. “We anticipate that they might release an interchange cap proposal then with a 30 day comment period.” Cheney added that in their conversations with lawmakers, credit unions must reiterate the impact that will be felt by consumers if card issuers lose the ability to provide free debit card services. Cheney thanked the leagues and credit unions for all their efforts on the interchange issue. He added, “This isn’t over yet; we have more work to do and a chance to make some vital changes. Let’s make the most of the significant impact we have had on this process.”

CUNA seeks comment on NACHA proposal

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WASHINGTON (6/10/11)--The Credit Union National Association (CUNA) has requested comment on operating rule amendments that NACHA, the electronic payments association, has proposed to address various risk management issues. NACHA has proposed prohibiting the sharing of customer information, including full social security numbers. However, portions of customer social security numbers may be shared, according to NACHA. The scope of the condition under which a participating depository financial institution may claim an excused delay would also be modified, excluding delays related to payment interruption, payment suspension, or unavailability of funds from another institution or electronic payment operator from the scope of that provision. Return thresholds for originating depository institutions would also be reduced under the NACHA proposal. Return rates for unauthorized debits would drop from 1% to 0.75% for one year, and then to 0.50%. The threshold for returns resulting from invalid account information would be set at 1%. The due date for compliance audits would also be shifted from Dec. 1 to Dec. 31 under the proposal. The excused delay and audit date provisions would become effective on Sept. 16. The rest of NACHA’s proposed provisions would become effective on March 16, 2012. Comments must be submitted to CUNA by June 17. For the full comment call, use the resource link.